2017 (11) TMI 1037 - AT - Central Excise

Liberal interpretation of procedural requirements supports small-scale industries in SSI exemption appeal

M/s. Forging Machinery Manufacturing Company Versus Commissioner of Central Excise & ST, Jallandhar

M/s. Forging Machinery Manufacturing Company Versus Commissioner of Central Excise & ST, Jallandhar - 2018 (364) E.L.T. 208 (Tri. - Chan.) Issues Involved:1. Eligibility for SSI exemption notification due to non-filing of prescribed declarations.2. Interpretation of procedural versus substantive conditions in exemption notifications.3. Applicability of judicial precedents on exemption notifications.Issue-wise Detailed Analysis:1. Eligibility for SSI exemption notification due to non-filing of prescribed declarations:The appellant was denied the benefit of SSI exemption notification No. 9/2003-CE dated 01.03.2003 for not filing the prescribed declarations. The appellant contended that the non-filing of declarations should not be fatal as they regularly filed ER-3 returns indicating their intention to avail the exemption. The respondent argued that strict compliance with the notification conditions was necessary, citing precedents like Eagle Flask Industries Limited and Saboo Cylinders (P) Limited which emphasized strict adherence to notification conditions.2. Interpretation of procedural versus substantive conditions in exemption notifications:The core issue was whether the non-filing of the declaration under the notification was a procedural lapse or a substantive requirement. The appellant relied on the Supreme Court's decision in Malwa Industries Limited, which advocated a liberal interpretation of exemption notifications if the assessee fulfills the eligibility criteria. The Member (Judicial) supported this view, citing that the appellant’s ER-3 returns sufficiently indicated their intent to avail the exemption, and non-filing of a separate declaration should not negate their entitlement.Conversely, the Member (Technical) argued that the filing of the declaration was a substantive condition, not merely procedural, as it ensured proper accounting of aggregate clearances and prevented misuse of the exemption. This view was supported by the Supreme Court's decision in Hari Chand Shri Gopal, which emphasized strict adherence to procedural requirements to prevent diversion and misuse of goods.3. Applicability of judicial precedents on exemption notifications:The Member (Judicial) relied on the precedent set by the Supreme Court in Malwa Industries Limited and the Tribunal's decision in Kanodia Polychem (P) Limited, which supported a liberal interpretation of exemption notifications. The Member (Technical) referred to the Supreme Court's decision in Hari Chand Shri Gopal and the Tribunal's decision in Surat Metallics Pvt. Ltd., which underscored the importance of adhering to procedural requirements for availing exemptions.Majority Decision:The Third Member, agreeing with the Member (Judicial), held that the non-filing of the declaration was a procedural lapse and should not result in the denial of the exemption. The legislative intent of the notification was to grant benefits to small-scale industries, and this purpose should not be defeated by a narrow interpretation of procedural requirements. The appellant had fulfilled all substantive conditions and had regularly informed the authorities through ER-3 returns. Therefore, the appellant was entitled to the benefit of the SSI exemption notification.Conclusion:The appeal was allowed, and the impugned order was set aside, granting the appellant the benefit of the SSI exemption notification No. 9/2003-CE dated 01.03.2003. The decision emphasized a liberal interpretation of procedural requirements in exemption notifications to fulfill the legislative intent of supporting small-scale industries.