2015 (11) TMI 1471 - AT - Central Excise

Appellant Prevails: Duty Demands Deemed Unsustainable, Pre-deposit Waived

The Tribunal found in favor of the appellant in all three issues. The duty demands totaling Rs. 11,59,17,989/- were deemed unsustainable due to incorrect ... 100% EOU - duty demand on the stock of finished goods and work in progress on the date of in principle approval for debonding - extended period of limitation - Held that:- no central excise duty was payable on the stock of the finished goods on the date of in principle approval for debonding as a 100% EOU, even after in principle approval for debonding would continue to be treated as 100% EOU till the date of final debonding order. Duty demand on the Catylist, which had been imported free of customs duty and had been used as first charge - Held that:- Commissioner has confirmed this demand by going beyond the allegation made in the show cause notice and moreover, there is no evidence in support of his finding that the imported Catylist had not been used at all for first charge. Clearance of the pyridine residue consisting mainly of mixture of Lutadine Isomers to their DTA Unit - Held that:- even if the Pyridine Residue is treated as residue of chemical industry classifiable under Heading No.38256010, which is restricted for import, its DTA clearances cannot be treated as not in accordance with the restrictions in the Exim Policy, as the restriction on the import of certain items in the Foreign Trade Policy cannot be treated as restrictions on the DTA clearances of the same items manufactured by a 100% EOU. The duty demand is prima facie not sustainable either on merits or not on limitation and as such - Stay granted. Issues Involved:1. Duty on stock of finished goods and work in progress at the time of debonding.2. Classification and valuation of Pyridine Residue (Lutadine Isomers) cleared to DTA.3. Duty on clearance of imported catalyst treated as capital goods.Issue-wise Detailed Analysis:1. Duty on Stock of Finished Goods and Work in Progress at the Time of Debonding:The appellant, a 100% EOU, applied for debonding and received in-principle approval on 29.03.2011. The central excise authorities assessed the duty payable on the stock of inputs, capital goods, and finished goods, which was paid by the appellant. The final debonding order was issued on 10.06.2011. The department calculated duty on finished goods at the rate prescribed under proviso to Section 3(1) of the Central Excise Act, 1944, while the appellant argued that duty should only be paid on the customs duty/central excise duty foregone on the inputs contained in the finished goods. The Tribunal previously ruled that no excise duty can be charged on finished goods exported between the date of no objection certificate and the final debonding order. The Commissioner, however, demanded duty of Rs. 3,37,48,484/- on the stock of finished goods and work in progress, treating the latter as finished goods, and denied the exemption under notification no.23/03-CE. The Tribunal found the Commissioner's decision contrary to its previous order, which had been accepted and implemented by the department. Therefore, the Tribunal held that the duty demand of Rs. 3,37,48,484/- was not sustainable.2. Classification and Valuation of Pyridine Residue (Lutadine Isomers) Cleared to DTA:The appellant cleared Pyridine Residue (Lutadine Isomers) to its DTA unit, classifying it under sub-heading no.2933 3919 and valuing it at about Rs. 30,000/- p.m.t. The department argued that Pyridine Residue should be classified under Heading no.38256100 as residue of chemical industry, which is restricted for import, and denied the exemption under notification no.23/03-CE. Additionally, the department contested the reduction in assessable value from Rs. 60,000/- p.m.t. to Rs. 30,000/- p.m.t. The Tribunal concluded that import restrictions in the Foreign Trade Policy cannot be applied to DTA clearances of the same goods manufactured by a 100% EOU. Therefore, the denial of exemption under notification no.23/03-CE was incorrect. Moreover, since the appellant's ER-2 Returns declared the DTA clearances, the department could not invoke the extended period under proviso to Section 11A(1), making the duty demand of Rs. 8,12,05,337/- time-barred and unsustainable.3. Duty on Clearance of Imported Catalyst Treated as Capital Goods:The appellant imported a catalyst free of duty, treating it as capital goods for initial charge as per para 9.12 of the Foreign Trade Policy. The department contended that this definition applied only to the EPCG scheme, not to 100% EOUs, and demanded full duty on the clearance of the used catalyst. The Tribunal found no basis in the Foreign Trade Policy to conclude that the definition of capital goods, including catalysts for initial charge, was limited to the EPCG scheme. Furthermore, the Commissioner's finding that the catalyst had not been used as first charge was unsupported by evidence and beyond the allegations in the show cause notice. Therefore, the duty demand of Rs. 9,64,168/- was deemed incorrect.Conclusion:The Tribunal held that the total duty demand of Rs. 11,59,17,989/- was not sustainable due to the incorrect application of legal provisions and lack of evidence. The Tribunal waived the requirement for pre-deposit of duty, interest, and penalty, allowing the appellant's stay application.