Assessee would not get benefit of exemption if duty had not been paid on inputs

1. This order will dispose of CEA Nos.228, 231, 233, 234, 236, 238, 242, 243, 246, 248, 249, 252, 259 to 261, 263 264, 267, 269, 271, 276, 278, 281, 283 and 290 of 2010 as all the appeals involve a common question.

2. CEA Nos.228 of 2010 has been preferred by the revenue under Section 35G of the Central Excise Act, 1944 (for short, “the Act”) against the order of the Customs, Excise & Service Tax Appellate Tribunal, New Delhi dated 12.11.2009, Annexure A-2, proposing to raise following substantial question of law:-

“Whether Tribunal is justified in setting aside the penalties on the ground of interpretation when the issue already stands elucidated by the Constitution Bench of the Hon’ble Supreme Court of India?”

3. The assessee is registered with the Central Excise Department for manufacture of knitted fabrics. It availed concessional rate of duty during the period from 1.9.2002 to 31.3.2003 as per notification dated 1.3.2002, under which exemption is available on goods manufactured from inputs on which duty has already been paid. Since the inputs used by the assessee had not suffered duty, exemption was not available, as held by the Hon’ble Supreme Court in CCE. Vadodara v. Dhiren Chemical Industries 2002 (139) ELT 3. Accordingly, Show Cause Notice was issued to the assessee for recovery of duty with interest and penalty. Vide Order-in-Original dated 5.1.2004, the Adjudicating Authority confirmed the demand of duty with interest and penalty which was upheld by the Order-in-Appeal dated 31.8.2004. On further appeal of the assessee, the penalty was set aside while demand of duty with interest was upheld. The Tribunal observed:-

49. As regards the point in relation to penalty imposed by the lower authorities in most of the cases, needless to say that matter involved the issue relating to the interpretation of the notification and, therefore, the appellants are justified in contending that there was no case for imposition of penalty. Therefore, in such circumstances, we do not find any justification for upholding the decision regarding imposition of the penalty and the same need to be quashed.”