2008 (8) TMI 953 - AT - Central Excise

Tribunal decision: Duty upheld, penalty overturned for M/s. ST-CMS

The Tribunal upheld the demand for duty with interest but overturned the penalty imposed on M/s. ST-CMS. The appellants were found eligible for the ... - Issues Involved:1. Jurisdiction of the show-cause notice under Section 11A of the Central Excise Act.2. Eligibility of M/s. ST-CMS for the benefit of Notification No. 6/2002-CE.3. Interpretation of the term 'controlled' in the context of the Notification.4. Applicability of Section 3 and Section 28 of the Indian Electricity Act, 1910.5. Retrospective application of the amendment to Notification No. 6/2002-CE.6. Liability for payment of duty on LSHS.7. Admissibility of the benefit of the Notification to secondary fuels like LSHS.8. Imposition of penalty on M/s. ST-CMS.Detailed Analysis:1. Jurisdiction of the Show-Cause Notice:The appellants argued that the show-cause notice issued under Section 11A of the Central Excise Act was without jurisdiction as the procedure under Section 35E was not followed. They relied on the Madras High Court's decision in Madurai Power Corporation Pvt. Ltd. v. Deputy Commissioner of Central Excise, which held that Section 11A could not override Section 35E. However, the Tribunal, referencing the Supreme Court's ruling in Union of India v. Jain Shudh Vanaspati Ltd., held that the issuance of the show-cause notice under Section 11A was valid and not without jurisdiction.2. Eligibility for the Benefit of Notification No. 6/2002-CE:The appellants claimed eligibility for the benefit under the Notification, arguing they were controlled by TNEB. However, the Tribunal found no evidence of such control by TNEB, as the Power Purchase Agreement indicated a principal-to-principal basis relationship. The Tribunal concluded that M/s. ST-CMS, being a private company with 100% foreign equity, did not qualify as an electricity undertaking owned or controlled by the Central or State Government, State Electricity Board, or any local authority.3. Interpretation of 'Controlled':The Tribunal emphasized that the control must be pervasive, extensive, and effective, akin to that exercised by an owner. The evidence presented, including the Power Purchase Agreement and a letter from TNEB, did not demonstrate such control by TNEB over M/s. ST-CMS.4. Applicability of Section 3 and Section 28 of the Indian Electricity Act, 1910:The appellants argued that they should be deemed within the scope of persons licensed under Part II of the Indian Electricity Act, 1910, or those with sanction under Section 28. The Tribunal held that the appellants neither had a license under Section 3 nor sanction under Section 28, and thus could not claim the benefit of the exemption. The Tribunal noted that the exemption Notification required strict interpretation, and the appellants failed to meet the mandatory conditions.5. Retrospective Application of the Amendment:The appellants contended that the amendment to the Notification, which included 'generating company,' should be given retrospective effect. The Tribunal rejected this argument, holding that the amendment was prospective from 1.3.2003 and could not be applied retrospectively.6. Liability for Payment of Duty on LSHS:The appellants argued that duty should be levied on the supplier, not the buyer. However, the Tribunal found that M/s. ST-CMS had executed bonds undertaking to pay duty in case of non-compliance with the Notification's conditions. The Tribunal held that under Rule 6 of the 2001 Rules, the duty was recoverable from the appellants as they were the persons chargeable with the duty.7. Admissibility of the Benefit to Secondary Fuels:The Tribunal referred to its decision in Neyveli Lignite Corporation Ltd. v. Commissioner of Central Excise, Pondicherry, which held that LSHS used as secondary fuel was eligible for exemption. Thus, the benefit of the Notification was admissible to secondary fuels like LSHS.8. Imposition of Penalty:The Tribunal concluded that the appellants could not be penalized as they used Annexure - I Certificates for duty-free procurement of LSHS and utilized the goods for the intended purpose without intent to evade duty. The penalty was set aside, considering the dispute involved rival interpretations of various legal provisions.Conclusion:The Tribunal sustained the order demanding duty with interest but set aside the penalty imposed on M/s. ST-CMS. The appeal was allowed to the extent of setting aside the penalty.