By TIOL News Service

NEW DELHI, OCT 08, 2015: THE assessee had been importing 'Roasted Molybdenum Ore' and claiming the benefit of Nil CVD duty in terms of Notification No.4/2006-CE as available to 'Ores'.

According to the department, Roasted Molybdenum Ore was, in fact, 'Ore Concentrate' which was different from 'Ores' and, therefore, benefit of said Notification No.4/2006-CE was not available to the assessee.

The benefit of exemption was denied, duty was confirmed (Rs.3.78 cr), interest was held payable, goods were confiscated with an option to redeem the same on payment of redemption fine and penalties were imposed. The period involved is March, 2011 to July, 2011& September, 2011.

The CESTAT, in February 2013,concurred with the opinion of the adjudicating authority on the merits of the case and passed the following order -

"8. To sum up, we uphold the duty demand and interest thereon under the provisions of Sections 28 of the Customs Act along with interest thereon under Section 28AA. However, we set aside the confiscation of the goods under Section 111 of the said Act and imposition of redemption fine under Section 125 and penalty under Section 114A ibid."

The importer is before the Supreme Court. [Civil Appeal No. 6088 of 2013]

It is pertinent to note that the instant appeal was tagged with Civil Appeal No.1036 of 2007 titled Commissioner of Customs (Imports) v. M/s. Hindustan Gas and Industries Ltd. That was an appeal which related to the period from September 02, 1998 to October 1999. The issue was identical inasmuch as there also the importer had imported Molybdenum Concentrate and claimed benefit of exemption Notification No. 5/1998-CE which was prevalent at the material time and it exempted 'Ore' vide Sl. No.10 of the said notification from payment of excise duty. There also the adjudicating authority had taken the view that after the Molybdenum Ore was subjected to the process of Concentratic and Roasting it had become a different product, namely, Molybdenum Oxide and did not remain 'Ore' and, therefore, was not entitled to the benefit of exemption notification which applied only to the commodity 'Ore'.

In an appeal, however, Mumbai Bench of CESTAT (in case of Hindustan Gas) set aside the order of the adjudicating authority holding that even after Molybdenum Ore had undergone the process of Roasting, it remained Ore and there was no difference between Ore and Concentrate which were one and the same product.

Nonetheless, the appeal of the Revenue against the aforesaid order of the CESTAT was dismissed by the apex court on the ground that the tax effect involved in the said appeal is negligible. This judgment is relied upon by the importer involved in the present appeal.

Incidentally, in chapter 26 of the CETA, 1985, in the year 2011, a Chapter Note 4 was added, which reads:

" 4. In relation to products of this Chapter, the process of converting ores into concentrates shall amount to "manufacture".

Description of Tariff Item 2613, however, remained the same. It reads -

The Supreme Court after considering the elaborate submissions inter alia distinguished the decision in Hindustan Gas case and further observed -

++ It is very clear from the reading of the judgment in Hindustan Gas case that basic and the common thread which runs throughout the decision is that subjecting ore to the process of roasting does not amount to manufacture. This very basis gets knocked off with the amendment carried out in the year 2011 with the insertion of Note 4. Note 4 now categorically mentions that the process of converting ores into concentrates would amount to 'manufacture'. Therefore, it cannot now be argued that roasting of ores and converting the same into concentrates would not be manufacture. For the same reason, the judgment in MMTC becomes inapplicable and reliance upon Kirk-Othmer's Encyclopedia becomes irrelevant. With the addition of Note 4, a legal friction is created treating the process of converting ores into concentrates as manufacture. Once this is treated as manufacture, all the consequences thereof, as intended for creating such a legal friction, would automatically follow.

++ Following shall be the inevitable implications:

(a) It is to be treated that Molybdenum Ore is different from concentrate. That is inherent in treating the process as 'manufacture' inasmuch as manufacture results in a different commodity from the earlier one.

(b) The purpose of treating concentrate as manufactured product out of ores is to make concentrates as liable for excise duty. Otherwise, there was no reason to deem the process of converting ores into concentrates as manufacture.

++ Once the aforesaid legal repercussions are taken note of, as a fortiori, it becomes obvious that Notification No. 4/2006-CE which exempts only ores would not include within itself 'concentrates' also because of the reason that after the insertion of Note 4, concentrate is to be treated as a different product than ores, in law for the purposes of products of Chapter 26 .

++ On the basis of deeming fiction created by Note 4, once we arrive at the conclusion that process of roasting of Ore amounts to manufacture and it creates a different product known as Concentrate, for the purpose of exemption notification, which exempts only 'Ores' it is not possible to hold that Concentrate will still be covered by the exemption notification . Therefore, harmonious construction of Note 2 and Note 4 would lead us to hold that in those cases when Note 4 applies and Ores becomes a different product, it ceases to be Ores.

++ If we accept the submission of the learned counsel for the assessee predicated on Note 2, then Note 4 even after its conscious inclusion, would be rendered otiose which cannot be countenanced. Therefore, Note 2, when seen along with Note 4, has to govern itself in limited territory.

++ The Tribunal has rightly arrived at the conclusion that by virtue of Note 4, concentrate has to be necessarily treated as different from ores which is deemed as manufactured product after Molybdenum Ores underwent the process of roasting. Once we keep in mind that conversion of ores into concentrate is considered as manufacture and, therefore, becomes liable for central excise levy, exemption Notification No. 4/2006-CE is to be interpreted in this light as the Legislature has intended to treat ores and concentrates as two distinct items and Notification No. 4/2006-CE exempts only 'ores', concentrates automatically falls outside the purview of said notification.

++ Exemption notifications are to be construed strictly and even if there is some doubt, benefit thereof shall not enure to the assessee but would be given to the Revenue. This principle of strict construction of exemption notification is now deeply ingrained in various judgments of this Court taking this view consistently.

Interestingly, the assessee submitted that the entire exercise is Revenue neutral because of the reason that the assessee would, in any case, get Cenvat credit of the duty paid.

To this submission, the Supreme Court observed -

"…If that is so, this argument in the instant case rather goes against the assessee. Since the assessee is in appeal and if the exercise is Revenue neutral, then there was no need even to file the appeal. Be that as it may, if that is so, it is always open to the assessee to claim such a credit."

Holding that there is no merit in the appeal, the same was dismissed with cost.

(See 2015-TIOL-234-SC-CUS)