2001 (10) TMI 970 - AT - Central Excise

Rural area - Meaning and scope - Demand - Limitation - Certificate of Tahsildar sufficient to sustain assessee s claim

Issues Involved:
1. Eligibility for exemption under Notification No. 88/88-C.E. and Notification No. 13/92-C.E.
2. Definition and classification of "rural area" and "village" for the purpose of the exemption.
3. Allegations of suppression of facts by the assessee.
4. Applicability of the extended period for demand under Section 11A of the Central Excise Act.
5. Penalty and interest under Sections 11AC and 11AB.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Notification No. 88/88-C.E. and Notification No. 13/92-C.E.:
The assessee, a manufacturer of synthetic detergents registered under the Khadi & Village Industries Act, 1956, claimed exemption from central excise duty under Notification No. 88/88-C.E. and Notification No. 13/92-C.E. The Commissioner of Central Excise denied this exemption, asserting that the manufacturing unit did not fall within a "rural area" as defined by the notifications. The assessee argued that they correctly availed of the exemption for their products, including detergent cakes and powders, and that their manufacturing area, Mira, qualified as a rural area.

2. Definition and Classification of "Rural Area" and "Village":
The core issue was whether Mira, where the assessee's unit was located, qualified as a "rural area" under the exemption notifications. The Commissioner held that Mira, being part of the Mira Bhayander Municipal Council, did not qualify as a rural area due to its population exceeding 10,000. The assessee contended that Mira was still considered a village in revenue records and thus met the criteria for a rural area. The Tribunal noted that the definition of "rural area" in the notifications included areas recognized as villages in revenue records, irrespective of population. The Tribunal accepted the assessee's argument, supported by a certificate from the Tahasildar, Thane, confirming Mira as a revenue village.

3. Allegations of Suppression of Facts by the Assessee:
The Department alleged that the assessee suppressed the fact that Mira was not a rural area, intending to evade central excise duty. The Tribunal found that the assessee had filed classification lists and obtained approval from the Assistant Commissioner. It was held that the assessee did not willfully suppress facts, as they relied on the classification lists and the certificate from the Tahasildar. The Tribunal emphasized that the complexity of interpreting the term "village" and the genuine belief of the assessee in their eligibility for exemption negated the allegation of suppression.

4. Applicability of the Extended Period for Demand under Section 11A:
The Department invoked the extended period for demand, citing suppression of facts by the assessee. The Tribunal held that the extended period could not be invoked as the assessee had a bona fide belief in their eligibility for exemption based on the classification lists and the certificate from the Tahasildar. The Tribunal referred to the case of Rainbow Ink & Varnish Mfg. Co. Ltd. v. CCE, which held that the consequences of approval by the Assistant Commissioner must be borne by the revenue.

5. Penalty and Interest under Sections 11AC and 11AB:
Given the Tribunal's findings that the assessee did not willfully suppress facts and that the demand under the extended period was not sustainable, the imposition of penalty and interest under Sections 11AC and 11AB was not warranted. The Tribunal allowed the assessee's appeals, dismissed the Department's appeal, and disposed of the cross-objection filed by the assessee.

Conclusion:
The Tribunal concluded that the assessee's manufacturing unit in Mira qualified as a rural area under the exemption notifications, and the assessee was entitled to the claimed exemptions. The allegations of suppression were not upheld, and the extended period for demand was deemed inapplicable. Consequently, the assessee's appeals were allowed, the Department's appeal was dismissed, and no penalties or interest were imposed.

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