2006 (11) TMI 405 - AT - Central Excise

Summary

Issues involved: Duty demand u/s 11D(3) of the Central Excise Act, 1944 on amount collected from merchant-manufacturers through debit notes.

Summary:
The appeal was against a duty demand of Rs. 1,85,09,688/- u/s 11D(3) of the Central Excise Act, 1944, where the appellants had collected Rs. 4,29,32,929/- from merchant-manufacturers through debit notes. The Commissioner confirmed the duty demand stating that the entire amount represented excise duty and should have been paid to the Central Government. The appellants had only paid Rs. 2,44,23,241/-.

It was acknowledged that the goods were manufactured by the appellants under the compounded levy scheme and cleared to merchant-manufacturers without involving sale. The appellants argued that Section 11D does not apply when goods are cleared without sale, citing a Supreme Court decision. The contention that the term "buyer" in Section 11D should include merchant-manufacturers was rejected since no sale was involved in the transaction.

Additionally, the appellants represented to the merchant-manufacturers that they were charging "handling and service charges" through the debit notes, not excise duty. Debit notes clearly indicated these charges. Before the compounded levy scheme, separate invoices were raised for processing charges and excise duty, but after the scheme, debit notes were used for handling and service charges. This further supported the argument that Section 11D did not apply in this case.

Moreover, Section 11D was deemed inapplicable to units operating u/s 3A of the Central Excise Act, who pay duty based on determined capacity, not for every clearance. Previous tribunal orders supported this, stating that Section 11D does not apply to units under the compounded levy scheme.

Ultimately, the impugned order was set aside, and the appeal was allowed.