Adjudicating Authority exceeded Show Cause Notice scope by applying different notification rate without proper notice

CESTAT Chennai held that the Adjudicating Authority exceeded the scope of the Show Cause Notice by quantifying duty demand under Notification 02/2011 (5% rate) when the SCN only challenged eligibility for Notification 01/2011 (1% rate) benefits for 100% EOU clearances to DTA. The Authority's decision to apply a different notification not mentioned in the SCN vitiated the order. Additionally, following the Larger Bench precedent in Kumar Arch Tech case, education cess and SH cess are chargeable only once under respective Finance Act sections. The impugned order was set aside and the assessee's appeal was allowed.

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Issues Involved:
1. Eligibility of the assessee to avail the benefit of Notification No. 01/2011-C.E. dated 01.03.2011.
2. Calculation of Cess in the duty demand.

Summary:

Issue 1: Eligibility of Notification No. 01/2011-C.E.

The primary issue is whether the assessee, a 100% Export Oriented Unit (EOU), can avail the benefit of Notification No. 01/2011-C.E. dated 01.03.2011 while discharging duty for Domestic Tariff Area (DTA) clearances. The Department argued that the Notification does not specifically mention its applicability to EOUs, as required under Section 5A (1) of the Central Excise Act, 1944, leading to the short payment of CVD by the assessee.

The adjudicating authority, however, confirmed the duty demand based on Notification No. 02/2011-C.E., which prescribes a duty rate of 5%, instead of 1% under Notification No. 01/2011-C.E. The Tribunal found that the adjudicating authority had traveled beyond the scope of the Show Cause Notice, which only alleged ineligibility under Notification No. 01/2011-C.E., without mentioning Notification No. 02/2011-C.E. This was deemed a significant procedural error.

The Tribunal also referred to the Supreme Court's judgment in SRF Ltd Vs Commissioner of Customs, Chennai, which held that if no CENVAT credit is admissible, the condition of not availing such credit is inherently fulfilled. Thus, the assessee was entitled to the benefit of Notification No. 01/2011-C.E. The Tribunal concluded that the demand raised under Notification No. 02/2011-C.E. was unjustified and set it aside.

Issue 2: Calculation of Cess

The second issue concerned the inclusion of Cess multiple times in the duty calculation. The assessee argued that Education Cess and Secondary and Higher Education Cess should not be charged again on the Central Excise duty as they were already included in the aggregate of Customs duties. The Tribunal agreed, referencing the decision in Kumar Arch Tech Pvt. Ltd. Vs Commissioner of Central Excise, Jaipur-II, which settled this issue in favor of the assessee.

Conclusion:

The Tribunal set aside the impugned order, allowed the assessee's appeal, dismissed the Department's appeal, and disposed of the cross-objection accordingly. The judgment was pronounced in open court on 28.03.2023.

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