2024 (1) TMI 392 - AT - Central Excise

Spectacle lenses qualify for exemption notifications under Section 6/2006-CE, fresh examination needed for notification 1/2011-CE

CESTAT Mumbai partially allowed the appeal regarding differential duty demand for goods cleared into DTA between June 2007-September 2015. The tribunal ... Demand of differential duty - duty short-paid by claiming that the goods cleared into the ‘domestic tariff area (DTA)’ between June 2007 and September 2015 were similar to the goods exported by them - concession under N/N. 1/2011-CE dated 1st March 2011 as amended by notification no. 16/2012-CE dated 17th March 2012 - time limitation - HELD THAT:- It is found that the eligibility for the exemption from additional duties of customs upto 2011, and concessional rate of duty thereafter under alternative notification, has been settled by the Hon’ble Supreme Court in M/S. ESSILOR INDIA PVT. LTD. VERSUS COMMISSIONER OF CUSTOMS, BANGALORE [2016 (5) TMI 303 - SUPREME COURT] which has held that the goods could not be treated as “semi-finished” and it could be appropriately described as “to be finished spectacle lenses”. Therefore, such lenses would clearly be treated as spectacle lenses and were [xx] entitled to exemption notification which view was taken by even the department itself for earlier years. The issue stands settle insofar as eligibility for concessional rate of duty in terms of notification no. 6/2006-CE dated 1st March 2006 is concerned. The question of eligibility in the environment in which that exemption was replaced by the one relied upon by appellant thereafter, viz., notification no. 1/2011-CE dated 1st March 2011 vis-a-vis the amendment effected to the tariff stricture would need to be examined in the light of the decision of the Hon’ble Supreme Court. Time Limitation - HELD THAT:- It is found that the notice, while having travelled beyond the normal period of limitation for a portion of the disputed period is quite possibly within the limitation period for the remaining. The details, however, needs to be ascertained and, in view of the finding in relation to the latter two of the four show cause notices, it may be appropriate for being decided afresh. The impugned order set aside and matter remanded for a fresh decision - The appeal is, accordingly, disposed off by partially modifying the impugned order and remanding the remaining part of the impugned order. ISSUES PRESENTED AND CONSIDERED 1. Whether the goods cleared into the Domestic Tariff Area (DTA) characterised as 'spectacle lenses' were correctly classified as finished goods (tariff item corresponding to 9001 50 00) or were semi-finished/'to be finished' spectacle lenses (tariff item corresponding to 9001 90 90), thereby affecting exemption or concessional treatment. 2. Whether benefit of exemption/concessional rate under the relevant notifications (the exemption notification up to 2011 and the alternative concessional notification thereafter) is available where lenses are imported/produced and thereafter finished to customer prescription. 3. Whether the computation of 'aggregate duties of customs' under section 3 of the Central Excise Act should include the full extent of additional duty of customs when determining excise liability on DTA clearances. 4. Whether a subsequently issued show cause notice is time-barred (i.e., barred by limitation) for the period(s) claimed in that notice where an earlier notice had been issued covering overlapping periods. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification: finished spectacle lenses v. semi-finished (9001 50 00 v. 9001 90 90) Legal framework: Classification is governed by the tariff descriptions in the Schedule to the Central Excise Tariff Act; correct classification determines eligibility for exemption or concessional notifications applicable to 'spectacle lenses'. Precedent treatment: The Tribunal had earlier decisions treating such products as semi-finished; that view was later reversed by the Supreme Court in the cited authority which treated power lenses that require final finishing for particular prescriptions as 'to be finished spectacle lenses' and therefore within the exemption's ambit. Interpretation and reasoning: The Court examined the manufacturing process and accepted that the articles undergo finishing to fit individual prescriptions, but such finishing does not convert the character of the product into non-spectacle lenses. The Supreme Court's reasoning - that products described as power lenses intended to be finished for customers are to be regarded as spectacle lenses for tariff/exemption purposes - was applied to the period up to the date of the rescinded/earlier notification. Ratio vs. Obiter: The holding of the Supreme Court that 'to be finished spectacle lenses' are covered by the exemption is treated as binding ratio for the relevant period; any contrary Tribunal decisions were effectively overruled to that extent. Conclusions: For the period covered by the exemption notification up to 31 March 2011, the goods in question qualify as spectacle lenses and are eligible for the exemption/concessional treatment per the Supreme Court's authoritative interpretation. Accordingly, demands based on re-classification to semi-finished for that period cannot stand. Issue 2 - Availability of exemption/concessional rate under subsequent notification regime (post-2011) and effect of tariff structure amendment Legal framework: Availability of concession or exemption depends on the specific wording and tariff headings of the successive exemption/concessional notifications and any amendments to tariff structure; entitlement must be tested against the notification in force for the relevant period. Precedent treatment: The Supreme Court held continuity of benefit where there was no substantive change in tariff rate or nomenclature at eight-digit level; however, where notifications or tariff structure are amended, applicability requires fresh examination in light of the Court's decision. Interpretation and reasoning: While the Supreme Court's ruling settles entitlement under the exemption notification up to 2011, the Tribunal declined to extend that automatic result to the subsequent concessional notification regime without further assessment of whether the amended tariff structure or the changed notification wording affects eligibility. Ratio vs. Obiter: The application of the Supreme Court's principle to the earlier notification is ratio; the need for reassessment under the later notification is a procedural and substantive point of application rather than a point altering prior ratio. Conclusions: Entitlement under the later notification(s) (post-31 March 2011) is not decided conclusively by the Court and requires fresh adjudication by the original authority in light of the Supreme Court's interpretive guidance and the precise wording/tariff structure of the later notifications. Issue 3 - Inclusion of full additional duty of customs in 'aggregate duties of customs' for excise computation Legal framework: Section 3 of the Central Excise Act adopts the concept of 'aggregate duties of customs' as part of the assessable value/duty computation; the proper components to be included in that aggregate are a legal question of interpretation of the statute and notifications. Precedent treatment: The adjudicating authority had raised the issue of whether full additional duty must be included; the impugned order relied upon Tribunal precedent which had been addressed by higher court rulings in the line of cases discussed. Interpretation and reasoning: The Court identified the question as part of the substantive issues to be examined following determination of the correct classification and entitlement to exemption/concession. Because classification and entitlement materially influence whether additional duty is relevant and how it is to be aggregated, the Court remanded the matter for fresh consideration rather than resolving the inclusion issue itself. Ratio vs. Obiter: The decision to remit rather than decide the detailed computation issue is procedural; no new binding ratio on the inclusion of additional duty in aggregate duties was laid down in this order. Conclusions: The question of inclusion of the full extent of additional duty of customs in 'aggregate duties of customs' is left open and must be determined afresh by the original authority after addressing classification and notification-specific entitlement issues. Issue 4 - Limitation: validity of the later show cause notice for overlapping periods Legal framework: Statutory limitation for issuance of show cause notices and demands operates subject to the periods prescribed by law; overlapping notices raise questions of whether subsequent notices are time-barred for portions of the periods they cover. Precedent treatment: The adjudicating authority had declined to confirm demands in two notices because their periods overlapped with others; the Tribunal examined whether the later notice was barred for periods already covered or beyond limitation. Interpretation and reasoning: The Court found that part of the later notice extended beyond the normal limitation period while other portions may still lie within the limitation period. Because resolution of entitlement under the later notification and precise period-wise limitation implications require factual and legal re-examination, the Court set aside the impugned order insofar as demands for periods after 31 March 2011 and remanded for fresh adjudication limited to the normal period of limitation. Ratio vs. Obiter: The conclusion that portions of the later notice may be time-barred and that fresh inquiry is required is an operative finding guiding remand; no definitive ratio barring the entire notice was laid down. Conclusions: The later show cause notice is not held entirely time-barred; portions within the normal limitation period may be valid and must be adjudicated afresh. The demand up to 31 March 2011 is set aside in view of the Supreme Court's ruling on entitlement for that period. Disposition and remedial direction Having applied the Supreme Court's authoritative interpretation for the exemption period up to 31 March 2011, the Court set aside confirmed demands for that period. For the remainder (post-31 March 2011), including the question of classification under the later notification, inclusion of additional customs duty in aggregate duties, and limitation issues insofar as they overlap with the later show cause notice, the matter is remanded to the original authority for fresh decision within the scope delineated by the Court and consistent with the Supreme Court's decision; interest and penalty issues should be reconsidered as necessary in that fresh adjudication.