2016 (7) TMI 1410 - AT - Central Excise

Court Upholds Assessees' Exemption Entitlement Under Notification, Rejects Revenue's Contentions

The judgment upheld the Assessees' entitlement to the exemption under Notification No. 14/2002-C.E., rejecting the Revenue's contentions. The Court ... Benefit of N/N. 14/2002-C.E., dated 1st March, 2002 - The condition that ‘appropriate duties’ were to be discharged was interpreted to deny exemption to such final products in which the intermediate/inputs were not considered as having paid duty - interpretation of statute - Held that: - reliance placed in the case of M/s. SPORTS & LEISURE APPAREL LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NOIDA [2016 (8) TMI 128 - SUPREME COURT], where it was held that Explanation II to the said exemption N/N. 14/2002 and 15/2002 create legal fiction and that was the precise purpose for which this explanation was added. It is trite law that a fiction created by a provision of law is to be given its due play and it must be taken to its logical conclusion. The contention of Revenue that assessees are not entitled to the exemption in Notification No. 14/2002-C.E. does not find sustenance - appeal allowed - decided in favor of appellant. Issues:1. Eligibility for concessional and 'nil' rate of duty under Notification No. 14/2002-C.E.2. Interpretation of conditions for exemption under the notification.3. Discrepancies in demands and appeals filed by both Assessee and Revenue.4. Legal implications of Circulars issued by the Central Board of Excise and Customs.5. Reference to Supreme Court and Tribunal decisions on the issue of exemption.Issue 1: Eligibility for concessional and 'nil' rate of duty under Notification No. 14/2002-C.E.The appeals in this case revolve around the eligibility of Assessees for concessional and 'nil' rate of duty under Notification No. 14/2002-C.E. The Assessees were availing the benefit of the said notification, which exempted payment of duty on specific final products subject to the discharge of appropriate duty on intermediates/inputs. The issue arose when the condition of 'appropriate duties' to be discharged was interpreted to deny exemption to final products where the intermediates/inputs did not have duty paid on them.Issue 2: Interpretation of conditions for exemption under the notificationThe Central Board of Excise and Customs clarified through Circulars that when an exemption is subject to the condition that appropriate duty has been paid on inputs, the benefit is not extended if the inputs are exempted from excise duty or subject to a 'nil' rate of excise duty. Further clarification was provided regarding clearances by composite mills or manufacturers engaged in processing fabrics, ensuring captively used inputs and intermediates were deemed to have complied with the conditions of 'appropriate duty'.Issue 3: Discrepancies in demands and appeals filed by both Assessee and RevenueMultiple appeals were filed challenging orders confirming demands or dropping proceedings related to duty payments. The demands ranged from substantial amounts for specific periods, and discrepancies were noted in the decisions of different Commissioners regarding the duty liabilities of the Assessees. The Revenue filed appeals against dropping demands, while the Assessees contested the imposition of duties, interest, and penalties.Issue 4: Legal implications of Circulars issued by the Central Board of Excise and CustomsThe Circulars issued by the Central Board of Excise and Customs played a crucial role in interpreting the conditions for exemption under the notification. These Circulars clarified the applicability of exemptions based on the payment of appropriate duties on inputs and intermediates. The Circulars aimed to resolve doubts and ensure uniform application of the exemption scheme, especially in cases involving composite mills or manufacturers processing fabrics.Issue 5: Reference to Supreme Court and Tribunal decisions on the issue of exemptionThe Hon'ble Supreme Court's decision in Sports & Leisure Apparel Ltd. v. Commissioner of Central Excise, Noida provided clarity on the interpretation of the exemption notifications. The Court emphasized the legal fiction created by Explanation II to the notifications, stating that duty shall be deemed paid even without documentary proof. The decision highlighted the intention behind the exemption notifications and the importance of upholding legal fictions in statutory provisions. The Tribunal's larger bench decision in Arvind Products Ltd. v. Commissioner of Central Excise, Ahmedabad, which was approved by the Supreme Court, further supported the Assessees' position on exemption eligibility.In conclusion, the judgment resolved the issues by upholding the Assessees' entitlement to the exemption under Notification No. 14/2002-C.E. The Court rejected the Revenue's contentions and allowed the appeal of the Assessee, emphasizing the legal interpretations provided by the Supreme Court and Tribunal decisions. The decision highlighted the importance of adhering to statutory provisions and legal fictions in determining duty liabilities and exemption eligibility under the relevant notifications.