2011 (1) TMI 19 - HC - Central Excise

EOU returned goods second supply after return of defective goods exemption Held that - In terms of the notification No. 22/2003 goods cleared to 100% EOU are exempted from payment of Central Excise Duty. Obviously, the assessee committed an error in paying the excise duty. When the said goods were returned because of certain defects, in law they were entitled to claim Cenvat credit which they did. Later, after rectifying the defects in pursuance of a fresh purchase order, they supplied the very same goods to their customer, a 100% EOU. They were under no obligation to pay any duty as payment of duty was exempted vide notification No. 22/2003. On the date of second supply they were also in possession of CT3 certificates. When these facts are not in dispute, though there is no liability on the part of the assessee to pay excise duty, the proceedings initiated against the assessee claiming excise duty was without jurisdiction. The order demanding duty as well as penalty is also one without jurisdiction

Issues:
1. Challenge to the order passed by the Customs, Excise and Service Tax Appellate Tribunal by the revenue.
2. Payment of Central Excise duty by the assessee.
3. Availing Cenvat credit and clearance of goods to a 100% EOU.
4. Show cause notice issued by the revenue for clearing goods without payment of duty.
5. Tribunal's decision on the liability of the assessee to pay excise duty.
6. Compliance with legal requirements under Rule 16(3) by the assessee.

Analysis:
1. The appeal was filed by the revenue challenging the Tribunal's order granting relief to the assessee regarding the payment of Central Excise duty. The Tribunal held that the assessee was not liable to pay any excise duty as the goods cleared to a 100% EOU were exempted from payment of duty. The Tribunal set aside the duty demand and penalty imposed by the authorities, stating that the assessee committed no illegality in clearing the goods without paying duty. The revenue contended that the assessee failed to comply with Rule 16(3) requirements, but the Tribunal's interference with the lower authorities' orders was not justified according to the revenue.

2. The assessee, a manufacturer of Rural Automotive exchanges, cleared goods to a 100% EOU on payment of Central Excise Duty. When the customer rejected the goods due to defects, the assessee brought back the goods and availed Cenvat credit. Subsequently, after rectifying the defects, the assessee cleared the goods free of duty under CT-3 certificates. The revenue issued a show cause notice for clearing the goods without payment of duty. The Tribunal found that the assessee was entitled to claim Cenvat credit when the goods were returned due to defects. Moreover, when the goods were supplied again to the same EOU after rectification, the assessee was not liable to pay any duty as per the exemption notification.

3. The Tribunal's decision was based on the fact that the assessee had initially paid excise duty in error, which was exempted for goods cleared to a 100% EOU. The subsequent supply of goods after rectification, along with possession of CT3 certificates, did not impose any duty liability on the assessee. The Tribunal deemed the proceedings initiated against the assessee for claiming excise duty as without jurisdiction, leading to the dismissal of the revenue's appeal.

4. The Tribunal's judgment highlighted that the assessee's actions were in compliance with the legal provisions and exemption notifications regarding the clearance of goods to a 100% EOU. The Tribunal found no merit in the revenue's appeal and dismissed it, affirming that the assessee was not obligated to pay excise duty in the circumstances described.

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