2023 (6) TMI 1101 - AT - Central Excise

Appellants entitled to exemption for road construction tippers under Notification No.108/95-CE; retrospective application rejected.

The Tribunal held that the appellants were entitled to the benefit of Notification No.108/95-CE as the conditions were met, allowing exemption for tippers ... Exemption to goods supplied to the United Nations or an international organisation for their official use or supplied to the projects financed by the said United Nations or an international organisation and approved by the Government of India - Benefit of Notification No.108/95-CE dated 28.8.95 - retrospective amendment of notification or not - time limitation - HELD THAT:- In accordance with the said Notification, on the basis of the project certificate issued mentioning the name of the contractor M/s Ketan Constructions Ltd., undisputedly 9 Nos. of tippers were cleared by the Appellant to the said contractor to be used in a project funded by the World Bank. After completion of the said project, on enquiry from the contractor about the use of said Tippers in other such eligible project, when denied, demand notice was issued to the appellant on the basis of insertion of Explanation-2 to the Notification No.13/2008-CE dated 1.3.2008 - The Explanation-2 was inserted with effect from 1.3.2008. Revenue sought to apply the said Notification retrospectively and demanded duty from the appellants alleging that after completion of the project, if the 9 nos. tippers which were used in the completion of project, later if withdrawn, even after completion of the project, they would not be eligible to the benefit of the said Notification. The issue of retrospective applicability of Explanation-2 to the Notification was considered by this Tribunal in the case of L & T Komatsu Ltd. [2016 (7) TMI 290 - CESTAT BANGALORE] holding amendment to the original Notification No.108/95-CE dated 28.8.1995 made by Notification No.13/2008-CE dated 1.3.2008 would have prospective operation and the demand against the appellants can be sustained only for one year period which is within the period of limitation. Time Limitation - HELD THAT:- The appellant availed the exemption under Notification No.108/95-CE dated 28.8.95 on the basis of Certificates issued by the Project Authority from time to time and the clearance of tippers by availing the benefit of Notification declared in their monthly ER-1 returns, hence no fact was suppressed from the knowledge of the department - It is held by the Hon’ble Supreme Court in J.K. SPINNING AND WEAVING MILLS LTD. AND ANOTHER Vs. UNION OF INDIA AND OTHERS [1987 (10) TMI 51 - SUPREME COURT] and followed in a series of judgments that extended period of limitation cannot be invoked in demanding duty on the basis of applying an amendment retrospectively, which is squarely applicable to the facts of the present case. The impugned order is not sustainable, consequently, the same is set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the exemption under the exemption notification for goods supplied to projects financed by international organisations is available where goods (tippers) cleared to a contractor were used in the project but subsequently withdrawn and used elsewhere after project completion. 2. Whether Explanation-2, inserted into the exemption notification with effect from 1.3.2008, can be applied retrospectively to deny exemption for clearances effected between 2004-2005. 3. Whether demand of duty invoking the extended period of limitation is maintainable where the assessee declared clearances under the exemption notification in statutory returns and furnished project certificates to the department and there was no suppression of facts. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Availability of exemption where goods were cleared to a contractor and later withdrawn after project completion Legal framework: The exemption notification exempts goods when supplied to projects financed by the United Nations or an international organisation for official use, subject to production of a certificate from the international organisation/project authority; the notification contemplates that goods are 'to be supplied to a project financed' and intended 'for official use'. Precedent treatment: The Tribunal's earlier decisions interpreting the scope of the exemption (as later considered) treated the original notification as permitting exemption where the formal conditions (certificate and intended use in the funded project) were satisfied at the time of clearance. Interpretation and reasoning: The Tribunal examined whether withdrawal after project completion negates the exemption where, at the time of clearance, the statutory certificate and declarations evidenced that the goods were for use in the project. The Revenue's contention that exemption applies only if goods remain permanently within the project was founded on an Explanation subsequently inserted (Explanation-2) clarifying 'benefit ... is available when the goods brought into the project are not withdrawn by the supplier or contractor'. The Tribunal considered that, for clearances made before insertion of Explanation-2, the eligibility must be adjudicated by reference to the law as it stood at the relevant time - i.e., whether the statutory conditions for exemption were met then - and not by later-added substantive restrictions. Ratio vs. Obiter: Ratio - where the certificate and other prescribed formalities were complied with at the time of clearance and Revenue does not dispute actual use in the funded project during the relevant period, the supplier is entitled to the exemption as per the original notification; a later Explanation that changes the substantive scope cannot be read back to deny the benefit. Obiter - observations on policy or desirability of limiting diversion post-completion beyond the timing of the amendment. Conclusion: Exemption under the original notification applies to the clearances in question, since the formal prerequisites were satisfied and the substantive restriction introduced later (Explanation-2) cannot be applied retrospectively to negate rights accrued under the earlier provision. Issue 2 - Retrospective application of Explanation-2 (inserted 1.3.2008) to deny exemption for earlier clearances Legal framework: Statutory interpretation principles governing explanations and amendments - an explanation that is clarificatory may be read as co-extensive with the main provision from its inception, but an explanation which changes or widens the substantive law is not presumed to operate retrospectively absent express indication or necessary implication. Precedent treatment (followed/distinguished): The Tribunal followed higher court authority holding that an explanation which introduces or changes substantive law cannot be given retrospective effect and cited decisions where explanations phrased 'for removal of doubts' were held not to have retrospective operation when they widened or altered legal scope. Interpretation and reasoning: The Tribunal analysed whether Explanation-2 merely clarified an existing ambiguity or added a substantive restriction. It concluded that Explanation-2 materially enlarged the scope of the notification by introducing a new condition (non-withdrawal of goods from the project) and therefore effected a change in law. Applying established interpretative doctrine, such a change cannot be applied retrospectively to conduct occurring before the amendment's effective date. The Tribunal also noted absence of suppression or mala fide conduct by the assessee that might justify application of extended limitation or retrospective imposition. Ratio vs. Obiter: Ratio - Explanation-2, being substantive in effect (introducing a new condition), cannot be given retrospective operation and therefore cannot be invoked to deny exemption for clearances made prior to 1.3.2008. Obiter - discussion of the precise boundary between clarificatory and substantive explanations in other factual matrices. Conclusion: Explanation-2 has prospective effect only; it cannot be applied to clearances made in 2004-2005 to deny exemption retrospectively. Issue 3 - Maintainability of demand invoking extended period of limitation where returns declared exemption and project certificates were filed and there was no suppression Legal framework: Limitation rules permit extended period of demand only where there is suppression of facts or fraud; regular declaration in statutory returns and production of supporting certificates ordinarily preclude invoking extended limitation unless suppression or intent to evade is established. Precedent treatment (followed): The Tribunal relied on established jurisprudence holding that retroactive application of an amendment to reach back beyond limitation cannot support invocation of extended period where there is no suppression, and that demands based on post-fact amendments cannot justify extended limitations absent suppression. Interpretation and reasoning: The appellant declared the exempt clearances in statutory ER-1 returns and produced project certificates to the department at relevant times. The Tribunal found no evidence of suppression or intent to evade payment of duty during the relevant period. Since the reassessment/demand was predicated on retrospective application of an amendment (Explanation-2) and not on any concealment of facts, the extended period of limitation could not be validly invoked. The Tribunal applied the principle that amendment of law cannot be used to vitiate previously declared positions to extend limitation unless culpable suppression is proved. Ratio vs. Obiter: Ratio - demand under extended limitation is not maintainable where records and returns disclosed the exempt clearances and there is no proof of suppression; retrospective application of an amendment does not convert previously declared exemptions into concealed transactions justifying extended limitation. Obiter - remarks on factual scenarios where suppression might be found and interplay with amendment-driven investigations. Conclusion: The demand invoking extended limitation is unsustainable. Consequently, demand for duty (and attendant penalties) based on retrospective application of the amendment must be set aside; penalties imposed in the impugned order were unjustified and are to be rescinded. Overall Disposition The Tribunal concluded that the amendment (Explanation-2) cannot be applied retrospectively; the exemption as available under the original notification covered the clearances made in 2004-2005 where certificates and returns were furnished and actual use in the project was not disputed; absence of suppression precludes invocation of the extended period of limitation; the impugned demand and penalty are therefore unsustainable and the appeal is allowed with consequential relief as per law.