2010 (8) TMI 388 - AT - Central Excise

SSI Exemption - respondent had opted to avail of the exemption under Notification No. 8/99-C.E., where the clearances starting from 1st April and upto Rs. 50 lakhs are fully exempt from duty and the next clearances worth Rs. 50 lakhs attract duty at a concessional rate of 5% ad valorem - condition No. (v) of this Notification is that the manufacturer does not utilize the capital goods Cenvat credit for payment of duty in respect of his clearances upto Rs. one crore in respect of which the benefit of exemption is being availed - respondent used capital goods Cenvat credit for payment of duty on a consignment - exemption under Notification No. 8/99-C.E. is not meant to be availed clearance-wise at the option of the Assessee - if any of the conditions mentioned violated, the assessee would cease to be eligible for the entire exemption Demand of interest confirmed penalty waived

Summary

Issues Involved:
1. Eligibility for SSI exemption under Notification No. 8/99-C.E.
2. Violation of condition (v) of Notification No. 8/99-C.E. by utilizing capital goods Cenvat credit.
3. Consequences of violating exemption conditions.
4. Interpretation and application of exemption notifications.
5. Penalty imposition under Rule 173Q of Central Excise Rules.

Issue-wise Detailed Analysis:

1. Eligibility for SSI Exemption under Notification No. 8/99-C.E.:
The respondents, manufacturers of Vulcanised Rubber, were availing the SSI exemption under Notification No. 8/99-C.E., dated 28-2-99, which provided full duty exemption on the first clearances up to Rs. 50 lakhs and a concessional rate of 5% ad valorem on the next Rs. 50 lakhs. This exemption was subject to certain conditions, including not availing credit of duty on inputs and capital goods for specified clearances.

2. Violation of Condition (v) of Notification No. 8/99-C.E. by Utilizing Capital Goods Cenvat Credit:
During scrutiny, it was found that the respondents paid duty amounting to Rs. 1228/- on 25-5-99 using capital goods Cenvat credit, violating condition (v) of the notification. This condition prohibited the utilization of capital goods credit for payment of duty on clearances up to Rs. one crore. The Department issued a show cause notice on 26-11-99, demanding differential duty of Rs. 13,50,000/- along with interest and penalty.

3. Consequences of Violating Exemption Conditions:
The Additional Commissioner adjudicated that the respondents were not eligible for the SSI exemption only for the consignment cleared under Invoice No. 52 dated 25-5-99, where the duty was paid using capital goods credit. The Commissioner (Appeals) upheld this view. However, the Tribunal disagreed, stating that violation of any condition of the notification results in the loss of the entire exemption for clearances up to Rs. one crore, not just for the specific consignment.

4. Interpretation and Application of Exemption Notifications:
The Tribunal emphasized that exemption notifications must be strictly construed. If an exemption is subject to certain conditions, non-fulfillment of those conditions disqualifies the assessee from the exemption. The Tribunal referenced the Supreme Court's judgment in Eagle Flask Industries Ltd. v. C.C.E, Pune, asserting that conditions for exemption must be fully met. The Tribunal also clarified that the judgment in Chandrapur Magnet Wires (P) Ltd. v CCE, Nagpur was not applicable here, as the reversal of Cenvat credit in Chandrapur was done before clearance, unlike the post-clearance reversal in this case.

5. Penalty Imposition under Rule 173Q of Central Excise Rules:
While confirming the duty demand and interest, the Tribunal waived the penalty under Rule 173Q, considering the circumstances of the case.

Conclusion:
The Tribunal set aside the impugned order, confirmed the duty demand along with interest, and waived the penalty. The appeal by the Revenue was disposed of accordingly.