2017 (3) TMI 1206 - AT - Central Excise

Appeals allowed, penalties dismissed. Forced closure not non-compliance with special procedure.

The Tribunal allowed the appeals filed by the assessee/appellants, setting aside the impugned orders confirming the demand for differential duty. It ... Special procedure under Notification No. 17/2007-CE - failure to avail special procedure - power to condone failure under para 7 - levy of excise duty contingent on manufacture or production - penalty under Rule 25 of the Central Excise Rules, 2002Special procedure under Notification No. 17/2007-CE - failure to avail special procedure - levy of excise duty contingent on manufacture or production - Whether forced closure and dismantling of machinery in March-April 2013 amounted to a 'failure to avail' the special procedure under Notification No.17/2007-CE so as to trigger penal disqualification under para 2(3). - HELD THAT: - The appellants had been granted permission to follow the special procedure and, during March and April 2013, their units were closed and machinery dismantled pursuant to orders of the State Pollution Control Board; there was no manufacture or clearance in those months. The Tribunal held that forced cessation of operations beyond the control of the manufacturer is not properly characterised as a 'failure' to avail the procedure contemplated by the notification. Applying the principle that excise is leviable only when goods are produced or manufactured, the Tribunal relied on the reasoning that no substantive charging provision can be overridden by procedural terms of a notification; where there was no production, no levy can be fixed merely by treating the non-operation as a procedural failure. The Original Authority's reliance on para 2(3) to disqualify the appellants for six months was therefore unsustainable in the factual matrix where non-operation was involuntary. [Paras 7, 8]Forced closure in March-April 2013 did not constitute a 'failure to avail' the special procedure; the appellants remained eligible for the scheme.Special procedure under Notification No. 17/2007-CE - failure to avail special procedure - Whether the differential duty demand for the period March to August 2013, founded on treating March-April 2013 as a failure, was sustainable. - HELD THAT: - The demand for differential duty for the full period arose only because the Revenue treated March and April 2013 as months in which the appellants had failed to follow the special procedure and, on that basis, invoked para 2(3) to preclude the scheme for six months. The Tribunal observed that had the appellants been required to, and had they chosen to, discharge the fixed amount under the scheme even for the non-operational months, no 'failure' would have been alleged and the subsequent differential demand would not have arisen. Given the factual finding of involuntary non-operation and the inapplicability of para 2(3) in those circumstances, the foundation of the differential demand collapses. The Original Authority's distinction of precedents was not justified and the orders confirming differential duty were set aside. [Paras 10, 12]Differential duty demand for March-August 2013 is not legally sustainable and is set aside.Power to condone failure under para 7 - penalty under Rule 25 of the Central Excise Rules, 2002 - Whether penalty under Rule 25 should have been imposed for alleged failure to follow the special procedure, and whether the Original Authority erred in not considering condonation under para 7. - HELD THAT: - The Tribunal noted that the Original Authority did not record a consideration of para 7 - the discretionary power to apply the notification notwithstanding failure - nor gave reasons for denying its exercise. On the facts recorded (involuntary closure, dismantling, no manufacture), the Original Authority itself had found penalty not imposable; the Tribunal found no case for imposing penalty where the factual position showed cessation due to factors beyond the appellants' control and where condonation or application of para 7 could and should have been examined. Accordingly, Revenue's appeals for imposition of penalty were dismissed. [Paras 9, 11, 12]No penalty under Rule 25 is imposable; Revenue's appeals for penalty are dismissed.Final Conclusion: The appeals by the assessees are allowed: the differential duty demands for March-August 2013 are set aside on the finding that involuntary non-operation in March-April 2013 did not constitute failure to avail the special procedure; the Revenue's appeals for imposition of penalty are dismissed. Issues Involved:1. Non-payment of excise duty during factory closure.2. Applicability of Notification No. 17/2007-CE.3. Interpretation of 'failure to avail' the special procedure.4. Authority's power to condone non-compliance.5. Imposition of penalties on the assessee/appellants.Issue-wise Detailed Analysis:1. Non-payment of excise duty during factory closure:The assessee/appellants did not pay excise duty for March and April 2013 due to the forced closure of their factories by the Rajasthan State Pollution Control Board. The Original Authority held that this non-payment amounted to a failure to avail the special procedure under Notification No. 17/2007-CE, leading to a demand for differential duty for March to August 2013. However, the Tribunal noted that the closure was beyond the control of the assessee/appellants and should be considered as ceasing to work rather than a failure to comply with the notification's provisions.2. Applicability of Notification No. 17/2007-CE:The assessee/appellants had opted for the special procedure under Notification No. 17/2007-CE, which allows payment of excise duty based on the number of cold rolling machines installed. The Tribunal found that the permission to follow this special procedure was granted by the jurisdictional Central Excise officer and that the assessee/appellants did not opt out of the scheme. The Tribunal emphasized that forced closure due to state authorities' orders should not be treated as a failure to comply with the notification.3. Interpretation of 'failure to avail' the special procedure:The Tribunal analyzed the provisions of para 2(3) of Notification No. 17/2007-CE, which states that failure to avail the special procedure precludes the manufacturer from availing it for six months. The Tribunal concluded that the forced closure and non-production of excisable goods during March and April 2013 should not be considered a failure to avail the special procedure. The Tribunal referenced the Rajasthan High Court's decision in the case of CCE, Jaipur – II vs. Jupiter Industries, which held that no duty liability arises when there is no production or manufacture of excisable goods.4. Authority's power to condone non-compliance:The Tribunal noted that para 7 of Notification No. 17/2007-CE grants the Additional Commissioner or Joint Commissioner of Central Excise the discretion to apply the notification's provisions to a manufacturer who has failed to avail the special procedure. The Original Authority failed to consider the assessee/appellants' request to invoke this provision and did not provide reasons for not exercising this power. The Tribunal found this omission legally unsustainable.5. Imposition of penalties on the assessee/appellants:The Revenue appealed against the non-imposition of penalties by the Original Authority, arguing that the assessee/appellants' failure to follow the special procedure and non-payment of duty warranted penalties under Rule 25 of the Central Excise Rules, 2002. However, the Tribunal upheld the Original Authority's finding that the closure was beyond the control of the assessee/appellants and that penalties were not imposable. The Tribunal dismissed the Revenue's appeals for penalties.Conclusion:The Tribunal allowed the appeals filed by the assessee/appellants, setting aside the impugned orders confirming the differential duty. It dismissed the Revenue's appeals for imposition of penalties, finding the impugned orders legally unsustainable. The Tribunal emphasized that the forced closure of the factories should not be considered a failure to comply with the special procedure under Notification No. 17/2007-CE.