2019 (8) TMI 147 - AT - Central Excise

Tribunal rules in favor of appellants, overturning impugned order on various issues.

The Tribunal allowed the appeals in favor of the appellants, setting aside the impugned order. The main issues involved were the clubbing of clearances of ... Clubbing of clearances - separate legal personality of a limited company - benefit of exemption under Notification No. 175/86 - exclusion of chassis value for valuation of final product - prospective effect of penal provisions for interest and penalties - confiscation under repealed/omitted rules - binding effect of earlier departmental treatmentClubbing of clearances - separate legal personality of a limited company - benefit of exemption under Notification No. 175/86 - binding effect of earlier departmental treatment - Whether clearances of the proprietorship concerns could be clubbed with those of the appellant private limited company for denial of exemption under Notification No. 175/86 for the period 1989-90 to 1992-93. - HELD THAT: - The Tribunal applied the CBEC clarification embodied in Circular No.6/92 and the settled precedents to hold that a private limited company is a separate legal entity and is entitled to a distinct exemption limit under Notification No.175/86 for periods prior to 01.04.1993. The earlier departmental treatment treating M/s IEC as a manufacturer (vide show cause dated 16.12.1993) militated against subsequently holding that IEC was not an independent unit and thereby clubbing its clearances with the appellant. Decisions of this Tribunal and the Apex Court cited in the order support that clearances of limited companies could not be clubbed with other units for the period before 01.04.1993. Applying these principles, the appellant was held entitled to the benefit of Notification No.175/86 for the relevant period and the clubbing finding in the adjudication was set aside. [Paras 6]Clearances of the proprietorship firms cannot be clubbed with the appellant private limited company for 1989-90 to 1992-93; appellant entitled to benefit of Notification No.175/86.Exclusion of chassis value for valuation of final product - Whether the value of chassis should have been included while computing aggregate clearance value for SSI exemption. - HELD THAT: - The Tribunal found that Notification No.241/86 read with the CBEC circular dated 04.09.1986 requires exclusion of chassis value from the value of the final product. The departmental computation in the earlier show cause proceeding had excluded chassis value as evidenced in the annexure to that notice. In absence of any change in the appellant's method of valuation or substantiation by the department, inclusion of chassis value in the adjudication was held to be incorrect and contrary to the applicable notification and circular. [Paras 6]Inclusion of chassis value by the department was incorrect; chassis value must be excluded for computing the aggregate clearance value for the SSI benefit.Prospective effect of penal provisions for interest and penalties - Whether interest under Section 11AB and penalty under Section 11AC (and corresponding rules) could be imposed for periods prior to their insertion/effective dates. - HELD THAT: - Sections 11AB and 11AC were inserted w.e.f. 28.09.1996. The Tribunal held that Section 11AC (penalty) is prospective and inapplicable to the period in dispute, so penalty under that provision could not be invoked. Similarly, Section 11AB (interest) being penal/compensatory in character applies only where clearances occurred after its effective date; for clearances prior to 28.09.1996 the statutory scheme does not sustain the interest demand. The Tribunal relied on the reasoning in Dev Ashish and concluded that the adjudicated interest and penalty demands were not sustainable for the relevant period. [Paras 6]Interest under Section 11AB and penalty under Section 11AC cannot be imposed for the clearances in 1989-90 to 1992-93; such penal statutory provisions have prospective effect from 28.09.1996.Confiscation under repealed/omitted rules - Whether confiscation of land, building, plant and machinery and imposition of redemption fine under erstwhile Rule 173Q(2) could be sustained in an order passed after omission of that rule. - HELD THAT: - Rule 173Q(2) was omitted by notification dated 12.05.2000. The impugned order of 11.07.2008 invoked the omitted rule to order confiscation. The Tribunal followed authority holding that once a rule is omitted, subsequent orders cannot be founded on that non-existent provision. Accordingly, confiscation and any redemption fine based on the omitted rule could not be sustained. [Paras 6]Confiscation and any redemption fine under the omitted Rule 173Q(2) could not be sustained in the order passed after its omission.Binding effect of earlier departmental treatment - Whether the department could change its stance by treating IEC as not being an independent manufacturer after earlier treating it as such in show cause proceedings. - HELD THAT: - The Tribunal noted that the department had earlier issued a show cause notice to M/s IEC treating it as a manufacturer; having taken that position, it could not subsequently adopt a contrary stance to justify clubbing of IEC's clearances with the appellant. This prior departmental treatment supported the conclusion that IEC was an independent manufacturer and bolstered the finding that clubbing was inappropriate. [Paras 6]Earlier departmental treatment of IEC as a manufacturer precludes later treating it as non-existent for the purpose of clubbing clearances.Final Conclusion: The Tribunal set aside the adjudication order: the appellant private limited company was entitled to the benefit of Notification No.175/86 for 1989-90 to 1992-93; inclusion of chassis value, the interest and penalty demands under Sections 11AB/11AC, and confiscation under the omitted rule were unsustainable; appeals allowed. Issues Involved:1. Clubbing of clearances of the appellant's unit with two proprietorship concerns.2. Denial of benefit under Notifications Nos. 175/86 and 1/93.3. Inclusion of chassis value in the clearance value for SSI benefit.4. Imposition of interest under Section 11AB of the Central Excise Act, 1944.5. Imposition of penalty under erstwhile Rule 173Q and Section 11AC.6. Confiscation of land, building, plant, and machinery under Rule 173Q(2).Issue-wise Detailed Analysis:1. Clubbing of Clearances:The main issue in these appeals pertains to the clubbing of clearances of the appellant's unit with two proprietorship concerns, Industrial Engineering Company (IEC) and Rashmi Shellcast & Foundry (RSF). The Central Excise department contended that both IEC and RSF belonged to the appellant M/s SESPL, thus exceeding the eligibility criteria for the benefit under Notification Nos. 175/86 and 1/93. The Tribunal found that the appellant, being a private limited company, cannot have its clearances clubbed with those of proprietorship concerns as per the principles laid down by the CBEC in Circular No. 6/92 dated 29.05.1992. The Tribunal referred to judgments in cases such as Supreme Washers (P) Ltd., L.D. Industries, and Limca Flavours & Fragrances Ltd., which support the appellant's contention that clearances of a private limited company cannot be clubbed with those of proprietorship firms.2. Denial of Benefit under Notifications Nos. 175/86 and 1/93:The Tribunal noted that the appellant should be entitled to the benefit of Notification No. 175/86 for the clearances effected prior to 01.04.1993, as the clearances of a private limited company cannot be clubbed with those of proprietorship concerns. The impugned order's denial of this benefit was found to lack merit.3. Inclusion of Chassis Value in Clearance Value:The Tribunal found that the value of clearances for the relevant period was wrongly arrived at by including the value of the chassis for the LPG tanks manufactured by the appellant. As per Notification No. 241/86-C.E. and the circular dated 04.09.1986 issued by CBEC, the value of the chassis should be excluded from the value of the final product. The Tribunal noted that the department had excluded the value of the chassis in earlier computations, and thus, the impugned order's inclusion of the chassis value was incorrect.4. Imposition of Interest under Section 11AB:The Tribunal held that the interest liability under Section 11AB, inserted w.e.f. 28.09.1996, cannot be applied retrospectively to the period in dispute (1989-90 to 1992-93). The Hon'ble Bombay High Court's judgment in the case of Dev Ashish supported this view, stating that Section 11AB is penal in nature and applies only to clearances made after its effective date.5. Imposition of Penalty under erstwhile Rule 173Q and Section 11AC:The Tribunal found that the provisions of Section 11AC, inserted w.e.f. 28.09.1996, cannot be invoked for the period prior to its enactment. The impugned order's imposition of penalties under erstwhile Rule 173Q and Section 11AC was thus unsustainable.6. Confiscation of Land, Building, Plant, and Machinery:The Tribunal noted that Rule 173Q (2) was omitted by notification dated 12.05.2000, and thus, the confiscation order passed after this date should not be guided by the provisions of the omitted rule. The judgments in Kotak Mahindra Bank Ltd. and Choice Ceramics Tiles Pvt. Ltd. supported this view, leading the Tribunal to conclude that the confiscation and redemption fine imposed were not valid.Conclusion:The Tribunal found no merit in the impugned order passed by the adjudicating authority. The appeals were allowed in favor of the appellants, setting aside the impugned order.