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CX - When Tribunal decides that goods are exempted under notf. 50/2003, it would have direct impact on rate of duty, therefore, appeal would lie before SC: HC

By TIOL News Service

NAINITAL, AUG 21, 2017: THE factory is located in the industrial area Selakui, Dehradun and engaged in the manufacture of LPG Cylinders. They addressed letter dated 30.11.2002 indicating that they wish to start manufacturing of ACSR Conductor and Steel Tubular Poles and sought endorsement in the existing registration certificate. Later, on 11.07.2003, they informed the department that they have started manufacturing of ACSR Conductors w.e.f. 01.04.2003 and would be availing excise exemption benefits under Notification No. 50/2003-CE dated 10.06.2003 as a new industrial unit.

The Department took the standthat the Company had evaded central excise duty on the clearances of Aluminium Wire with Steel Core (WEASEL) & Aluminium Wire with Steel Core (DOG), inasmuch as (i) there was discrepancy in the dates, and (ii) the case of the Company of a new unit (Conductor Division) was not correct, as the Khasra Nos. 238/1, 238/2, 235 & 237, at which the Conductor Division was situated, were the same as the one in which the Cylinder Division was situated and it could not be a new unit. The department's case, further, was that the Company had started commercial production of the Conductors well before 07.01.2003 and, hence, the contention that the Conductor Division is a new unit was questioned.

The Company also claimed the benefit of the Notification in Clause 2(b) on the score that it had undertaken an expansion of its capacity by more than 25 per cent.

The stand of the department, apparently, was that condition in Clause 2(b) of the Notification dated 10.06.2003 was not satisfied insofar as the documentary evidence produced by the Company in the form of Engineer's Certificate did not mention about the enhancement of the installed capacity in regard to the Conductor Division.

In other words, the stand of the Department was that there were two types of manufacturing divisions, namely, the Cylinder Division and the Conductor Division. Therefore, the installed capacity must be of both the Divisions together. The enhancement of installed capacity only relating to the Cylinder Division would not suffice to claim benefit under Clause 2(b).

Show-cause notices were issued proposing to levy duty, besides interest and penalty and in adjudication proceedings the Commissioner upheld the charges leveled.

The Tribunal allowed the appeals.

While doing so, the Bench inter alia held thus -

++ The amendment by notification No. 27/05-CE dated 19.5.05, by which the name of the village in which the Industrial Area "Selakui Industrial Region" falls was changed, is in our view, only a clarificatory amendment. Though, by the amending notification dated 19.5.05, some minor changes were made, the Khasra No. 235 to 243 still remain covered under this Industrial Area. For the purpose of this exemption notification, what is relevant is as to whether the manufacturing unit is located in the Industrial area/ estate mentioned in Annexure II and III and the khasra no. of the plot of land on which the unit is located is mentioned against that Industrial area. Just because the village in which the Industrial area falls was wrongly mentioned and the village name is corrected by amending notification, it does not mean that before the amendment, the unit was not located in the notified Industrial area and was not eligible for exemption .

As regards the question relating to the conductor unit being eligible for exemption, the Tribunal held -

+ In our view, in the context of this notification, the work ‘new' must be construed as not existing earlier.

+ The new industrial unit cannot be the one commencing commercial production on or before after 10/6/03, the date of issue of exemption notification - as, if this meaning is adopted, the condition of commencing commercial production on or after 7/1/03 would become redundant. Therefore, the word "new" has to be construed with regard to the reference date "7/1/03".

+ If an Industrial unit installed prior to 7/1/03 had commenced its commercial production prior to 7/1/03, it would be out of the purview of the notification.

+ For this purpose, distinction has to be made between "Commercial Production" and "Trial Production".

+ Trial Production is followed by commercial production.

+ Commercial Production starts only when the commissioning i.e. trial run is complete. Though during trial run, there may be some production and the manufacturer may have sold the same, the plant cannot be said to have commenced commercial production during that phase. The plant can be treated as having commenced commercial production only after completion of trial run i.e. commissioning.

Observing that production during the period prior to April, 2003 was only trial production, merit was found in the contention of the Company that commercial production started in April, 2003 and, therefore, it was concluded that the company was eligible for exemption from July, 2003 when the necessary declaration was filed. The Tribunal also proceeded to deal with the cylinder unit and found merit in the contention that capacity expansion need not be achieved in each section or part of the factory by concluding that a factory manufacturing more commodities in different sections has to be treated as consisting of more than one manufacturing unit; that the capacity expansion of the entire factory is not required .

The Department is in appeal before the Uttarakhand High Court.

The respondent assessee raised objection regarding the maintainability of the appeals under Section 35G of the CEA. Inasmuch it is their contention that the appeals would lie only under Section 35L before the Apex Court.

The argument is that the question decided by the Tribunal in this case is directly related to the rate of duty. A question having a relation with rate of duty is the exclusive preserve of the Apex Court on a conjoint reading of Sections 35G and 35L. If an exemption is available, the rate of duty will become zero or nil when there is a complete exemption. If there is only a partial exemption, the rate of duty will be reduced from the normal rate in accord with the terms of the exemption notification. When the Tribunal decides that the goods are exempted under the notification, it would have a direct impact on the rate of duty. Therefore, the appeal would lie before the Apex Court. [ Navin Chemicals Mfg. & Trading Co. Ltd. - 2002-TIOL-460-SC-CUS ; Mangalore Refineries & Petrochemicals Ltd. - 2011-TIOL-366-HC-KAR-CX ; Eco Products (I) P. Ltd. - 2012-TIOL-1108-HC-ALL-CX ; Special Machine - 2009-TIOL-450-HC-P&H-CX .]

The counsel for the Revenue raised a point that these appeals have been admitted and, therefore, the court may decide.

To this, the High Court observed –

++ The appeals were filed in the year 2015 and they were admitted on substantial questions of law Nos. 1 & 2. We would think that a question relating to the jurisdiction of the court cannot be brushed aside on the ground that it is being raised late. This is not a question of territorial jurisdiction. This is also not a question relating to pecuniary jurisdiction. This is a question, which goes to the very root of the matter, namely, it goes to the inherent jurisdiction of the court . If the appeal is one, where the impugned order of the Tribunal has decided a question having a relation with the rate of duty, clearly the appeal would not lie before the High Court and it would be maintainable only before the Supreme Court under Section 35L. Therefore, we cannot but decide this issue.

++ We have to decide on the basis of the provision in Section 35G read with Section 35L, as it stands insofar as the appeals have been filed after the amendment in sub-section (2) of Section 35L also. Section 35G provides for an appeal against the order of the Tribunal to the High Court. The appeal lies except when a question has been decided by the Tribunal having a relation with the rate of duty or the value of goods. In case, the decision relates to a question, which has a relation with the rate of duty or valuation, appeal is provided directly to the Supreme Court under Section 35L. If an appeal is maintainable before the Supreme Court, quite obviously, an appeal would not be maintainable before the High Court.

++ A decision on excisability or a decision on taxability by the Tribunal after the amendment in 2014 would confer exclusive jurisdiction on the Supreme Court. [Note: This amendment inserted by the FA, 2014 is sub-section (2) to section 35L and reads - (2) For the purposes of this Chapter, the determination of any question having a relation to the rate of duty shall include the determination of taxability or excisability of goods for the purpose of assessment.]

++ Parliament has chosen to use the words "taxability" and "excisability". It could be argued that, if the word "excisability" is understood in the same sense as "taxability", the question relating to the availability of the exemption notification is outside the scope of both "excisability" and "taxability"; in that, it could be said that it only means that the goods, which are excisable or taxable, are outside the net of taxation by virtue of the exemption notification. But, we would think that the better view and the right view could be that, in a case, where the goods are found excisable, Parliament intended in a case, where the Assessing Officer presses for payment, the assessee responds by pointing out that, though the goods are excisable, there is an exemption notification available, which protects him from actual taxation. If we understand the expression "taxability" in the said context, we would be acting in terms of the normal presumption, which is available when two different words are employed in the same statute and we would give life to both the words. Thus, the word "taxability" would cover a situation, where, though the goods are found dutiable otherwise, they are found to be non-taxable by virtue of the availability of an exemption notification. If a question arises as to the availability of the notification, then it goes to taxability.

++ It is a principle of interpretation that when the words have acquired a legal meaning or, rather, they have been interpreted by courts and they are used by the Legislature, it must be taken that the words are meant to be understood in the legal sense. [ Hindustan Zinc Ltd. vs. Commissioner of Central Excise, Jaipur, - 2005-TIOL-39-SC-CX-LB, Cadila Laboratories (P) Ltd. vs. CCE, - 2003-TIOL-01-SC-CX refers]

++ Therefore, we would proceed on the basis that when the Tribunal answers a question relating to excisability, it is equivalent to saying that it finds that the goods are dutiable and can be visited with the levy of excise duty.

++ We must also bear in mind that by virtue of sub-section (2) to Section 35L, the courts are obliged to proceed on the basis that a decision relating to "taxability" or "excisability" is to be treated as a question which has a relation with the rate of duty. This is virtually a deeming provision and, therefore, we need not actually explore the question even as to whether it really has a relation with the rate of duty.

++ We are of the view that the appeals are not maintainable for the reason that the appeals are maintainable only before the Supreme Court under Section 35L of the Excise Act in the context of the interpretation we have placed on the words "taxability" and "excisability". We need not, therefore, further explore the question whether de hors sub-section (2), the case would fall under sub-section (1) of Section 35G or Section 35L, as the case may be.

In fine, the appeals filed by Revenue were dismissed as not maintainable.

(See 2017-TIOL-1603-HC-UKHAND-CX)


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