Power Tools and Accessories Vs Principal Commissioner of C.G.S.T. and C.X (CESTAT Kolkata)

The appeal challenged Order-in-Appeal No. 06/Kol-N/Kol/2020 dated 06.08.2020, which had upheld the Order-in-Original confirming central excise duty of ₹6,72,997/- (including Education Cess), along with interest and an equal penalty, against the appellant.

The appellant manufactured Aluminium Baxter Flyers falling under Tariff Heading 84483320 on a job-work basis for the principal manufacturer, Sugan Engineering Private Limited, which supplied aluminium ingots as raw material. The principal manufacturer carried out heat treatment and other processes and thereafter supplied the finished Baxter Flyers to jute mills for making jute textiles. The appellant claimed exemption under Notification No. 6/2006-CE dated 01.03.2006, later superseded by Notification No. 12/2012-CE dated 17.03.2012, and did not pay central excise duty.

Following an audit, a show cause notice dated 02.05.2016 covering the period April 2011 to December 2012 alleged that the appellant failed to establish compliance with Condition No. 2 of the exemption notification, which required proof to the satisfaction of the Deputy Commissioner or Assistant Commissioner that the goods were cleared for the intended use, namely, by a jute mill for making jute textiles. It was also alleged that the goods had been cleared without payment of duty with deliberate intention to evade duty.

The adjudicating authority confirmed the demand, interest and equal penalty on the grounds that the appellant had suppressed material facts regarding the job work, had not obtained the required satisfaction of the Assistant Commissioner or Deputy Commissioner for the exemption, had failed to produce documentary evidence establishing that all Baxter Flyers were sold to jute mills, and that the exemption was unavailable since the goods were supplied to the principal manufacturer rather than directly to jute mills. The Commissioner (Appeals) upheld these findings.

Before the Tribunal, the appellant submitted that Baxter Flyers had exclusive ultimate use in the jute industry, that the principal manufacturer merely undertook heat treatment before supplying them to jute mills, and produced sample invoices evidencing such supplies. The appellant contended that Condition No. 2 required proof that the goods were cleared for intended use in jute mills and did not require prior permission from the jurisdictional Assistant Commissioner or Deputy Commissioner. The appellant further argued that any non-intimation could only amount to a procedural lapse and relied upon Sambhaji v Gangabai [2009(240) E.L.T. 161(SC)].

The Revenue argued that the exemption could be granted only after satisfying the Assistant Commissioner or Deputy Commissioner that the goods had been cleared for use in jute mills. It submitted that the goods cleared by the appellant were not directly usable in jute mills until further processing by the principal manufacturer and that the appellant had not produced evidence of any intimation to the jurisdictional Central Excise officer regarding duty-free clearances.

The Tribunal examined the nature of a Baxter Flyer and observed that it is a component used in jute spinning frames and can only be used as part of a jute spinning machine in the jute manufacturing industry. It noted that the principal manufacturer carried out heat treatment and thereafter supplied the Baxter Flyers to jute mills, and that sample invoices supported this position.

The Tribunal reproduced Condition No. 2 of the notification and observed that it required proof that the goods were cleared for the intended use in jute mills. It found that the notification did not state that the goods had to be supplied directly to jute mills or used without any further processing. It held that the expression “intended for use” was wide enough to include the present situation where the goods underwent heat treatment by the principal manufacturer before being ultimately used in jute mills.

The Tribunal also found that the notifications did not prescribe any requirement of prior or subsequent intimation to the jurisdictional Central Excise officer regarding clearance without payment of duty. It held that the Department’s interpretation treating such permission as mandatory was not supported by the notification. Relying on Sambhaji v Gangabai, the Tribunal observed that non-intimation could at the highest constitute a procedural breach and could not justify denial of the exemption.

The Tribunal further observed that the invoices produced by the appellant showed that, after processing, the principal manufacturer supplied the goods to jute mills, and the Department had not produced evidence showing that either the appellant or the principal had supplied the goods to any person other than jute mills. It therefore held that the appellant had fulfilled Condition No. 2 of Notification No. 6/2006-CE, as superseded by Notification No. 12/2012-CE. Consequently, the demand of central excise duty was held to be unsustainable. Since the duty demand was set aside, the Tribunal also set aside the interest and penalty. The impugned order was set aside, the appeal was allowed, and consequential relief was granted in accordance with law.

FULL TEXT OF THE CESTAT KOLKATA ORDER

The present appeal has been filed assailing the Order-in-Appeal No. 06/Kol-N/Kol/2020 dated 06.08.2020 passed by the Commissioner of C.G.S.T. and C.X., Kolkata Appeals-I Commissionerate, G.S.T. Bhawan, 180, Shantipally, Rajdanga Main Road, Kolkata – 700 107, wherein the Ld. Commissioner (Appeals) has upheld the entire demand of CE duty (including E Cess) amounting to Rs. 6,72,997/- along with interest and equal penalty of Rs. 6,72,997/- confirmed in the Order-in-Original No. CGST&CX/KDH/AC-31/2017-18 dated 09.01.2018

2, The facts of the case are that M/s. Power Tools and Accessories (herein after referred as the Appellant) are engaged in manufacture of’ Aluminium Baxter Flyer (Tariff Heading 84483320) on job-work basis for the principal manufacturer ‘Sugan Engineering Private Limited’ who supplied the ‘Aluminium Ingots’ as raw materials for such job work. The principal manufacturer in turn supply/sell the same to jute mills for subsequent use for making jute textiles. The Appellant did not pay central excise duty on such Baxter Flyer manufactured by them, by claiming the duty exemption available under N.F. No. 6/2006-CE dated 01.03.2006 superseded by 12/2012-CE dated 17.03.2012.

2.1. On the basis of the audit conducted on the records of the Appellant, the Additional Commissioner Central Excise, Audit-I Commissionerate, issued a SCN No. 09 dated 02.05.2016 for the period April, 2011 to December 2012, demanding CE duty of Rs. 6,72,997/- along with interest and equal penalty. The said Notice was issued on the allegation that the Appellant could not provide any evidence to show that they had fulfilled the condition No.2 specified in the said exemption Notification. As per condition 2 specified in relation to Sl. No.13 of the Notification 6/2006-CE dated 01.03.2006 superseded by Notification 12/2012-CE dated 17.03.2012, the Appellant is required to prove to the satisfaction of the Dy. Commissioner or Asst. Commissioner of Central Excise that such goods are cleared for the intended use i.e. Goods required by a jute mill for making jute textile. Accordingly, the SCN charged that the Appellant had cleared the goods without payment of duty with deliberate intention to evade payment of duty.

2.2. On adjudication, the Assistant Commissioner CGST & CX, Khardah Division, Kolkata North Commissionerate vide his Order-in-Original No. CGST&CX/KDH/AC-31/2017-18 dated 09.01.2018 confirmed the entire demand of CE duty (including E Cess) amounting to Rs. 6,72,997/- along with interest and imposed equal amount of duty as penalty on the following grounds:-

(a) The assessee had the intention to suppress the material fact of such job work.

(b) Subject goods having Tariff head number 84483320 is exempted if the goods are required by the Jute Mills for making jute textiles and such exemption shall be allowed if it has been proved to the satisfaction of an officer of the rank of Deputy Commissioner of Central Excise or Assistant Commissioner Central Excise that such goods are cleared for the intended used specified in Column (3) of the said Notification. The permission of AC/DC of Central Excise is mandatory for availment of exemption.

(c) The Noticee could not confirm with documentary evidence that all quantity of Aluminium Baxter Flyer manufactured by them were sold to jute mills for making jute textiles. Accordingly, the final use required by the jute mills for making jute textiles of subject goods was not confirmed by the noticee and as such availment of the exemption notification No. 06/2006 dated 01.03.2006 is not available.

(d) The benefit of N.F. No, 06/2006-CE dated 01.03.2006 cannot be extended to noticee who manufactured the subject goods as job worker and supplied the subject goods to the Principal Manufacturers not the jute mills.

2.3. On appeal, the Ld. Commissioner (Appeal), Appeal-1 CGST&CX Commissionerate vide his Order-in-Appeal No. 06/Kol-N/Kol/2020 dated 06.08.2020, upheld the demands confirmed in the Order-in-Original. Being aggrieved with the confirmation of the demands of central excise duty along with interest and penalty, the Appellant has filed this appeal.

3. The Appellant submits that they have manufactured the goods namely Aluminium Baxter Flyer on job work basis for the principal manufacturer ‘Sugan Engineering Private Limited’ who supplied the ‘Aluminium Ingots’ as raw materials for such job work; the principal manufacturer in turn supplied/sold the goods to jute mills for subsequent use for making jute textiles. They submit that the Aluminium Baxter Flyer have the exclusive ultimate use in the jute industry only. The appellant stresses that in the instant case, the Principal ‘Sugan Engineering Private Limited’ has got such items manufactured through the job worker and undertaken the process of heat treatment on the same; that subsequently, the ‘Duly Dynamically Balanced, heat treated Baxter Flyers and after fitment of all essential inserts, were supplied to jute the mills. In support of this claim, the Appellant submitted Sample invoices of such supply made by the principal manufacturer to jute mills.

3.1. The Appellant also submits that such ‘Baxter Flyer’ manufactured by them can only be used in a jute mill for making jute textile. That in the present case, in the intermediate stage the principal has done some treatment and supplied the said goods for ultimate use in a jute mill. Thus, the Appellant submits that they have fulfilled the condition no.2 as specified in the Notification No. 6/2006-CE dated 01.03.2006 as superseded by N.F. No. 12/2012-CE dated 20.05.2012. Further, it is mentioned that as per Condition No. 2, the benefit of the exemption shall be allowed if it is proved to the satisfaction of AC/DC that the scheduled goods had been cleared for use in jute mills for making jute textiles; however, the department has interpreted that permission from the jurisdictional AC/DC is mandatory for allowing the exemption. In this regard, the Appellant submits that non intimation to the jurisdictional AC/DC can at the maximum be considered only as a procedural breach and the same cannot result in denial of the said exemption.

3.2. In support of their contention that benefit of the exemption cannot be denied on account of procedural infirmity, the Appellant relied on the judgment of the Hon’ble Supreme Court in the case of Sambhaji v Gangabai [2009(240) E.L.T. 161(SC)].

3.3. Accordingly, the Appellant contends that demand of central excise duty by denying the exemption, is legally not sustainable and prayed for setting aside the same.

4. The Ld. Authorized Representative representing the Revenue submits that the exemption under N.F. 6/2006-CE dated 01.03.2006 as superseded by N.F. No. 12/2012-CE dated 20.05.2012 can be allowed only if it has been proved to the satisfaction of AC/DC that the scheduled goods had been cleared for use in jute mills for making jute textile. He argues that in the present case, the goods cleared by the appellant would be of no use in the jute mills unless they are subjected to some processing by the Principal Manufacturer and hence the goods cleared by the appellant does not fit the condition of intended use in the jute mills. Further, it is also the Revenue’s contention that the appellant could not produce any documentary evidencing that they had given any intimation to their jurisdictional CE officer regarding such clearance without payment of duty. Accordingly, the Ld. Authorized Representative of the Revenue submits that the Appellant has not fulfilled the condition 2 of the N.F. 6/2006-CE dated 01.03.2006 as superseded by N.F. No. 12/2012-CE dated 20.05.2012. Thus, he supported the impugned order confirming the demands.

5. Heard both sides and perused the appeal records.

6. I find that the Appellant manufactured Aluminium Baxter Flyer on job-work basis for the principal manufacturer ‘Sugan Engineering Private Limited’ who supplied the ‘Aluminium Ingots’ as raw materials for such job work. The principal manufacturer in turn supplied/sold the said goods to jute mills for subsequent use for making jute textiles. The Appellant claimed the duty exemption available under N.F. No. 6/2006-CE dated 01.03.2006 and 12/2012-CE dated 17.03.201 and did not pay central excise duty on such Baxter Flyer manufactured by them. The allegation of the Department is that the said exemption can be allowed only if it has been proved to the satisfaction of AC/DC that the scheduled goods had been cleared for use in jute mills for making jute textile and that in the present case, the goods cleared by the Appellant would be of no use in the jute mills unless they are subjected to some processing by the Principal Manufacturer. Hence, it is the Revenue’s case that the goods cleared by the Appellant do not fit the condition of intended use in the jute mills.

6.1. Before going into the eligibility of the exemption, it is required to analyze what is a ‘Baxter Flyer’. I find that ‘Baxter Flyer’ has been defined as under:

Baxter flyer is a crucial component in the jute industry, primarily used in jute spinning frames. It facilitates the twisting of fibre assembly into yarn and is essential for the winding of yarn in a bobbin. Recent modifications to the Baxter flyer assembly have improved efficiency, reducing weight and increasing yarn content per doff per bobbin, which enhances spinning efficiency.

6.2. From the definition of ‘Baxter Flyer’ mentioned above, I find that it is a typical part of a jute spinning machine which can only be used as a part of a jute spinning frame in a jute manufacturing industry. It cannot be used elsewhere other than in a jute mill for making jute textile. In the instant case, I find that the Principal ‘Sugan Engineering Private Limited’ has got the goods manufactured through the job worker and undertaken the process of heat treatment on the same. Subsequently, the ‘Duly Dynamically Balanced, heat treated Baxter Flyers were supplied to jute mills. In support of this claim, the Appellant submitted Sample invoice of such supply made by the principal manufacturer to jute mills. For ready reference, some of the Invoices raised by the Principal are extracted below:

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6.3. From the Invoices extracted above, I find that the goods were ultimately supplied/sold to Jute mills for making jute textiles. In the present case, I find that the exemption claimed by the Appellant has been denied on the ground that the Appellant has not fulfilled the condition 2 of the N.F. 6/2006-CE dated 01.03.2006 as superseded by N.F. No. 12/2012-CE dated 20.05.2012. For ready reference, the said condition no.2 is extracted below:

2. The exemption shall be allowed if it has been proved to the satisfaction of an officer not below the rank of the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction, that such goods are cleared for the intended use specified in column (3) of the Table.

The intended use as specified in Column (3) of the Table is as below:-

6.4. From the above, I find that as per the condition no.2, the exemption under N.F. 6/2006-CE dated 01.03.2006 as superseded by N.F. No. 12/2012-CE dated 20.05.2012, can be allowed if it is proved to the satisfaction of AC/DC that the scheduled goods had been cleared for use in jute mills for making jute textiles. I find that the goods manufactured by the Appellant on job work and cleared to the principal can be only used in a Jute mill. In this case, the principal has undertaken some heat treatment process and supplied the said goods to Jute mills. Thus, I find that the goods cleared by the Appellant were ultimately used in a jute mill only. I find that in the condition no.2, nowhere it is mentioned that the goods should be used in a jute mill as it is or the goods manufactured should be supplied directly to a jute mill. The exemption is allowed if the goods cleared are intended for use in a jute mill. The words ‘intended for use’ is wide enough to cover the present situation where the goods manufactured by the appellant were ultimately used in a jute mill after undergoing some process of heat treatment etc at the hands of the principal.

6.5. Further, I find that the impugned order denied the exemption on the procedural ground that the appellant could not produce any document, evidencing that they had given any intimation to their jurisdictional Central Excise officer regarding such clearance without payment of duty. I find that the notifications 6/2006-CE dated 01.03.2006, superseded by N.F. No. 12/2012-CE dated 20.05.2012, does not prescribe any condition that the Appellant should give any prior or post intimation to their jurisdictional Central Excise officer regarding clearance of the goods without payment of duty. Condition no.2 says that the Appellant should prove to the satisfaction of AC/DC that the scheduled goods had been cleared for use in jute mills for making jute textile. I find that the Department has interpreted the condition that permission from the jurisdictional AC/DC is mandatory for allowing the exemption. In this regard, I observe that non intimation to the jurisdictional AC/DC can at the maximum be considered only as a procedural breach and the same cannot result in denial of the said exemption. In support of this view that benefit of the exemption cannot be denied on account of procedural infirmity, I rely on the judgment of the Hon’ble Supreme Court in the case of Sambhaji v Gangabai [2009(240) E.L.T. 161(SC)]. For ready reference, the relevant portion of the said decision is reproduced below:

“11… A procedural law should not ordinarily be construed as mandatory, the procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed.”

6.6. Further, I find that the invoices submitted by the Appellant clearly indicate that after processing, the Principal has cleared the goods to the Jute mills. I find that the department has not come up with any evidence to the effect that either the Appellant or the Principal has cleared the goods to any other persons other than jute mills. Thus, I do not find any merit in denial of the benefit of exemption claimed by the Appellant in terms of the notifications6/2006-CE dated 01.03.2006, superseded by N.F. No. 12/2012-CE dated 20.05.2012. Thus, I hold that the Appellant has fulfilled the condition no.2 of the Notifications 6/2006-CE dated 01.03.2006, superseded by N.F. No. 12/2012-CE dated 20.05.2012 and hence the demands of central excise duty on the charge that the Appellant had cleared the goods without payment of duty with deliberate intention to evade payment of duty since the benefit of the said exemption notification is not available to the appellant, is not sustainable. Accordingly, I set aside the demand of central excise duty confirmed in the impugned order. As the duty demanded is not sustainable the question of demanding interest or imposing penalty does not arise and hence, the same also stand set aside.

7. In the result, I set aside the impugned order and allow the appeal filed by the Appellant with consequential relief, if any, as per law.

(Order pronounced in the open court on 20.07.2026)