2019 (7) TMI 1174 - HC - Central Excise

Court overturns Tribunal decision, emphasizes strict compliance with exemption conditions. Ignorance of law not a defense.

The court ruled in favor of the appellant, setting aside the Appellate Tribunal's decision and restoring the Assistant Commissioner's order denying the ... 100% EOU - Refund claim - destroying goods outside the factory premises without permission - Expired drugs / medicines - conditions are procedural or mandatory in nature - conditions prescribed in the N/N. 22/2003-C.E. Dated 31- 03-2003, as amended vide N/N. 30/2015-C.E. Dated 25.05.2015 and Notification No.52/2003-Cus. Dated 31-03-2003, as amended vide Notification No.34/2015-Cus. Dated 25.05.2015 not fulfilled - mandatory provision of Rule 3 of Cenvat Credit Rules 2004 not considered. HELD THAT:- It is accordingly urged that the CESTAT was well within its jurisdiction in holding the same being directory/procedural in according the refund of duty. These contentions when tested on the anvil of the law laid down by Hon'ble Supreme Court in Eagle Flask Industries Ltd. [2004 (9) TMI 102 - SUPREME COURT] and in Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar And Company and others [2018 (7) TMI 1826 - SUPREME COURT] do not merit consideration. The substantial question of law is answered in favour of the appellant that the CESTAT committed fundamental error in construing the Exemption Notification [Notification No.22/2003-C.E., Notification No.30/2015-Central Excise, Notification No.52/2003-Cus & Notification No.34/2015- Cus.] as directory by condoning the lapse on the part of the assessee in destroying the manufactured goods outside the unit without permission of the concerned Authority. Appeal disposed off. Issues Involved:1. Whether the Appellate Tribunal was correct in allowing the refund amount despite non-fulfillment of conditions prescribed in the relevant Notifications.2. Whether the Appellate Tribunal was justified in not considering the mandatory provision of Rule 3 of the Cenvat Credit Rules, 2004.Detailed Analysis:Issue 1: Refund Eligibility Despite Non-fulfillment of Notification ConditionsThe core issue was whether the Appellate Tribunal was justified in allowing a refund despite the appellant not fulfilling the conditions prescribed in Notification No.22/2003-C.E. and its amendments. The respondent, a 100% Export Oriented Unit (EOU), claimed a refund of Rs. 2,01,35,881/- for Central Excise Duty paid on expired finished goods/inputs, which were destroyed outside the factory without prior permission from the concerned officer. The Assistant Commissioner rejected the refund claim, which was upheld by the Commissioner (Appeals). However, the Tribunal allowed the refund, considering the conditions in the notifications as 'directory and procedural' rather than mandatory.The Tribunal's stance was that the lapse was procedural, not substantive, and therefore, the refund should not be denied. The Tribunal emphasized that the destruction of goods outside the unit without prior permission was a procedural lapse due to ignorance of the notification and should not deprive the assessee of the refund.Issue 2: Consideration of Rule 3 of Cenvat Credit Rules, 2004The appellant argued that the Tribunal erred by not considering Rule 3 of the Cenvat Credit Rules, 2004, which mandates strict compliance with conditions for availing benefits under exemption notifications. The appellant cited precedents, including 'Eagle Flask Industries Ltd. Vs. Commissioner of Central Excise, Pune' and 'Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar And Company,' which underscore that exemption notifications must be interpreted strictly and conditions must be strictly complied with for availing benefits.The appellant contended that ignorance of the law is not a defense and that the conditions in the exemption notifications are mandatory, not procedural. The Tribunal's leniency was seen as a fundamental error in interpreting the law.Judicial Precedents and Final JudgmentThe court referred to the decisions in 'Eagle Flask Industries Ltd.' and 'Commissioner of Customs (Import), Mumbai,' which emphasize strict interpretation of exemption notifications and the necessity of fulfilling all stipulated conditions. The court concluded that the Tribunal committed a fundamental error by treating the conditions in the exemption notifications as procedural.The court ruled in favor of the appellant, setting aside the Tribunal's order and restoring the Assistant Commissioner's order, which denied the refund due to non-compliance with the notification conditions. The appeal was disposed of with no costs.ConclusionThe judgment underscores the importance of strict compliance with conditions in exemption notifications under tax laws. The court emphasized that procedural lapses cannot be condoned when conditions are explicitly stated as mandatory in the notifications. The ruling reinforces the principle that ignorance of the law is not a valid defense in tax matters.