Factory closure mandated by Pollution Control Board exempts from excise duty liability during non-production period

CESTAT Ahmedabad allowed the appeal challenging excise duty demand for March-April 2015 when appellant's factory remained closed. Revenue confirmed demand arguing closure was less than 3 months under compounded levy scheme. Tribunal held that closure was involuntary, mandated by Gujarat Pollution Control Board, making it beyond appellant's control. Relying on Sarthi Rubber Industries precedent, CESTAT ruled that forced closure cannot be treated as failure to comply with notification provisions. Non-production during involuntary closure constitutes ceasing to work rather than non-compliance. Duty liability during forced closure period was unsustainable, and impugned order was set aside.

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Issues Involved:
1. Compulsion to close the factory due to non-receipt of consent order from the Gujarat Pollution Control Board.
2. Demand of excise duty for the period when the factory was closed.
3. Adjudication and appeal process.
4. Reliance on previous judgments and legal provisions.

Issue-wise Detailed Analysis:

1. Compulsion to Close the Factory:
The appellant was compelled to close their factory during March 2015 and April 2015 due to non-receipt of the consent order from the Gujarat Pollution Control Board. This closure was beyond the control of the appellant. The factory's closure was communicated to the department via a letter dated 27.02.2015, indicating the stop of production from 23.02.2015.

2. Demand of Excise Duty:
Despite the factory's closure, the range officer demanded the duty for March and April 2015 through a letter dated 23.04.2015. The appellant responded on 07.05.2015, stating that duty should be abated due to the involuntary closure. However, a show cause notice dated 31.08.2015 was issued by the Assistant Commissioner, proposing a demand of Rs. 2,40,000/- along with interest and penalty. The adjudication confirmed the demand on the ground that the factory was not closed for more than three months.

3. Adjudication and Appeal Process:
The appellant appealed to the Commissioner (Appeals), who upheld the original order and rejected the appeal. The present appeal was then filed by the appellant. The appellant argued that the closure was not by choice but due to circumstances beyond their control, thus excise duty should not be demanded for the period of closure. They relied on the judgment in the case of Sarthi Rubber Industries (P) Ltd. v. Commr. Of C. Ex. & S. T., Alwar.

4. Reliance on Previous Judgments and Legal Provisions:
The Tribunal noted that the closure was beyond the appellant's control, similar to the case of Sarthi Rubber Industries (P) Ltd., where the demand of excise duty was dropped due to forced closure by state authority. The relevant legal provisions from Notification No. 17/2007-C.E. were discussed, emphasizing that forced closure cannot be treated as a failure to comply with the notification's provisions. The Tribunal also referenced the Rajasthan High Court's judgment in CCE, Jaipur-II v. Jupiter Industries, which held that manufacture of goods is a condition precedent for charging excise duty.

The Tribunal found that the original authority erred in distinguishing the Rajasthan High Court's order and should have considered the circumstances of the closure. The Tribunal emphasized that the non-production of excisable goods during the closure period should be considered ceasing to work rather than failing to comply with the provisions. The Tribunal concluded that the demand for differential duty was not legally sustainable and set aside the impugned orders.

Conclusion:
The Tribunal ruled that the appellant cannot be held liable for excise duty during the factory's closure period, which was beyond their control. The impugned order was set aside, and the appeal was allowed. The judgment emphasized that forced closure due to external factors should not result in excise duty liability, aligning with previous judicial interpretations.

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