2011 (11) TMI 555 - AT - Central Excise

Tribunal Reverses Commissioner's Order on Outside Storage, Emphasizes Compliance & Exceptional Circumstances

The Tribunal set aside the Commissioner's order withdrawing permission for outside storage of finished goods by the appellant, emphasizing that ... Withdrawal of permission for outside storage of the finished goods manufactured - Permission and extension of time already granted to appellant - Held that:- nowhere in the order, the reasons given by the appellant in their letter dated 7-8-2010 compelling them to store the tyres outside the factory have been discussed. The permission for storage outside the factory premises has been denied only on the ground that this permission can be granted only under “exceptional circumstances” and such “exceptional circumstances” cannot be sort of perpetual and cannot continue beyond a reasonable period and the same amounts to enjoying warehousing facility under Rule 20 for which no permission has been granted - grounds on which this permission has been denied are not correct. So long as the “exceptional circumstances” caused on account of nature of the goods or shortage of storage space continue, the permission under Rule 4(4) has to be given for onside storage of the goods without payment of duty after prescribing the conditions as are necessary for safeguarding the interest of the Revenue - Matter remanded back - Decided in favour of applicant. Issues involved:1. Permission for outside storage of finished goods under Rule 4(4) of the Central Excise Rules, 2002.2. Interpretation of 'exceptional circumstances' under Rule 4(4).3. Comparison between outside storage under Rule 4(4) and warehousing under Rule 20 of the Central Excise Rules, 2002.4. Compliance with conditions prescribed by the Commissioner for outside storage.5. Grounds for withdrawal of permission for outside storage.Detailed Analysis:1. Permission for outside storage of finished goods under Rule 4(4) of the Central Excise Rules, 2002:The appellant, a manufacturer of automobile tyres, sought permission for outside storage of finished goods due to increased production capacity and insufficient storage space within factory premises. The Jurisdictional Commissioner initially granted this permission with specific conditions, which the appellant adhered to. However, the Commissioner later issued a show-cause notice proposing withdrawal of this permission, arguing that the appellant had not made efforts to create storage space within the factory and that the exceptional circumstances justifying outside storage could not continue indefinitely.2. Interpretation of 'exceptional circumstances' under Rule 4(4):The appellant argued that the term 'exceptional circumstances' should be interpreted with regard to the nature of the goods and shortage of storage space at the manufacturing premises. They claimed that due to the nature of their products and export commitments, they required substantial storage space, which was not available within the factory. The Tribunal agreed with this interpretation, stating that 'exceptional circumstances' should be read in conjunction with the nature of the goods and storage space shortage, and if these circumstances persist, permission for outside storage should be granted.3. Comparison between outside storage under Rule 4(4) and warehousing under Rule 20 of the Central Excise Rules, 2002:The Commissioner argued that granting continuous permission for outside storage under Rule 4(4) was akin to providing warehousing facilities under Rule 20, which requires specific permissions and procedures. The Tribunal, however, differentiated between the two, stating that outside storage under Rule 4(4) is considered an extension of the factory premises, whereas warehousing under Rule 20 involves separate registration and is not an extension of the factory. The Tribunal emphasized that the appellant's use of outside storage did not equate to warehousing and that the Commissioner's interpretation was incorrect.4. Compliance with conditions prescribed by the Commissioner for outside storage:The appellant consistently complied with the conditions prescribed by the Commissioner for outside storage, such as executing a bond, arranging insurance, maintaining stock registers, and ensuring secure storage premises. The Tribunal noted that there was no allegation of non-compliance from the Department, reinforcing the appellant's adherence to the prescribed conditions.5. Grounds for withdrawal of permission for outside storage:The Commissioner withdrew the permission for outside storage on the grounds that the exceptional circumstances could not continue indefinitely and that the appellant had not created storage space within the factory. The Tribunal found this reasoning flawed, stating that as long as the exceptional circumstances persisted, the permission should be granted. The Tribunal remanded the matter back to the Commissioner for a de novo decision, instructing the Commissioner to ascertain whether the circumstances necessitating outside storage still existed and, if so, to grant the permission with necessary conditions to safeguard the Revenue's interests.Conclusion:The Tribunal set aside the Commissioner's order withdrawing the permission for outside storage and remanded the matter for a fresh decision, emphasizing that the exceptional circumstances justifying outside storage should be considered in conjunction with the nature of the goods and storage space shortage. The Tribunal clarified the distinction between outside storage under Rule 4(4) and warehousing under Rule 20, and highlighted the appellant's compliance with prescribed conditions.