M/s. Cella Space Limited vs Commissioner Of Central Tax & Central Excise

Dr. D.M. Misra, Member (J)

This appeal is filed against Order-in-Original No.11/2009 dated 15.10.2009 passed by the Commissioner of Central Excise and Customs, Cochin Commissionerate.

Briefly stated the facts of the case are that the appellants are engaged in the manufacture and clearance of paper and paper boards falling under Chapter Subheading 4804 of the Central Excise Tariff Act, 1985. The appellant had availed exemption under Notification No.4/2006-CE dated 1.3.2006 as amended by Notification No.4/2008-CE dated 1.3.2008 with effect from 1.4.2008 in respect of clearances made for home consumption during the period from 1.4.2008 to 7.8.2008. On the basis of scrutiny of ER1 returns, show-cause notice dated 26.03.2009 was issued alleging that the appellant had since availed the benefit of exemption Notification No.4/2006-CE dated 1.3.2006 during the said period, and also cleared the same goods on payment of duty, hence, not eligible to the benefit of said exemption Notification accordingly, it is proposed to recover duty of Rs.47,76,725/- with interest and penalty; also proposed to appropriate Rs.7,12,642/- paid by them. On adjudication, the demand was confirmed with interest and penalty of Rs.5,00,000/- imposed under Rule 25 of Central Excise Rules, 2002. Hence, the present appeal.

The learned advocate for the appellant submits that during the period under dispute they have cleared paper and paper boards for home consumption as well as for exports. It is submitted that 3499.971 MTs were cleared for home consumption and 3464.222 MTs cleared for exports. The appellant was eligible for benefit of exemption on the clearances for home consumption up to the limit of 3500 MTs as prescribed under the said Notification No.4/2006-CE dated 1.3.2006 as amended. But, during the said period on account of compulsion from certain customers, the appellant had cleared 441.478 MTs of paper and paper boards on payment of appropriate duty. It is his contention that in any case, adding the quantity of goods cleared on payment of duty and the quantity cleared by availing exemption Notification had not exceeded the total permissible exemption limit of 3500 MTs. He submits that the learned Commissioner erred in observing that the exemption allowed under Notification No.4/2006-CE dated 1.3.2006 being an ‘absolute exemption’, therefore, as per Section 5A(1A) of the Central Excise Act, 1944, the appellant could not have paid simultaneously duty on the clearances, while availing exemption. Further, he submits that the present exemption Notification is not an absolute exemption from payment of duty, but conditional exemption in as much as the said exemption is granted only for the first clearances of 3500 MTs against the total quantity manufactured and cleared in a financial year. It is his contention that the maximum quantity allowed in a financial year, for the first clearance is 3500 MTs. In the appellant’s case, including the clearances on payment of duty, during the said period, they have not exceeded the maximum permissible limit of 3500 MTs. Further, he has submitted that as on the date of opting for the exemption with effect from 1.4.2008, the balance CENVAT credit available on books of accounts have been reversed by the appellant.

Also, he submits that Rule 11(2) of the CENVAT Credit Rules, 2004 prescribed reversal of CENVAT credit on inputs lying in stock as on the date of exercising option for value based or quantity-based exemption. The said Rule does not include credit on input services. In support, he has placed reliance on the following judgments:

• Commissioner of Central Excise, Mysore vs. Paper Packaging Pvt. Ltd.: 2005 (190) ELT 398 (Tri.-Bang.)

• Shreyans Industries Ltd. vs. Commissioner of Central Excise, Ludhiana: 2005 (187) ELT 57 (Tri.-Del.)

• Commissioner of Central Excise, Ludhiana vs. Shreyans Industries Ltd.: 2008 (223) ELT 46 (P&H)

• BILT Industrial Packing Ltd. vs. Commissioner of Central Excise, Salem: 2008 (229) ELT 665 (Tri.-Chennai)

The learned Authorised Representative for the Revenue reiterated the findings of the learned Commissioner. It is his contention that as per Section 5A(1A) of the Central Excise Act, 1944, goods which are wholly exempted unconditionally, the manufacturer shall not make payment of duty on such goods. The manufacturer is not allowed to make selective payment of duty on some of the clearances as he chooses during the exempted period, unless it is provided in the Notification. Further, it is submitted that once opted for exemption for the first clearances of 3500 MTs of finished goods at ‘Nil’ rate of duty, they are not supposed to discharge duty till the said stipulated quantity of goods are cleared. He submits that the Notification has to be interpreted and followed scrupulously without any additions/inclusions, etc.

Heard both sides and perused the records. The short issue involved in this appeal is for determination is: whether the appellants are entitled to the benefit of the exemption Notification No.4/2006-CE dated 1.3.2006 for the clearances of 3499.971 MTs during the period from 01.04.2008 to 07.08.2008.

It is not in dispute that for the period from 01.04.2008 to 07.08.2008 there has been a total clearance of 3499.971 MTs of manufactured paper and paper board cleared for home consumption. The Revenue denied the benefit of the said Notification on the ground that even though the appellant’s total first clearances remained within the exemption limit of 3500 MTs but they had paid duty on the clearance of 441.478 MTs, which is contrary to the provisions contained in Section 5A(1A) of the Central Excise Act, 1944.

Before adverting to the rival contention, it is pertinent to reproduce relevant portion of the said Notification No.4/2006-CE dated 1.3.2006 as amended with effect from 01.04.2008, which is reproduced hereinbelow:

Notification No. 4/2006-C.E. dated 1.3.2006

Exemption and effective rate of duty for specified goods of Chapters 25 to 49 Amendment to Notification No. 4/2006-C.E.

In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table below read with the relevant List appended hereto, as the case may be, and falling within the Chapter, heading or sub-heading or tariff item of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), as are given in the corresponding entry in column (2) of the said Table, from so much of the duty of excise specified thereon under the First Schedule to the Central Excise Tariff Act, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table and subject to the relevant conditions specified in the Annexure to this notification, and the Condition number of which is referred to in the corresponding entry in column (5) of the Table aforesaid.

Explanation.- For the purposes of this notification, the rates specified in column (4) of the said Table are ad valorem rates, unless otherwise specified.

“Exemption to specified goods of Chapters 25 to 49 — Amendment to Notification No. 4/2006-C.E.

In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 4/2006-Central Excise, dated the 1st March, 2006 which was published in the Gazette of India, Extraordinary vide number G.S.R. 94(E) of the same date, namely :-In the said notification, -

(I) in the Table, -

………….

(xvi) against S. No 90, for the entry in column (4), the entry “Nil” shall be substituted;

………….”

A plain reading of the said Notification reveals that paper and paper board articles thereof were eligible for clearance at ‘Nil’ rate of duty, with effect from 1.4.2008, subject to fulfilment of Condition No.10 prescribed under the said Notification. The said Condition No.10 reads as below:

(1) This exemption shall apply only to the paper and paperboard or articles made therefrom cleared for home consumption from a factory, in any financial year, up to first clearances of an aggregate quantity not exceeding 3500 Metric Tonnes.

(2) The exemption shall not be applicable to a manufacturer of the said goods who avails of the exemption under the notification of the Government of India in the Ministry of Finance and Company Affairs (Department of Revenue) No. 8/2003-Central Excise, dated the 1st March, 2003.

Explanation.- For removal of doubts, it is hereby clarified that the first clearances of an aggregate quantity not exceeding 3500 metric tonnes shall not include clearances of any paper and paperboard or articles made therefrom which attract nil rate of duty or are exempt from the whole of excise duty under any other notification.

For the present purpose, clause (i) of the Condition No.10 is relevant. It is stipulated under the said clause (i) of Condition No.10 that the exemption shall apply only for clearances made for home consumption from a factory in any financial year up to first clearances of aggregate quantity not exceeding 3500 MTs.

I do not find any other stipulation under the said subclause. The learned Commissioner reading the said Notification along with Section 5A(1A) came to the conclusion that since, it is an absolute exemption, therefore, payment of duty before completion of the stipulated quantity of 3500 MTs, is incorrect and thereby the condition of the Notification is violated, hence, the appellant would not be eligible to the benefit of the Notification. I am afraid that the said interpretation of the learned Commissioner would stand the scrutiny of law. Firstly, neither Section 5A(1A) is applicable to the present scenario, since Notification No.4/2006-CE dated 1.3.2006 is a conditional, quantity-based exemption; and admissibility to ‘Nil’ rate of duty is only to the first clearances of 3500 MTs; there is no other condition stipulated in the said Notification. On a plane reading of the condition as it is, I am of the opinion that the appellants are entitled to avail ‘Nil’ rate of duty for the first clearances of 3500 MTs in a financial year, irrespective of whether they discharged duty for 500 MTs in between the said clearance. For computation of the aggregate value of first clearances, the said quantity cleared on payment of duty for home consumption, at best, be included in the total value of first clearances i.e., upto 3500 MTs. It is the only plausible interpretation that could be accorded to the said Notification. Since, the benefit of Notification has been denied by demanding duty and no demand has been raised for availing credit irregularly, I do not see any reason to analyse applicability of Rule 11(2) of the CENVAT Credit Rules, 2004 to the facts of the present case which would be an academic exercise.

In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law.