2015 (8) TMI 1050 - SC - Central Excise

Interpretation of Excise Duty Exemption Conditions under Notification: Consumption within Factory Requirement

The Supreme Court, comprising A.K. Sikri and Rohinton Fali Nariman, JJ., ruled on the interpretation of conditions for excise duty exemption under a ... Denial of exemption claim - Exemption under Notification dated 23-7-1996 - Imposition of penalty - Held that:- Goods in question sold by the appellant on retail price, namely, the foot wear, was at less than ₹ 75/- per pair. However, we find that the said Notification also imposed a specific condition to the effect that the goods are to be consumed within the factory for their production. In the instant case the goods were sent to the other factories for production. Therefore that condition is clearly not satisfied. However, insofar as penalty imposed upon the appellant is concerned, we are inclined to set aside the same simply on the ground that the appellant has its own factory where the goods in question viz. the inputs are used for manufacture of footwear. However, for a brief period during which there was some labour problems in the appellant’s own factory, the production was outsourced and exemption claimed for that period under bona fide belief. - Decided partly in favour of assessee. Issues:1. Interpretation of conditions for excise duty exemption under a specific Notification.2. Assessment of penalty imposed on the appellant.3. Decision on the appeal regarding penalty and demand.Analysis:1. The Supreme Court, comprising A.K. Sikri and Rohinton Fali Nariman, JJ., analyzed the issue of interpreting conditions for excise duty exemption under a Notification dated 23-7-1996. The Court noted that while the appellant sold goods at a retail price below the specified threshold, the Notification also required the goods to be consumed within the factory for production. As the goods were sent to other factories for production in this case, the Court concluded that this condition was not met, leading to the denial of the exemption.2. Regarding the penalty imposed on the appellant, the Court considered the circumstances where the appellant outsourced production due to labor issues in their factory. The Court found that since the appellant had its own factory where the goods were used for manufacturing footwear, and the outsourcing was temporary due to genuine reasons, the penalty was unjustified. Consequently, the Court decided to set aside the penalty based on these grounds.3. The Court allowed the appeal partially, maintaining the demand while setting aside the penalty. This decision was based on the finding that the appellant's temporary outsourcing of production was done in good faith due to labor problems in their factory, and the goods were ultimately used in their own manufacturing process. Therefore, the Court upheld the demand but provided relief by canceling the penalty imposed on the appellant.