2023 (5) TMI 434 - AT - Central Excise

Tribunal grants relief, allows simultaneous SSI exemption and CENVAT Credit for Appellant

M/s. Victor Paints Pvt. Ltd. Versus Commissioner of Central Excise, Mumbai - V

The Tribunal allowed the appeal, overturning the Commissioner of Central Excise (Appeals)'s decision and granting relief to the Appellant. The Tribunal ... Date on which notification becoming effective - Legality of simultaneous availment of SSI exemption benefit under Notification No. 8/2003-CE dated 01.03.2003 and CENVAT Credit in respect of its branded goods ‘Victor’ Paints manufactured by the Assessee as well as goods of ‘Berger’ Paints processed by it as job worker and cleared under the brand names of Berger - HELD THAT:- The period under dispute in this appeal is before introduction of such an amended provision in February, 2009 but going by the entire text of the Notification, it can be said that the same is clarificatory in nature, that can be applied from the day of its inception, as has been held by this Tribunal in the case of VAIBHAV ACQUA FRESH LTD. VERSUS COMMISSIONER OF C. EX., MUMBAI-II [2009 (3) TMI 191 - CESTAT, MUMBAI] wherein such amendment was held to be of clarificatory in nature. Having regard to the judicial precedent set by the Hon'ble Supreme Court in COMMISSIONER OF CENTRAL EXCISE, CHENNAI VERSUS M/S. NEBULAE HEALTH CARE LTD. [2015 (11) TMI 95 - SUPREME COURT] vis-a-vis insertion of proviso into the Notification w.e.f. 11.02.2009 that clarified the notification further, Appellant is entitled to the SSI exemption available under Notification No. 8/2003-CE for clearance of its branded product and also entitled to avail CENVAT Credit on clearance of branded products of others cleared through payment of duty - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an SSI unit can simultaneously avail benefit of the exemption under Notification No. 8/2003-CE for its own branded clearances and also avail CENVAT credit in respect of inputs used in manufacture of goods bearing the brand name/trade name of a third party that are cleared on payment of excise duty. 2. Whether the proviso introduced to paragraph 2(iii) of Notification No. 8/2003-CE w.e.f. 11.02.2009 (excluding inputs used in manufacture of specified goods bearing another's brand name which are ineligible for exemption) is clarificatory in nature and, if so, whether its clarification applies retrospectively to periods prior to the amendment. 3. Whether earlier judicial decisions contrary to the simultaneous availment (relied upon by revenue) are distinguishable or superseded by the authoritative principle laid down by the Supreme Court in the later decision (as applied by the Tribunal). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Simultaneous availment of SSI exemption for own branded clearances and CENVAT credit for third-party branded job-work clearances Legal framework: Notification No. 8/2003-CE grants exemption to SSI units for clearance of specified goods subject to conditions; CENVAT credit rules permit credit of duty paid on inputs used in manufacture where excise duty has been paid. Paragraphs of the Notification delineate which clearances are to be included for aggregate value and exclude certain third-party branded clearances from the exemption scheme. Precedent Treatment: The issue was addressed authoritatively by the Supreme Court in the decision analyzed by the Tribunal, which construed the Notification holistically and considered the position of third-party branded goods. Earlier contrary authorities (including decisions the revenue relied on) had adopted a different view but were considered and distinguished by the Supreme Court. Interpretation and reasoning: The Court read the Notification as a scheme where (a) exemption for SSI units applies to clearances for home consumption of the unit's own products, and (b) products bearing brand/trade names of third parties are specifically kept outside the exemption scheme - they are not to be included in aggregate clearances for exemption purposes and are ineligible for exemption. Consequently, when such third-party branded goods are manufactured/cleared by the SSI unit and duty is paid, those clearances fall under normal excise law and thereby permit the SSI unit to claim CENVAT credit on inputs used for those particular job-work/third-party branded goods. The logical corollary is that exclusion of third-party branded clearances from exemption does not preclude simultaneous exemption for the SSI unit's own branded clearances; rather, the two treatments operate independently under the Notification and excise rules. Ratio vs. Obiter: The central holding that third-party branded goods are excluded from the exemption scheme and, if duty is paid on such clearances, the SSI unit is entitled to CENVAT credit on inputs used for those goods - and that such credit can co-exist with exemption for the unit's own branded clearances - is ratio decidendi of the Court's analysis of the Notification's scheme. Conclusion: The Tribunal applied the authoritative construction and held that simultaneous availment is legally permissible: the SSI exemption may be availed for the appellant's own branded products while CENVAT credit may be taken for inputs used in manufacture of goods bearing another's brand where duty has been paid on those clearances. Issue 2 - Nature and temporal effect of the proviso to paragraph 2(iii) of Notification No. 8/2003-CE (inserted w.e.f. 11.02.2009) Legal framework: The proviso states that paragraph 2(iii) shall not apply to inputs used in manufacture of specified goods bearing the brand name/trade name of another person which are ineligible for the exemption under paragraph 4. The legal question is whether such an amendment is clarificatory (i.e., declaratory of original intent/meaning) and thus retrospective, or substantive and prospective only. Precedent Treatment: The Tribunal referred to its own earlier decision holding the amendment clarificatory in nature (Vaibhav Acqua Fresh Ltd.), and relied on the Supreme Court's contemporaneous construction of the Notification that aligns with the proviso's language and effect. Interpretation and reasoning: Reading the Notification as a whole (as per the Supreme Court's analysis) shows that third-party branded clearances were always intended to be treated outside the exemption scheme. The proviso merely restates and clarifies that inputs used in manufacture of ineligible third-party branded goods are excluded from the benefit; it does not introduce a new substantive limitation but confirms the original scheme. Given that the textual construction of the Notification prior to amendment is consistent with the proviso's content, the proviso is clarificatory and can be applied to periods antecedent to its formal insertion. Ratio vs. Obiter: The conclusion that the proviso is clarificatory and applies retrospectively, as a matter of statutory construction consistent with the Notification's original scheme, is treated as a ratio of the Tribunal's decision (supported by the Supreme Court's interpretive approach to the Notification). Conclusion: The Tribunal held the proviso to be clarificatory and applicable from the Notification's inception; therefore, it supports retrospective application of the principle that inputs used for manufacture of third-party branded goods (ineligible for exemption) fall outside the exemption and may attract CENVAT credit where duty is paid. Issue 3 - Effect of earlier contrary decisions relied upon by revenue and applicability of the Supreme Court's later ruling Legal framework: Article 141 renders the Supreme Court's construction binding on all courts/tribunals. Conflicting earlier decisions must yield to later authoritative pronouncements that squarely construe the statutory instrument. Precedent Treatment: Revenue relied on earlier authority(s) supporting denial of simultaneous benefit. The Tribunal considered that those earlier rulings were distinguishable and that the Supreme Court's later decision provides the correct, binding interpretation of the Notification's scheme. Interpretation and reasoning: The Tribunal emphasized that law evolves and a later Supreme Court interpretation, which reads the Notification holistically and clarifies the treatment of third-party branded goods, must govern. Where the Supreme Court distinguished earlier cases and articulated that third-party branded goods are outside the exemption and permit CENVAT credit once duty is paid, that view supersedes contrary precedent applicable to the relevant period. Ratio vs. Obiter: The Tribunal treated the Supreme Court's holding as binding ratio that displaces prior conflicting authority for the legal issues under consideration. Conclusion: Earlier contrary decisions relied upon by revenue do not prevail in light of the binding Supreme Court construction; the appellant is entitled to the relief claimed for the period in dispute. Final Disposition On application of the Supreme Court's holistic construction of Notification No. 8/2003-CE and the view that the 11.02.2009 proviso is clarificatory (applicable retrospectively), the Tribunal held that simultaneous availment of SSI exemption for the unit's own branded clearances and CENVAT credit for inputs used in manufacture of third-party branded goods cleared on payment of duty is lawful; the impugned demand, interest and penalty confirmed by the lower authority were set aside with consequential relief.