CX - Compounded levy - When there is an undisputed fact of no production, no duty liability can be fixed: CESTAT
By TIOL News Service
NEW DELHI, MAR 07, 2017: THE assessee/appellants located in Rajasthan are registered manufacturers of stainless steel patta/pattis and had opted for payment of excise duty as per the scheme formulated under Notification No. 17/2007-CE dated 01/03/2007 as amended. The scheme envisages payment of excise duty based on number of cold rolling machines installed in the factory and which during the impugned period was forty thousand rupees per cold rolling machine, per month.
The Rajasthan State Pollution Control Board issued a ban on the operations of factories of assessee/appellants in February 2013 pursuant to which power and water supply was also disconnected.
The closure of factory and dismantling of the cold rolling machines was also intimated by the assessee/appellants to the jurisdictional CE officers.
Two months later, the ban was lifted by the Pollution Control Board and the assessee/appellants reinstalled the cold rolling machines and commenced operations with effect from 01/05/2013. They also discharged CE duty in terms of the scheme.
Proceedings were initiated against the assessee/appellants to recover central excise duty for the period March 2013 to August 2013 on the ground that they have failed to comply with the provisions and conditions of the notification No. 17/2007-CE.
The original authority confirmed the liability of duty against which the 21 assessees are in appeal before the CESTAT. Revenue is also unhappy as no penalty was imposed in spite of confirmation of the CE duty demand.
After considering the submissions made by the assessee-appellant, the CESTAT made the following detailed observations -
+ Nowhere in the proceedings before the Original Authority it is recorded that the assessee/appellant have opted out of the special scheme. Neither it is recorded that any of the deliberate action on the part of the assessee/appellant will indicate that they are not continuing in the said scheme. The central point of dispute is that due to forced closure of the unit by the State authorities, the assessee/appellant could not manufacture or operate their machinery during March and April 2013. Such forced closure cannot be termed as a failure on the part of the assessee/appellant to avail the special procedure. The permission granted to the assessee/ appellant to avail the special procedure and all other circumstances which make them eligible for such concession is existing all along. The closure of units admittedly, beyond the control of the assessee/appellant, is not to be treated as a failure to comply with the provisions and conditions of the notification during the period of forced closure of the units. The non-production of excisable goods during these two months can more appropriately termed as ceasing to work rather than failure to comply with the provisions.
+ The Rajasthan High Court in the case of CCE, Jaipur - II vs. Jupiter Industries = 2006-TIOL-459-HC-RAJ-CX, examining the assessee's liability under compounded levy scheme during the period of non-operation of machines, held that manufacture of goods is condition precedent for charging of excise duty without which no levy can be made. Therefore, the rule cannot be made to go beyond the scope of charging provision; that when there is an undisputed fact of no production during the material period no duty liability can be fixed on the assessee .
Alternative reasoning:
++ The show cause notices issued to the assessee/appellants are to demand differential duty for the period March to August 2013. For the period March and April 2013, admittedly, the assessee/appellant did not pay any duty. The rate of excise duty fixed per cold rolling machine is Rs.40,000 per month + cess applicable. The duty demand for the whole period emanated because of assessee's non-payment of duty for March 2013 and April 2013 because of closure. Such closure was considered as failure to follow the special procedure. Suppose we consider a situation where even during such closure the assessee/appellant discharged the duty payable as per the special procedure, based on number of cold rolling machine, then the question of "failure" would not have arisen and the demand for subsequent 4 months also would not have also arisen.
Eg. Assessee/appellant who has got six cold rolling machines installed has to discharge Rs.2,47,200/- as central excise duty per month. The said assessee/appellant discharged the said duty for the period May to August 2013 as per the said rate. However, for March and April 2013 no duty was paid. This resulted in a demand of Rs.1,32,38,252/-. If the assessee/ appellant paid the said Rs.2,47,200/- for each month during March and April 2013 also then the whole demand will become unsustainable on the simple premise that the assessee/appellant continued to follow and discharge duty as per the special scheme. In other words, in case of payment of amount of about Rs.5 lakhs as duty liability for two months, even though no manufacture happened during that period because of closure, the Revenue could not have taken the plea that there is a failure to follow the special procedure. Such non-payment of around Rs. 5 lakhs resulted in a demand of Rs.1,32,38,252/- for the six months period, as stated above. We find the whole basis of demand is untenable …. As such, the presumption of the Revenue regarding “failure” of the assessee to follow the special procedure resulting in a differential demand for six months is not legally sustainable.
++ Non-exercising power under para 7 (by original authority) is not legally sustainable. No reason or finding is recorded in this regard except that the assessee/appellant did not apply to the Jurisdictional AC/DC in terms of the said para. As already noted, the Original Authority, being Commissioner of Central Excise, is competent to decide the issue as per the powers granted under para 7 [Power to condone failure to apply for special procedure], even during the course of adjudication. There is no case for denying the provisions of special scheme to the assessee/appellant.
Concluding that the impugned orders confirming the differential duty are not legally sustainable, the same were set aside and the appeals were allowed.
Consequently, the Revenue appeals were dismissed.
(See 2017-TIOL-714-CESTAT-DEL)
