2006 (4) TMI 164 - HC - Central Excise

Refund Approved: Excise Duty on Dismantled Machinery to Be Returned as No Duty Was Levied Under Relevant Rules.

The CEGAT upheld the assessee's claim, directing a refund of excise duty paid for a dismantled, non-operational machine, as no duty was leviable under the ... Refund of excess excise duty under Section 11B - special compounded levy scheme under Chapter E-VI (Rules 96ZA-96ZGG) - calculation of compounded duty by reference to maximum number of machines in preceding three calendar months - requirement of manufacturer 27s declaration and intimation of change in number of machines (Rule 96ZC) - principle that excise is leviable only on manufacture/production - unjust enrichment and passing-on defence to denial of refundRefund of excess excise duty under Section 11B - special compounded levy scheme under Chapter E-VI (Rules 96ZA 2D96ZGG) - Whether excess duty paid under the special procedure is refundable under Section 11B when the duty was demanded in respect of a cold rolling machine that had ceased to operate during the relevant period - HELD THAT: - The Tribunal found, and this Court agrees, that the special procedure in Chapter E-VI levies duty by reference to estimated production per machine but does not contemplate levy where a machine has been dismantled and no production from that machine has taken place. On the undisputed facts the machine was dismantled on 29-5-1998 and produced nothing during June 2DAugust 1998; the duty demanded in respect of that non-existent production was therefore not leviable. Refund under Section 11B is available where duty has been collected in excess of what is leviable under the taxing statute. The mere fact that the payment was made under the special procedure does not bar refund when the payment was in excess and not supportable by the statute or rules. Accordingly the Tribunal was right in directing refund of the excess amount paid in respect of the dismantled machine. [Paras 23, 24, 25]Refund ordered under Section 11B in respect of duty collected for the machine that had ceased to operate; Tribunal 27s direction to refund sustained.Calculation of compounded duty by reference to maximum number of machines in preceding three calendar months - requirement of manufacturer 27s declaration and intimation of change in number of machines (Rule 96ZC) - principle that excise is leviable only on manufacture/production - Whether sub-rule (2) of Rule 96ZB mandates charging compounded duty for the maximum number of machines installed during the three months immediately preceding the application irrespective of whether a machine ceased to operate before the relevant levy period - HELD THAT: - The Court examined the special procedure as a whole and the related provisions (including Rule 96ZC and Rule 96AC) and held that sub-rule (2) of Rule 96ZB cannot be read in isolation so as to require levy in respect of a machine that had ceased to exist and produced nothing during the levy period. Rule 96ZC distinguishes between the manufacturer's declaration for removal of manufactured articles and the separate requirement to intimate change in number of machines; the charging provision in the parent Act and the basic principle that excise is on manufacture/production constrains the rules: if no production from a machine occurred in a month, excise cannot be levied for that machine for that month. To construe sub-rule (2) as imposing levy regardless of actual cessation would render parts of the scheme redundant and exceed the charging provision. [Paras 15, 16, 21, 22, 23]Sub-rule (2) of Rule 96ZB does not permit charging compounded duty for a machine that was dismantled and produced nothing during the period; levy must conform to the requirement of actual manufacture/production as constrained by the charging provisions and related rules.Final Conclusion: The reference is answered in favour of the assessee: the Tribunal 27s order directing refund under Section 11B for duty collected in respect of the dismantled cold rolling machine for the period 1st June, 1998 to 31st August, 1998 is upheld and the revenue 27s contention that the special rules preclude such refund is rejected. There shall be no order as to costs. Issues Involved:1. Whether the Central Excise and Gold Control Appellate Tribunal (CEGAT) can allow a refund under Section 11B of the Central Excise Act, 1944, when it was specifically not allowed by sub-rule (2) of Rule 96ZB of the Central Excise Rules, 1944.Issue-wise Detailed Analysis:1. Context and Background:The respondent assessee engaged in the manufacturing of stainless steel pattas/patties was subject to Central Excise Duty under Chapter 72 of the Central Excise and Tariff Act. The dispute arose concerning the levy of duty for the period from June 1, 1998, to August 31, 1998, as compounded duty for a cold rolling machine that ceased operation on May 29, 1998.2. Special Procedure for Duty Payment:The assessee availed the special procedure under Chapter E-VI of the Central Excise Rules, 1944, which included provisions from 96ZA to 96ZGG. The special procedure allowed the assessee to pay duty at a compounded rate per machine rather than on actual production.3. Assessee's Contention:The assessee argued that after dismantling one of the two cold rolling machines on May 29, 1998, they were liable to pay compounded duty only for the one machine that remained operational from June 1, 1998.4. Revenue's Position:The competent authority insisted that the assessee was required to pay duty for three successive months after the removal of one machine, based on the maximum number of machines installed in the preceding three months, as per sub-rule (2) of Rule 96ZB read with Rule 96AC.5. Tribunal's Ruling:The Tribunal upheld the assessee's contention, directing a refund for the duty paid during the period when the dismantled machine was not operational. It concluded that none of the rules under Chapter E-VI mandated duty payment for a machine that was dismantled and not in production.6. Legal Interpretation:The court analyzed Rule 96ZB and Rule 96ZC, emphasizing that the special procedure for duty payment under Rule 96ZB is based on the average production per machine. Sub-rule (2) of Rule 96ZB, which calculates duty based on the maximum number of machines in the preceding three months, must be read in conjunction with sub-rule (1).7. Application and Intimation Requirements:The court differentiated between the requirement of an application for removing manufactured articles and the mere intimation needed for changing the number of machines. The Assistant Commissioner and Commissioner (Appeals) misinterpreted this distinction, erroneously linking the application requirement to the removal of machines.8. Fundamental Principle of Excise Duty:The court reiterated that excise duty is contingent on the production of goods. Without production, no duty can be levied. Since the machine was dismantled and non-operational from June to August 1998, no duty was leviable for that period.9. Unjust Enrichment:The court noted that in cases where no goods were produced, the principle of unjust enrichment does not apply. Therefore, the refund of excess duty paid for the non-operational machine was justified.Conclusion:The court affirmed the Tribunal's decision, stating that the Tribunal rightly concluded that the duty was not leviable for the dismantled machine and directed the refund. The question referred was answered in favor of the assessee and against the revenue, with no orders as to costs.