2020 (3) TMI 255 - AT - Central Excise

Tribunal Remands Case for New Hearing, Emphasizes Natural Justice and Reconsideration

The Tribunal set aside both impugned orders and remanded the cases to the Original Authority for de novo adjudication. The Original Authority was directed ... Benefit of exemption - intermediate product - Agarbathi Masala - final product exempt from duty - N/N. 67/95 dated 16.03.1995 (as amended) - Department after going through the entire process of obtaining agarbathis found that agarbathis masala manufactured by the appellant and captively consumed by them in the manufacture of agarbathis, was excisable as odoriferous compound and classifiable under Tariff Item No. 33029090 of the Central Excise Tariff - whether this intermediate product will enjoy benefit of exemption or not? HELD THAT:- The appellants are the manufacturers of Agarbathi by the process of mixing of odoriferous compound of various fragrances as per this proprietary formula and sprinkling the same on raw Agarbathis. Agarbathis classifiable under Tariff Item No. 33074900 of CETA and is chargeable to ‘NIL’ duty. Agarbathi Masala is mixed and captively consumed by the appellant for applying on to Agarbathi and is prepared based on proprietary formula which is a trade secret - Further, the appellant does not market the Agarbathi Masala. Further, we find that in the CBEC Circular No. 495/61/99-CX-3 dated 22.11.99 which holds that “odoriferous compound used for manufacture of Agarbathi is not excisable”. Further, the said Circular referred to two processes of manufacture of Agarbathi (a) by mixing the Agarbathi Masala with dough and rolling it into Agarbathi, (b) by sprinkling on raw Agarbathi. In the present case, the Respondent has held that the Circular is inapplicable to the appellant’s case as the Agarbathi Masala mixed by the appellant is marketable and hence excisable. Further, by this subsequent Circular No. 989/13/2014-CX.3, dated 7.11.2014, the Board clarified the marketability, if any, has to be determined based on evidence. In the impugned order, the Original Authority has held that the appellant is entitled to CENVAT credit of duty paid on the inputs used in the preparation of Agarbathi Masala but the said CENVAT credit has not been calculated and the benefit of the same has not been given while confirming the duty demand on the appellant. Further, the method of determination of value of Agarbathi Masala by the Department has not excluded the duty paid on the inputs used for the preparation of Agarbathi Masala which is contrary to CAS-4 standard. The cases needs to be remanded back to the Original Authority to decide de novo after affording an opportunity of cross-examination of the witnesses relied upon by the Respondent - appeal allowed by way of remand. Issues Involved:1. Excisability and Marketability of Agarbathi Masala.2. Principle of Res Judicata.3. Applicability of CBEC Circulars.4. Denial of Cross-Examination.5. Calculation of CENVAT Credit.6. Penalties Imposed.Issue-Wise Detailed Analysis:1. Excisability and Marketability of Agarbathi Masala:The core issue revolves around whether the Agarbathi Masala (AM), which is an odoriferous compound mixed and captively consumed by the appellant in the manufacture of Agarbathis, is excisable. The Department contended that AM is excisable and classifiable under Tariff Item No. 33029090 of the Central Excise Tariff as it is a distinct marketable commodity. The appellant argued that AM is not marketed and is used internally based on proprietary formulas, thus not excisable. The CBEC Circular No. 495/61/99-CX-3 dated 22.11.1999 clarified that odoriferous compounds used for manufacturing Agarbathis are not excisable, but the Department argued this circular was not applicable to AM manufactured separately and stored. The Tribunal noted that the excisability of a commodity depends on the twin tests of 'manufacture' and 'marketability,' which were not satisfactorily proven by the Revenue.2. Principle of Res Judicata:The appellant argued that the issue of non-excisability of AM was previously decided in their favor in an earlier adjudication (OIO No. 2/2000 dated 28.4.2000) which held that AM is not marketable and hence not excisable. This order was not appealed by the Revenue and thus attained finality, making the current proceedings barred by the principle of res judicata. The Tribunal acknowledged this argument, citing the principle that no man should be vexed twice over the same cause.3. Applicability of CBEC Circulars:The appellant relied on CBEC Circular No. 495/61/99-CX-3, which states that odoriferous compounds used in Agarbathis are not excisable. The Department argued that this circular did not apply to AM as it was separately manufactured and capable of being marketed. The Tribunal found that the applicability of the circular was wrongly denied by the Department without sufficient evidence of marketability.4. Denial of Cross-Examination:The Tribunal noted that the impugned order in Appeal No. E/20221/2017 was passed ex parte, violating the principles of natural justice. The Tribunal had previously allowed the appellant the right to cross-examine witnesses relied upon by the Revenue. However, the Commissioner passed the impugned order without affording this opportunity, which the Tribunal found to be improper.5. Calculation of CENVAT Credit:The Tribunal found that the Original Authority, while holding that the appellant is entitled to CENVAT credit of duty paid on inputs used in the preparation of AM, did not calculate or give the benefit of this credit while confirming the duty demand. The method of determining the value of AM by the Department did not exclude the duty paid on inputs, contrary to CAS-4 standards and the Supreme Court's judgment in Dai Ichi Karkaria Ltd.6. Penalties Imposed:The appellant argued that the imposition of penalties totaling nearly Rs. 18 crores was unfair, especially given the contentious nature of the case and the previous favorable ruling. The Tribunal agreed that the penalties were imposed without justification and needed reconsideration.Conclusion:The Tribunal set aside both impugned orders and remanded the cases to the Original Authority for de novo adjudication. The Original Authority was directed to afford the appellant the opportunity for cross-examination of witnesses and to comply with the principles of natural justice. The Tribunal also instructed the Original Authority to reconsider the issues of excisability, marketability, and calculation of CENVAT credit in light of the Tribunal's findings.