2006 (1) TMI 399 - AT - Central Excise

CESTAT Mumbai: Pre-deposit waived for duty under Central Excise Act Section 11D. Goods cleared sans sale exempt.

The Appellate Tribunal CESTAT, Mumbai, waived the pre-deposit requirement of duty under Section 11D of the Central Excise Act for the applicants. The ... Pre-deposit requirement for stay - stay of recovery of duty - duty under Section 11D of the Central Excise Act in respect of amounts recovered as service charges - Mafatlal principle that provisions of Section 11D are not applicable where there is no sale of goods - goods cleared on job work basis as removals not involving salePre-deposit requirement for stay - duty under Section 11D of the Central Excise Act in respect of amounts recovered as service charges - Mafatlal principle that provisions of Section 11D are not applicable where there is no sale of goods - goods cleared on job work basis as removals not involving sale - stay of recovery of duty - Whether the requirement of pre-deposit of duty for grant of stay should be waived where, prima facie, the demand under Section 11D arises from amounts recovered as service charges but there was no sale of goods. - HELD THAT: - The Tribunal examined the record and accepted that the goods were cleared on a job-work basis to merchant-manufacturers and that there was no sale of the goods. The Commissioner himself had observed that such clearances fell within clause (iv) of the second proviso to Rule 173C(1) as removals not involving sale. Applying the legal principle from the Apex Court in Mafatlal Industries Ltd. - namely that Section 11D does not apply where there is no sale of goods - the Tribunal held that the demand under Section 11D, being founded on recovery of amounts as duty in the guise of service charges, could not be sustained prima facie. In view of that prima facie conclusion, the Tribunal found that the pre-deposit requirement directed earlier ought to be waived and that recovery should be stayed pending the appeal.Requirement of pre-deposit waived and recovery of the disputed duty stayed pending the appeal.Final Conclusion: The modification application is allowed: the Tribunal, applying the Mafatlal principle to job-work removals not involving sale, waived the earlier pre-deposit requirement and stayed recovery of the duty claimed under Section 11D pending disposal of the appeal. Issues involved:1. Whether pre-deposit of duty under Section 11D of the Central Excise Act is required when certain amounts are recovered as service charges from merchant-manufacturers.2. Applicability of the Apex Court decision in Mafatlal Industries Ltd. v. UOI - 1997 (89) E.L.T. 247 (S.C.) regarding Section 11D.3. Interpretation of the provisions related to duty recovery under the Compounded Levy Scheme.4. Determining if the goods manufactured and cleared by the applicants to merchant-manufacturers involve a sale.Analysis:1. The applicants sought modification of a stay order requiring a pre-deposit of Rs. 20 lakhs under Section 11D of the Central Excise Act, arguing that no pre-deposit is necessary as they did not sell the goods but recovered amounts as service charges. They relied on the Apex Court's decision in Mafatlal Industries Ltd. v. UOI, contending that Section 11D does not apply when there is no sale of goods. The Tribunal agreed with this argument, noting that the goods were cleared to merchant-manufacturers without involving a sale, thus waiving the pre-deposit requirement and stay recovery pending appeal.2. The Revenue opposed the modification, citing the applicants' recovery of excise duty through debit notes post the introduction of the Compounded Levy Scheme. The Revenue argued that the Tribunal had considered all pleas when directing the pre-deposit and no grounds for modification existed. However, the Tribunal emphasized that the applicants did not engage in the sale of goods, as confirmed by the Commissioner's order, and that the legal principle from the Mafatlal decision would apply, exempting them from depositing any amount under Section 11D. Consequently, the Tribunal allowed the application and dispensed with the pre-deposit requirement.3. The Tribunal's analysis focused on the nature of the goods manufactured and cleared by the applicants on a job work basis to merchant-manufacturers. It clarified that the goods fell under a provision that did not involve a sale, as per the Commissioner's order. This finding was crucial in applying the legal principle established by the Apex Court in the Mafatlal decision, which determined that duty under Section 11D is not applicable in cases where there is no sale of goods. By aligning the facts with this legal precedent, the Tribunal justified waiving the pre-deposit requirement and granting a stay on recovery pending appeal.In conclusion, the judgment by the Appellate Tribunal CESTAT, Mumbai, in this case addressed the issues surrounding the pre-deposit of duty under Section 11D of the Central Excise Act, the applicability of legal precedents like the Mafatlal decision, the implications of the Compounded Levy Scheme on duty recovery, and the crucial determination that the goods involved did not entail a sale, leading to the waiver of the pre-deposit requirement for the applicants.