CX - Exemption - deemed to have been duty paid even without production of documents evidencing payment of duty thereon : No duty required to be paid: SC
By TIOL News Service
NEW DELHI, AUG 31, 2016: ASSESSEE is an integrated textile apparel manufacturer. Assessee purchases excise duty paid yarn from the market on payment of excise duty. Assessee does not take any MODVAT credit of the duty paid on the yarn. Assessee manufactures the knitted fabrics in its factory out of the duty paid yarn. The knitted fabric is entirely captively consumed in the manufacture of knitted apparels. The apparels are thereafter cleared outside the factory.
Vide Union Budget 2002, a new excise duty scheme for textile sectors was introduced. Under this scheme, vide Notification Nos. 14/2002-CE and 15/2002-CE dated 01.03.2002, fabric manufacturers and garment manufacturers were given an option to operate under two different schemes.
Under one scheme, where the manufacturers of the fabric or garment wants to avail the MODVAT credit of the duty paid on the inputs or the capital goods, excise duty @ 75% of the normal rate of duty of 12% was levied.
Under another scheme, where the manufacturers do not want to avail of the MODVAT facility, complete exemption from excise duty to the fabrics and garments was granted.
Notification No. 15/2002-CE, grants exemption from whole of duty of excise leviable on knitted garments falling under heading 61.01 subject to the Condition that these garments are manufactured out of knitted fabrics on which appropriate excise duty has been paid and no cenvat credit of duty paid on the inputs or capital goods has been taken.
Show cause notice dated 27.03.2003 was issued by the Commissioner of Central Excise, proposing to deny the benefit of Notification No.15/2002-CE to the apparels and demanding excise duty in respect of the clearances made between 01.03.2002 to November, 2002. The Commissioner of Central Excise, Noida passed order-in-original dated 31.07.2003 confirming the duty demand imposing equivalent amount of penalty. The Tribunal passed the impugned final Order Nos. 1239-1240/04-NB(A) upholding the order of the Commissioner on the aspect of denial of Notification No. 15/2002-CE to the apparels. However, the Tribunal has set aside the penalty imposed on the assessee.
The Supreme Court observed,
The manufacturers of the fabric or garments were given choice to opt under one of two schemes. Normal rate of duty is 12%. The two notifications provided exemption and concessional rates respectively. Those who wanted to avail the MODVAT credit of the duty paid on the inputs or the capital goods, were supposed to pay excise duty at concessional rate i.e. 75% of the normal rate of duty. Under the other scheme, full exemption from payment of duty was granted to those who did not wish to avail the MODVAT credit facility. These two schemes were explained in the Budget Explanatory Notes issued by the Central Government.
Those who did not want to avail MODVAT facility were allowed to clear the goods without payment of any excise duty. It is in this context that the authorities were asked not to insist upon any documentary proof for payment of duty and this was transported into the notification, in the form of Explanation II. It, therefore, becomes clear that when Explanation II states that the duty shall be deemed to have been paid even without production of documents evidencing payment of duty thereon, it was clearly meant that no duty was required to be paid by the manufacturers of knitted garments. Such an intention is clearly reflected in the Government's own Budgetary Notes.
We, thus, hold that Explanation II to the said exemption Notification Nos. 14/2002 and 15/2002 create legal fiction and that was the precise purpose for which this explanation was added. It is trite law that a fiction created by a provision of law is to be given its due play and it must be taken to its logical conclusion.
Learned counsel for the assessees has brought to our notice another pertinent development. He submitted that because of conflicting views of the Tribunal, the matter was referred to a larger Bench of the Tribunal which has answered the reference by detailed judgment rendered on 28.10.2014 - 2014-TIOL-2524-CESTAT-AHM-LB, accepting the plea of the assessees and rejecting the stand of the Revenue. In any case, we have independently examined the issue and for the reasons stated above, we are of the opinion that benefit of exemption notification would be available to all these assessees.
Appeals filed by the assessees are allowed and those appeals preferred by the Revenue are dismissed.
(See 2016-TIOL-147-SC-CX)
