2026 (2) TMI 1333 - AT - Central Excise

Reconciliation of Statutory Returns required: discrepancies between cess and duty returns do not alone sustain demands.

Discrepancies between Cess (CEC) and Central Excise Duty (CED) returns do not permit treating one statutory return as conclusive for the other; ... Levy of Clean Energy Cess as duty of excise payable at time of removal - sale of raw coal to customers - paying Central CED (CED) on coal and also paying Clean Energy Cess (CEC) on coal - central excise duty leviable on coal payable at time of removal - definition of 'removal' under CEC Rules - exclusion for captive consumption used for raising of goods - exemption notification 67/95-CE applicable to factory production not to mines - difference between distinct statutory returns cannot alone sustain duty demand; requires reconciliation and factual verification Definition of 'removal' under CEC Rules - exclusion for captive consumption used for raising of goods - levy of Clean Energy Cess as duty of excise payable at time of removal - central excise duty leviable on coal payable at time of removal - exemption notification 67/95-CE applicable to factory production not to mines - Whether coal cleared to the appellant's captive power plant is excluded from CEC and CED as 'used for raising of such goods' or covered by exemption notification 67/95-CE. - HELD THAT: - There is no direct correlation between the coal cleared to power plant and coal raised from the mines. It cannot be said that coal is being used indirectly in raising coal. Therefore, this exclusion, which has been adopted by the appellant for non-payment of CEC on the raw coal cleared to captive power plant, is not tenable. Once the duty has been levied in terms of section 83(3), only the payment of duty has been deferred till the time of dispatch. Therefore, we do not find that activity of generating power from coal in their power plant can be considered as used for further raising of such goods i.e., coal. The exclusion of coal produced and cleared without payment of CEC is not correct. Admittedly, coal has been produced in India, therefore, the authority to charge CED is under section 3. However, the duty is required to be paid in accordance with manner of payment provided under Central Excise Rules and therefore, the duty is normally required to be paid at the time of removal. The term ‘place of removal’ has been defined under section 4 as, inter alia, a factory or any other place or premises of production or manufacture of excisable goods. Thus, in the present case, since the production of excisable goods has taken place in the mines, the CED would be payable at the time of removal from the mines. We also note that this definition is also consistent with the provision for payment of CEC, where also, the CEC is required to be paid at the time of removal from the mines. Thus, the CED and CEC, which are levied under different statutory provisions, are required to be discharged at the time of removal from the mines in the manner provided under respective statutory provisions. Once having discharged CEC on the entire quantity cleared from mines to the washery, apparently, within the mines, then there is no requirement for payment of CEC again thereon. All these factual matrix needs to be checked for reconciliation of the statements to establish that whatever coal has been produced in the mines, appropriate CEC and CED has been discharged at the time of removal from the mines and any removal without payment of either CEC or CED has to be covered either by way of exemption or in terms of statutory provisions warranting exclusion of said clearance for the purpose of payment of CEC. The leviability of both statutory duty and cess are on the same excisable goods, which have been produced in the same mines and the payment has to be made at the time of removal from the mines. Therefore, in case there is any discrepancy between these two figures, the appellant is required to explain in order to satisfy that CED and CEC leviable on entire quantity has been paid on such coal produced in the mines except to the extent permissible. This may require reconciliation of clearances over a larger period as there could be some spillover on account of accountal as well as payment of CEC and CED due to difference in the date of removal of the coal and slurry and rejects, etc. The principal is, however, to ensure that they discharge payment of both the cess and CED on the entire quantity of coal produced in the mines and cannot claim any exclusion on account of its consumption in the power plant for raising the coal or for captive consumption in the absence of any statutory provisions or notification. Exclusion of coal cleared to captive power plant from CEC and CED is not tenable on the material placed; notification 67/95-CE is not applicable to the facts and cannot justify non-payment. Discrepancy between returns is not by itself a sustainable basis for demand; matters remanded for factual verification and re-computation to determine any short payment of CEC or CED. Final Conclusion: The Tribunal rejected the appellants' legal pleas that coal sent to captive power plants is automatically excluded from CEC/CED or covered by notification No.67/95-CE, and held that discrepancies between CEC and ER1 returns cannot alone sustain a demand; both sets of clearances must be reconciled. Both the appellants' appeals and the Department's appeal were allowed to the extent of remanding the matters to the original adjudicating authority for factual verification and re-computation in accordance with the Tribunal's observations. Issues: (i) Whether quantities shown in CEC returns and ER1 (CED) returns can be interchanged or one return taken as conclusive for discharge of the other duty/cess; (ii) Whether coal cleared to captive power plants qualifies as captive consumption for exclusion from CEC and/or CED; (iii) Whether a demand for CED/CEC can be sustained solely on the basis of discrepancies between the two statutory returns.Issue (i): Whether quantities reflected in CEC returns and ER1 returns may be taken reciprocally for discharge of CED or CEC.Analysis: CEC and CED are levies on the same excisable goods but arise under distinct statutory provisions and are payable at removal in terms of their respective rules. Differences in reported quantities may arise from varied modes of clearance (direct sale, captive use, dispatch to washeries) and differing rules and timing applicable to cess and duty. A plain numerical mismatch between two distinct statutory returns is not, by itself, conclusive; factual verification and reconciliation of clearances, accounting for stage and timing of payment and permissible exclusions, are required to determine actual short payment, if any.Conclusion: Quantities in one return cannot be mechanically treated as conclusive for discharge of the other; reconciliation and factual verification are required before any demand is sustained.Issue (ii): Whether coal dispatched to captive power plants qualifies as captive consumption within the mine and is therefore excluded from CEC and/or exempt from CED.Analysis: CEC Rules define removal to include dispatch for captive consumption within the mine except where used for raising of such goods. Exemption notification relied on relates to factory usage and does not apply to mines in the facts under consideration. The connection between coal supplied to a power plant and use in 'raising' coal must be established by facts showing that power generated is used for extraction activities; mere assertion of indirect use is insufficient. Where statutory provisions or notifications do not support the claimed exclusion, the claimed non-payment cannot be accepted without verification.Conclusion: Coal cleared to captive power plants is not automatically excluded from CEC or CED; the exemption/exclusion claims fail unless supported by statutory provision or factual proof demonstrating applicability.Issue (iii): Whether a demand can be sustained solely on discrepancy between CEC and ER1 returns.Analysis: Prior authorities disallowing demands based solely on comparison of different statutory returns were distinguishable where the returns related to different statutory regimes and no further investigation occurred. Where both cess and duty relate to the same excisable goods produced in the same mines and payment is tied to removal, discrepancies trigger a requirement for reconciliation over relevant periods and factual inquiry into timing, mode of clearance (ex-mine/ex-washery), and any permissible exclusions or deferred payments.Conclusion: A discrepancy between returns is not, by itself, a sufficient basis for demand; it requires detailed reconciliation and factual inquiry to establish short payment.Final Conclusion: The matters are remitted to the original adjudicating authority for factual verification and re-computation of any demand after reconciliation of CEC and CED clearances, timing of removals, applicability of exemptions/exclusions, and accounting for ex-washery and ex-mine clearances; no final fiscal determination is made by the Tribunal.Ratio Decidendi: Where cess and duty are levied on the same excisable goods produced in the same mines but under distinct statutory schemes, numerical differences between their separate statutory returns do not automatically sustain a demand; a remand for reconciliation and factual verification is required to determine whether full levy has been discharged at the time of removal or permissible exclusions apply.