2023 (8) TMI 1230 - AT - Central Excise

Manufacturing unit wins exemption claim under Notification No. 50/2003-CE, court emphasizes strict compliance

Commissioner of Customs & Central Excise, Meerut-I Versus M/s Suave Rubplast

The respondent, a manufacturing unit, successfully claimed exemption under Notification No. 50/2003-CE for starting production before 31.03.2010. The ... Maintainability of appeal - monetary limit involved in the appeal - Area Based exemption - failure to fulfill the mandatory condition of starting Commercial production on or before 31.03.2010 - recovery of Central Excise duty alongwith interest and penalty - HELD THAT:- The appeal memo, show cause notice and all the documents it is quite evident that the total amount of demand in the said show cause notice is only Rs.20,311/-. Ideally this appeal should be dismissed as per the litigation policy, the threshold monetary limit for filing the appeal by revenue is Rs. 50 lakhs. As per F.No.390/Misc/116/2017-JC dated 22 August, 2019 revenue authorities have been directed to not file appeals before the amount (50 lakhs) and all appeals that had been filed in past were to be withdrawn. In this appeal also revenue do not dispute the invoice No.01 dated 30 March, 2010 but only say that being for an amount was only for purported clearance of goods availed at Rs.1,101/- Even a single clearance would made by the respondent would have justified the start of production by the respondent. There are no merits in this appeal which could have been dismissed for the amount involved being less than prescribed threshold limit under litigation policy - Appeal filed by the revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessee satisfied the mandatory condition of commencement of commercial production on or before the prescribed cutoff date so as to avail exemption under the notification. 2. Whether the fact that the manufacturing premises were found closed on inspection dates, and the contents of the panchnamas, suffice to rebut documentary and corroborative evidence of commencement of commercial production. 3. Whether a demand of central excise duty (with interest and penalty) based on alleged non-eligibility for the exemption is sustainable in absence of cogent evidence contradicting the assessee's documentary record. 4. Whether the appeal by revenue should have been dismissed on administrative/litigation-policy grounds given the small monetary value of the demand. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility for exemption: commencement of commercial production before cutoff date Legal framework: The notification grants exemption subject to strict compliance with prescribed conditions; commencement of commercial production on or before the cutoff date is a mandatory pre-condition for claiming the exemption. Precedent treatment: The Court applied established higher-court authority holding that claimants for exemption must establish entitlement, and mandatory conditions must be fulfilled strictly, although immaterial, indirect non-compliances may be excused in narrow circumstances. Interpretation and reasoning: The Tribunal examined the documentary record produced by the assessee - purchase bills, transport documents for capital goods and raw materials, electricity bill for March, balance sheet/trade-tax return for the relevant period, and the first invoice dated on the cutoff date indicating delivery. The adjudicating authority and the appellate authority accepted these documents as establishing commencement of production by the cutoff date. The mere fact of a later inspection finding the unit closed was held not determinative of whether production had begun earlier. Ratio vs. Obiter: Ratio - an assessee claiming exemption satisfied the mandatory condition where contemporaneous documentary and transactional evidence (capital goods purchase, material receipts, electricity consumption, first sale invoice) credibly establish commencement on or before the cutoff date; closure at a later inspection does not, without more, negate earlier commencement. Obiter - general statements concerning the narrow scope for relaxed construction of exemption provisions where non-compliance is merely indirect. Conclusion: The Tribunal concluded the mandatory condition was fulfilled and the exemption claim stood valid. Issue 2 - Evidentiary weight of inspection/panchnama vs. documentary evidence Legal framework: Administrative inspection reports and panchnamas are relevant but not conclusive; burden lies on claimant to prove entitlement, and department must produce cogent evidence to disprove documentary claims. Precedent treatment: The Tribunal applied controlling authoritative guidance that demands based purely on presumption or inspection notes are unsustainable where contradictory documentary evidence is produced. Interpretation and reasoning: The panchnamas recorded premises being closed on dates of inspection (7-8 April). The revenue relied on those notes to assert production had not commenced by the cutoff. The Tribunal found panchnamas lacked particulars negating existence of plant/machinery or production prior to the cutoff. In contrast, documentary evidence pointed to procurement of capital items and sale(s) on or before the cutoff. The Tribunal held that the department failed to produce cogent corroborative evidence to impugn the genuineness of the invoice and other documents. Ratio vs. Obiter: Ratio - inspection records showing a unit closed on a later date do not, without supporting evidence, override contemporaneous documentary proof of earlier production; demands cannot be sustained on mere presumption from panchnama. Obiter - emphasis that departmental disbelief must be supported by specific contrary facts, not inference alone. Conclusion: The inspection/panchnama did not rebut the assessee's documentary proof; therefore the department's negative inference failed. Issue 3 - Sustainment of demand for duty, interest and penalty Legal framework: A demand under the statute requires a legal and factual foundation showing non-fulfillment of conditions for exemption; imposition of interest and penalty follows only where demand is justified and statutory pre-conditions for penalty are met. Precedent treatment: The Tribunal followed authority that a demand grounded on presumption or uncorroborated inspection notes is unsustainable where the claimant produces credible evidence of compliance. Interpretation and reasoning: Revenue issued a show-cause notice and quantified duty based on alleged post-cutoff clearances. The adjudicating authority dropped demands after evaluating the documentary record; the appellate authority concurred. The Tribunal observed revenue had not contradicted the appellate findings or produced cogent evidence to establish fraud, fabrication, or falsity of the cited invoice and supporting documents. In absence of such rebuttal, neither duty, nor consequential interest and penalty could be sustained. Ratio vs. Obiter: Ratio - demands for duty, interest and penalty cannot be upheld where the department fails to rebut credible documentary evidence establishing eligibility for exemption. Obiter - commentary that even one genuine clearance around the cutoff can indicate commencement when supported by other documents. Conclusion: The demand for duty, interest and penalty was not sustainable; the authorities correctly dropped the show-cause demands. Issue 4 - Applicability of litigation-policy threshold to dismissal of revenue appeal Legal framework: Administrative litigation policy prescribes a monetary threshold below which revenue appeals are generally not to be pursued. Precedent treatment: The Tribunal noted the policy threshold and observed that the present demand falls well below prescribed limits, which ordinarily warrants non-prosecution of appeal. Interpretation and reasoning: Although the monetary value of the demand (small sum) justified dismissal on policy grounds, the Tribunal proceeded to examine the merits because the lower authorities had already considered evidence and reached findings in favour of the assessee. The Tribunal acknowledged the policy but affirmed the merits-based outcome. Ratio vs. Obiter: Obiter as to administrative policy - the appeal could have been dismissed on threshold grounds; however, the Tribunal's decision rests on merits rather than solely on policy. Conclusion: The appeal was dismissed; the Tribunal additionally observed that the monetary threshold would have independently justified non-prosecution but affirmed the outcome on substantive grounds. Overall Conclusion The Tribunal found no merit in the revenue appeal: the assessee met the mandatory condition of commencement of commercial production by the cutoff date as established by contemporaneous documentary evidence; inspection notes showing the unit closed on later dates did not suffice to overturn that evidence; demands for duty, interest and penalty could not be sustained; and the appeal was dismissed (with the additional observation that the monetary value of demand fell below the administrative litigation threshold).