2013 (4) TMI 83 - HC - Central Excise

Court rules in favor of petitioners, grants excise duty exemption on aerated waters under binding circulars.

The court held that circulars dated 8.9.1971 and 17.9.1975 were binding on the authorities, entitling exemption of excise duty on breakage of aerated ... Binding effect of departmental circulars - prospective application of rescinding circulars - remission under the statutory remission procedure and its interplay with executive instructions - certification by Range Staff as operative for concession - levy of excise duty upon production of excisable goodsBinding effect of departmental circulars - levy of excise duty upon production of excisable goods - Whether the CBEC circulars dated 8.9.1971 and 17.9.1975 were binding on the department and entitled the petitioners to exemption of excise duty to the extent of 0.5% for breakages certified by Range Staff. - HELD THAT: - The circulars issued under Section 37B of the Central Excise Act were held to be binding on the department and its officers. Those circulars specifically authorised reducing production by 0.5% on account of routine breakage of bottles during handling and movement, subject to investigation and certification by Range Staff. The court accepted that aerated and mineral waters are excisable and that the circulars operated to permit a limited exemption by effectively reducing chargeable production where the loss was certified by departmental staff. Reliance on precedents establishing that Board circulars that tone down the rigour of law are binding supported this conclusion. Having been in force during the relevant period and with certification of breakages by Range Staff, the petitioners were entitled to treat production as reduced by 0.5% for levy purposes.The circulars dated 8.9.1971 and 17.9.1975 were binding and, where Range Staff certified breakages, permitted exemption of excise duty to the extent of 0.5% of production.Prospective application of rescinding circulars - Whether the CBEC circular rescinding the earlier instructions dated 9.7.2010 applies retrospectively to periods prior to its issuance. - HELD THAT: - The rescinding circular of 9.7.2010 was construed as prospective. The circular itself stated its purpose to avoid future disputes and explained changed circumstances (shift from glass to PET bottles and the introduction of MODVAT/CENVAT) as reasons for rescission. Applying settled law that a circular adverse to assessees is to be applied prospectively, the court held that withdrawal could not be given retrospective effect to affect transactions in the period June 2002 to September 2007.The circular dated 9.7.2010 rescinding earlier instructions is prospective and does not apply to production periods prior to its issuance.Remission under the statutory remission procedure and its interplay with executive instructions - certification by Range Staff as operative for concession - Whether petitioners were obliged to claim remission under Rule 21 (or corresponding earlier rule) before availing the 0.5% exemption contemplated by the circulars. - HELD THAT: - Rule 21 (and its predecessor) provides a general statutory procedure for remission where goods are lost or destroyed. The court distinguished the narrow, specific concession in the circulars (0.5% for breakages of aerated water bottles on handling) from the broad statutory remission provision. Because the circulars operate to impliedly reduce chargeable production when Range Staff certify the loss, they supplement rather than conflict with Rule 21. Given the long-standing administrative practice of allowing the concession on departmental certification without requiring separate remission proceedings, insisting on Rule 21 formalities would produce multiplicity and frustrate the purpose of the circulars. Accordingly, failure to file a remission claim under Rule 21 did not defeat the right to the 0.5% exemption once certification was recorded.The petitioners were not required to pursue a separate remission claim under Rule 21 to avail the 0.5% exemption where the loss was certified by Range Staff; the circulars operate independently to reduce chargeable production.Final Conclusion: Writ petitions allowed; orders confirming demands quashed in respect of the period June 2002 to September 2007, holding that the 1971 and 1975 circulars were binding and entitled the petitioners to 0.5% exemption certified by Range Staff, and that the 2010 rescinding circular operates prospectively only. Issues Involved:1. Binding effect of circulars dated 8.9.1971 and 17.9.1975.2. Retrospective application of the withdrawal of circulars dated 9.7.2010.3. Requirement of remission procedure under Rule 21 of the Central Excise Rules, 2002 for claiming benefit of the circulars.Issue-wise Detailed Analysis:1. Binding Effect of Circulars Dated 8.9.1971 and 17.9.1975:The petitioners argued that the circulars dated 8.9.1971 and 17.9.1975, issued by the Central Board of Excise and Customs (CBEC), were binding on the authorities and entitled them to an exemption of excise duty on 0.5% of the aerated waters produced due to breakage of bottles during handling and movement. The court noted that these circulars were issued under the authority of Section 37B of the Central Excise Act, 1944, and provided a tolerance limit for breakages. The circulars were meant to address practical issues of breakage during handling and were binding on the department. The Supreme Court's decisions in UCO Bank Calcutta Vs. Commissioner of Income Tax W.B. and Paper Products Limited Vs. Commissioner of Central Excise supported the view that circulars issued by the Board are binding on the department.2. Retrospective Application of the Withdrawal of Circulars Dated 9.7.2010:The petitioners contended that the withdrawal of the circulars by the circular dated 9.7.2010 should only have a prospective effect and not apply to excise goods produced prior to its issuance. The court agreed, stating that the circular dated 9.7.2010 aimed to avoid future disputes and did not explicitly state that it would apply retrospectively. The court cited the Supreme Court decisions in CCE Vs. Mysore Electrical Industries Limited and Suchitra Components Limited Vs. Commissioner of Central Excise Guntur, which held that beneficial circulars apply retrospectively, while oppressive ones are prospective. Thus, the withdrawal of the circulars was deemed prospective and not applicable to the period from June 2002 to September 2007.3. Requirement of Remission Procedure Under Rule 21 of the Central Excise Rules, 2002:The respondents argued that the petitioners were not entitled to the benefit of the circulars without following the remission procedure under Rule 21 of the Central Excise Rules, 2002. The court noted that Rule 21 provides for remission of excise duty for goods lost or destroyed by natural causes or unavoidable accidents. However, the court found that the circulars specifically addressed the issue of breakages of aerated waters due to handling and did not require the remission procedure under Rule 21. The circulars allowed for a 0.5% exemption on breakages certified by the Range Staff, making the remission procedure unnecessary in this specific context. The court emphasized that the circulars were not in conflict with Rule 21 but rather supplemented it, ensuring fair enforcement and avoiding undue hardship to the assessee.Conclusion:The court quashed the impugned orders dated 22.10.2009, 31.3.2010, and 16.4.2012, and directed that the petitioners were entitled to the exemption of 0.5% of the excise goods produced/manufactured by them as per the circulars dated 8.9.1971 and 17.9.1975. The writ petitions were allowed.