Case Law Details
Union of India Vs S Dharampal Satyapal Ltd. (Tripura High Court)
Whether the Customs, Excise and Service Tax Appellate Tribunal was right in law in interpreting provisions of Rule 6(1) and 6(4) of the Cenvat Credit Rules, 2004 and thereby giving benefit of exemption notifications in favour of the respondent-assessee, ignoring the contention of the appellants that the final product being exempt from payment of basic duties, the assessee was not entitled to claim the benefit of the notification dated 09.07.2004 as amended from time to time?
The term “exempted goods”as defined in Rule 2(e) of the said Rules therefore shall have to be interpreted in the context of the materials on record and the observations of the Supreme Court in case of Pine Chemicals (supra). As per Rule 2(d), “exempted goods”would mean excisable goods which are exempt from the whole of the duty of excise leviable thereon or the goods which are chargeable to “Nil”rate of duty. In the present case, we have held that the exemption Notification dated 21.01.2004 as amended subsequently cannot be seen as a Notification granting unconditional exemption from payment of duties. Such exemption was conditional on various requirements which limited the scope of the assessee to utilize the duty element so exempted, for any purpose at all. Such exemption, thus, did not directly increase the profitability of the product since the assessee could not retain the sum equivalent to the duty payable and utilized it at will.
FULL TEXT OF THE JUDGMENT/ORDER OF TRIPURA HIGH COURT
These Appeals are filed by the Central Goods and Service Tax Department to challenge a judgment dated 17.07.2018 passed by the Customs, Excise & Service Tax Appellate Tribunal, Kolkata (hereafter to be referred to as „the Tribunal‟) At the time of admission of the Appeal on 24.02.2020, the Court had framed following substantial question of law:
“Whether the Customs, Excise and Service Tax Appellate Tribunal was right in law in interpreting provisions of Rule 6(1) and 6(4) of the Cenvat Credit Rules, 2004 and thereby giving benefit of exemption notifications in favour of the respondent-assessee, ignoring the contention of the appellants that the final product being exempt from payment of basic duties, the assessee was not entitled to claim the benefit of the notification dated 09.07.2004 as amended from time to time?”
2. The relevant facts are that the respondent M/S. Dharampal Satyapal Ltd. is a Company registered under the Companies Act and is engaged in the manufacture of zarda, which is a scented tobacco and for which purpose the Company holds a Central Excise registration and ne cessary licenses. The product manufactured by the assessee falls under Chapter 24 of Central Excise Tariff Act, 2005 under Tariff Sub Heading 2403-99-30. The Government of India had issued an exemption Notification dated 21.01.2004 granting exemption from the whole of the duties of excise leviable under Central Excise Tariff Act and other d uties under other fiscal statutes on all goods falling under various sub-headings including the sub-heading under which the assessee‟s product fell. This was subject to certain conditions and was made available in respect of units located in the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland or Tripura. The assessee had its manufacturing unit located in Tripura and therefore, availed the benefit of this exemption Notification from payment of the excise, additional excise and other duties. This exemption was subject to the condition that an amount equal to the sum of basic duty, special excise duty, additional excise duty and other duties which were exempt under the said Notification would be utilized by the manufacturer only for specified investments.
3. The assessee claimed CENVAT credit on the inputs utilized for manufacture of the final product. The adjudicating authority, however, was of the opinion that since the final product was exempt from payment of due date, the assessee could not have availed a CENVAT credit paid on the inputs utilized in such final product. The adjudicating authority therefore issued a show cause notice on the premise that the assessee‟s unit was exempt from payment of the duties of excise and other duties and on the basic principle of claiming CENVAT credit since the final product was not dutiable, CENVAT credit would not be available on the raw material and inputs utilized for manufacture of this final product. He called upon the assessee why the CENVAT credit to the tune of Rs.3.48 Crores (rounded off) availed by the assessee on inputs and capital goods for the period between 01.03.2005 to 30.09.2005 should not be reversed or recovered. He also raised demands for recoveries of additional duty of excise and other duties on the CENVAT credit availed by the assessee. He also proposed to impose penalty. Further notice was issued for recovery/reversal of CENVAT credit to the tune of Rs.4.25 Crores (rounded off) with penalty for the period between 01.10.2005 to 31.03.2006 and later periods.
4. The assessee filed reply to the show cause notices contending that the Notification dated 21.01.2004 as amended by subsequent Notification dated 09.07.2004 granted exemption on the finished products only in respect of excise duty payable under the First and the Second Schedules of the Central Excise Tariff Act, 1985, but no exemption from payment of additional duty has been granted. The goods therefore cleared by the assessee cannot be said to be exempt from payment of duties. The term “exempted goods”as defined in Rule 2(d) of the CENVAT Credit Rules
would not cover the product of the assessee.
5. The Commissioner of the Central Excise, Shillong passed an order`on 28.09.2007 and confirmed the demands as per the show cause notices and imposed a matching penalty of Rs.7.80 Crores (rounded off). He referred to the definition of term “exempted goods”contained in Rule 2(e) of the CENVAT Credit Rules and came to the conclusion that the product of the assessee would fall within the said definition. He thereupon proceeded to apply Rule 6(1) of the said Rules in order to come to the conclusion that the assessee had wrongly availed the CENVAT credit which must be reversed or recovered with penalty.
6. The assessee carried the matter in Appeal filing separate Appeals for different assessment periods. These Appeals were consolidated and allowed by the Tribunal by the common impugned judgment dated 17.07.2018. The department has thereupon filed these Appeals.
7. Appearing for the department, learned counsel Mr. Paramartha Datta submitted that the final product cleared by the assessee was exempt from payment of duty. In terms of Rule 6(1) of CENVAT Credit Rules, the assessee therefore could not have availed of CENVAT credit on raw material and capital goods utilized for manufacture of the said product. Since the assessee had wrongly availed the CENVAT credit, the Commissioner correctly passed the order recovering such amount with penalty.
8. On the other hand, learned senior counsel, Mr. A.K. Saraf for the assessee drew our attention to the applicable statutory provisions and various decisions to contend that the final product was not exempt from all kinds of duties. The term “exempt goods”defined under Rule 2(e) of CENVAT Credit Rules would cover only those products which are exempt from payment of all kinds of duties. In any case, the Notification dated 21.01.2004 was one of conditional exemption. The duties of excise waived by the Central Government could be utilized only for the purpose of expansion of the industry in the same region. Till this was done, the money had to be deposited in escrow account. If within specified time, the amount was not utilized for such purpose, the exemption would lapse.
9. As is well-known, Rule 3 of the CENVAT Credit Rules enables a manufacturer or producer of final products to take credit of CENVAT on payment of various duties on the inputs and capital goods utilized for the purpose of manufacturing the final product. Rule 6 of the said Rules pertains to obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. Sub-Rule (1) and (4) of Rule 6 reads as under:
“6.(1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2).
(4) No CENVAT credit shall be allowed on Capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.”
10. In terms of this sub-Rule (1) of Rule 6, CENVAT credit would not be allowed on the input or input service, which is used in manufacture of exempted goods or for providing exempted services except in the circumstances mentioned in sub-Rule (2). Likewise in terms of sub-Rule (4) of Rule 6, no CENVAT credit on the capital goods utilized exclusively in the manufacture of exempted goods would be available. It is in this context, the question whether the final product manufactured and cleared by the assessee can be stated to be an exempt goods becomes
relevant.
11. Term exempted goods is defined in Rule 2 (d) of the said Rules as under:
2.(d) “exempted goods”means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to “Nil”rate of duty.”
12. As per this definition thus “exempted goods”means excisable goods which are exempt from whole of the duty of excise and includes goods which are chargeable to “Nil”rate of duty. In the context of these statutory provisions, the Tribunal was of the opinion that the exemption from payment of excise duty and other duties under the Notification dated 21.01.2004 as amended by later Notification, was not an unconditional exemption. It was also observed that though the basic duty of excise was exempt on the final product, other duties such as National Calamity Contingent duty and Education Cess were applicable. In the opinion of the Tribunal term exempted goods for the purpose of Rule 6(1) would cover only those goods which are exempt from all kinds of excise duties.
13. Before we refer to certain decisions, we may peruse the exemption Notification dated 21.01.2004 more minutely. In the said exemption Notification, as noted, for units located in North-Eastern States including the State of Tripura, on the specified products subject to certain conditions, payment of basic duty of excise, the additional duty and National Calamity Contingent duties would be exempt. However, this exemption was conditional as can be seen from the following portion of the exemption Notification:
“(A). the exemption under this notification shall be available only in respect of a unit which,-
(i) is located in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya , Mizoram , Nagaland or Tripura;
(ii) had commenced commercial production on or after the 24th day of December, 1997, but not later than the 28th day of February, 2001;
(iii) had availed of the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 32/99-Central Excise, dated the 8th July, 1999 [G.S.R. 508 (E) dated the 8th July, 1999] or No. 33/99-Central Excise, dated the 8thJuly, 1999 [G.S.R. 509 (E) dated the 8th July, 1999]; and
(iv) has continued its manufacturing activities after the 28th day of February, 2001;
(B). an amount equal to the sum of basic excise duty, special excise duty, additional excise duty and National Calamity Contingent duty, payable, but for the exemption in this notification, shall be utilised by the manufacturer only for investment in,-
(i) plant and machinery in a manufacturing unit which is located in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya , Mizoram , Nagaland or Tripura; or
(ii) infrastructure or civil works or social projects in the State of Arunachal Pradesh, Assam, Manipur, Meghalaya , Mizoram , Nagaland or Tripura;
(C). the investment in terms of condition (B) shall be made before the expiry of six months from the end of each quarter;
(D). the manufacturer shall provide all details relating to theinvestment made in terms of condition (B), within one month after the expiry of the period of six months referred to in condition (C), to a Committee consisting of, the Chief Commissioner of Central Excise, Shillong , the Principal Secretary of the Department of Industry of the State concerned, in which the unit is located and the Principal Secretary of the Department of Industry of the State in which the investment is made, and shall have to prove to the satisfaction of the said Committee that the investment has been made for the purpose specified in condition (B);
(E). if the Committee referred to in condition (D) is satisfied that the investment as specified in condition (B), has been made, it shall issue a certificate to this effect to the manufacturer within a period of three weeks after the expiry of the one month referred to in condition (D), which shall be produced by the manufacturer, within a period of two weeks from the date of issue of such certificate, to the jurisdictional Central Excise Officer;
(F). the investment made under this notification shall not be allowed to be withdrawn before the expiry of ten years from the date on which the investment is made except in a case where the investment withdrawn is reinvested in the same manner as specified in this notification, in any one of the States mentioned in condition (A):
Provided that if the investment made under this notification is withdrawn before the expiry of ten years and is not reinvested as mentioned above, the duty which is equal to the amount so withdrawn and not so reinvested, shall be paid by the manufacturer on the date on which the investment is withdrawn.”
This Notification was amended under a subsequent Notification dated 09.07.2004; however, basic terms for claiming exemption remain the same. We would therefore not duplicate the contents of such Notification. An analysis of the above quoted portion of the exemption Notification would show that over and above the basic requirements for the qualification of the product for exemption, the entire scheme of exemption was peculiar. Firstly, the amount equivalent to the sum of the basic excise duty and other duties waived under the said Notification, would be utilized by the manufacturer only for investment in the plant and machinery in a manufacturing unit which is located in those North-Eastern States or for infrastructure or civil works or social projects in such States. Such investment should also be made before expiry of six months from the end of each quarter. The manufacturer would provide all details relating to such investments. Only when the committees specially constituted for such purpose was satisfied that the investment as required have been made, it would issue a certificate to the manufacturer which the manufacturer would produce before the jurisdictional Central Excise Officer. The investment made under the said Notification would not be allowed to be withdrawn before expiry of ten years from the date on which the investment is made. If such condition is breached, the duty which is forgone will be recovered from the manufacturer.
14. In plain terms, this Notification cannot be seen as an un-conditional exemption Notification in the nature of the Government of India forgoing certain duties. The Notification appears to have a dual purpose in the mind of the authority. First was to encourage investment in manufacturing units of specified products in the North-Eastern States. The second purpose also is equally important namely, that the element of duty waived by the Government of India is also ploughed back into the region by augmenting the manufacturing capability of a unit in the said region or for other purposes such as development of infrastructure or civil works or social projects in the region. The amount of duties saved by the manufacturer thus under this Notification, was to be utilized in a specified manner. The additional condition was that any such investment so made as required under the Notification, would not be withdrawn before completion of a period of 10 years and the breach of the condition would result into the recovery of duties forgone.
15. With this analysis in mind, we may refer the decision cited by the counsel for the assessee. In case of Commissioner of Sales Tax, J & K and others vs. Pine Chemicals Ltd. and others, reported in (1995) 1 SCC 58, brief facts were that the Government of Jammu & Kashmir had granted exemption to goods manufactured by large or medium industrial units within 5 years of its commencement of production and sold within the said period. In such context, it was observed that such exemption was a conditional exemption and not a general exemption.
16. The term “exempted goods”as defined in Rule 2(e) of the said Rules therefore shall have to be interpreted in the context of the materials on record and the observations of the Supreme Court in case of Pine Chemicals (supra). As per Rule 2(d), “exempted goods”would mean excisable goods which are exempt from the whole of the duty of excise leviable thereon or the goods which are chargeable to “Nil”rate of duty. In the present case, we have held that the exemption Notification dated 21.01.2004 as amended subsequently cannot be seen as a Notification granting unconditional exemption from payment of duties. Such exemption was conditional on various requirements which limited the scope of the assessee to utilize the duty element so exempted, for any purpose at all. Such exemption, thus, did not directly increase the profitability of the product since the assessee could not retain the sum equivalent to the duty payable and utilized it at will.
17. In the result, we answer the question against the revenue and in favour of the assessee and dismissed both the Appeals. Pending application(s), if any, stands disposed of.
