Retrospective excise exemption and tariff classification: demand on recycled polyester fibre fell away for the covered period

A retrospective amendment to the excise exemption notification made the duty rate nil for polyester staple fibre and polyester filament yarn manufactured from plastic scrap or waste, including waste PET bottles, for 29 June 2010 to 16 March 2012; the duty demand for that period therefore ceased to survive. For the earlier period up to 28 June 2010, the goods were treated as outside Chapter 54 until the relevant chapter note was inserted, and fibres made from plastic scrap and waste without the applicable manufacturing processes were not covered by the tariff. The commentary emphasises that retrospective exemption extinguishes the covered demand and that tariff classification must be applied as in force during the relevant period.

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Issues: (i) Whether the duty demand on polyester staple fibre manufactured from plastic scrap and waste, including waste PET bottles, survived for the period 29 June 2010 to 16 March 2012 in view of the retrospective amendment granting nil rate of duty; (ii) Whether the goods were liable to central excise duty for the period up to 28 June 2010, when they were not covered by Chapter 54 of the tariff.

Issue (i): Whether the duty demand on polyester staple fibre manufactured from plastic scrap and waste, including waste PET bottles, survived for the period 29 June 2010 to 16 March 2012 in view of the retrospective amendment granting nil rate of duty.

Analysis: Section 110 of the Finance Act, 2014 retrospectively amended the exemption notification issued under Section 5A of the Central Excise Act and inserted the relevant entry for polyester staple fibre and polyester filament yarn manufactured from plastic scrap or plastic waste including waste PET bottles, with effect from 29 June 2010 to 16 March 2012. The goods were also exempted prospectively from 17 March 2012. Once the retrospective amendment made the rate nil for the relevant period, the demand for that period ceased to survive.

Conclusion: The demand for the period 29 June 2010 to 16 March 2012 was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the goods were liable to central excise duty for the period up to 28 June 2010, when they were not covered by Chapter 54 of the tariff.

Analysis: For the earlier period, the goods were held to fall outside the tariff entry governing man-made fibres and filaments until Chapter Note 1A was inserted in Chapter 54 with effect from 29 June 2010. The Tribunal followed its earlier view that fibres produced from plastic scrap and waste without the relevant manufacturing processes did not fall within Chapter 54 or Chapter 55. The attempt to disregard that precedent was found inconsistent with judicial discipline, as a tribunal decision retains precedential value unless validly distinguished on rational and substantive grounds.

Conclusion: The goods were held not liable to central excise duty for the period up to 28 June 2010, in favour of the assessee.

Final Conclusion: The appeals succeeded, the duty demand was held unsustainable for the entire disputed period, and the impugned orders were set aside.

Ratio Decidendi: A retrospective exemption that makes the applicable duty nil extinguishes the demand for the covered period, and goods not falling within the relevant tariff classification cannot be subjected to central excise duty for the period before the tariff entry is brought into force.

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