2011 (9) TMI 391 - AT - Central Excise

Exemptions from export duty - Assessee manufactured transformers and supplied to govt. organization and availed benefit of exemption notification 108/95 - certificate issued by the project implementing authority were submitted to revenue - Projects were financed by Japan Bank International Co-operation - Held that - For eligibility of the goods for exemption what was relevant to be considered is whether the project is eligible in terms of the notification and JBIC is a declared International Organization. Once these two conditions are not satisfied, the issuance of the certificates by implementing authority would be of no avail. Therefore, when the certificate itself is held to be of no avail, the question of effect of cancellation does not arise. - Demand of duty made under section 11A upheld. Demand of duty - period of limitation -Held that - Once the facts are known to the department, the period is limited to one year and the show cause notice can be issued for short levy even in the cases where the department has made a mistake. In case of any mis-interpretation of Notification/ classification/ valuation etc show cause notice can always be issued within one year for correction. - the demand of duty beyond the period of limitation set aside.

Issues Involved:

1. Applicability of extended period of limitation.
2. Validity of certificates issued by the project implementing authority.
3. Subsequent cancellation of certificates and its retrospective effect.
4. Revenue-neutrality and its impact on duty demand.

Issue-wise Detailed Analysis:

1. Applicability of Extended Period of Limitation:

The appellant argued that the demand is time-barred as the show cause notice was issued by invoking the extended period of limitation. The Tribunal referred to the case of M/s Polycab Wires P. Ltd. & Anr. Vs. CCE Vapi, which held that the extended period of limitation is not available in similar circumstances. The Tribunal concluded that the demand of duty beyond the period of limitation cannot be confirmed. The relevant section of the Central Excise Act, 1944, was cited to support this conclusion, emphasizing that the extended period cannot be invoked due to the lack of fraud, collusion, or willful misstatement.

2. Validity of Certificates Issued by the Project Implementing Authority:

The appellant contended that the clearances were effected based on valid certificates issued by the project implementing authority and countersigned by the Principal Secretary to the State Government. These certificates were valid at the time of clearance, and their subsequent cancellation should not have a retrospective effect. The Tribunal agreed, noting that the certificates were valid and in existence at the time of clearance, and the appellant had complied with all conditions of the notification. The Tribunal cited the Supreme Court decision in M/s Vadilal Chemicals and the Larger Bench decision in M/s HICO Enterprises to support this view.

3. Subsequent Cancellation of Certificates and Its Retrospective Effect:

The Tribunal addressed whether the subsequent cancellation of certificates could deny the exemption. The Tribunal held that the certificates were valid at the time of clearance and their subsequent cancellation would not have a retrospective effect. The Tribunal cited the decision of the Andhra Pradesh High Court in the case of Sterlite Industries (I) Ltd., which emphasized that conditions for exemption must be strictly construed and the issuance of certificates by the implementing authority does not override the statutory requirements. Despite this, the Tribunal maintained that the certificates were valid at the time of clearance, and thus, the exemption could not be denied retrospectively.

4. Revenue-neutrality and Its Impact on Duty Demand:

The appellant argued that even if duty was paid, they would be eligible for a refund of terminal excise duty from DGFT, making the entire exercise revenue-neutral. The Tribunal acknowledged this argument, noting that the exercise is revenue-neutral and thus the demand cannot be sustained. The Tribunal referenced the decision in M/s Deepak Cable (India) to support this view. However, the Tribunal also noted that the provisions of Section 11A of the Central Excise Act, 1944, allow for the recovery of short-levied duty within the limitation period, irrespective of revenue-neutrality.

Separate Judgment Delivered by Member (Technical):

The Member (Technical) disagreed with the conclusion of the Member (Judicial) on several points. The Member (Technical) held that the demand for duty within the limitation period should be confirmed, as the subsequent cancellation of certificates indicated that the exemption was not valid. The Member (Technical) cited the judgment of the Andhra Pradesh High Court in Sterlite Industries (I) Ltd., which held that the conditions for exemption must be strictly construed, and the issuance of certificates by the implementing authority cannot override statutory requirements.

Opinion of the Third Member on Difference of Opinion:

The Third Member agreed with the Member (Technical), stating that the provisions of Section 11A(1) of the Central Excise Act, 1944, allow for the recovery of duty within the limitation period, even if the exemption was initially granted based on valid certificates. The Third Member emphasized that subsequent cancellation of certificates can result in the denial of exemption, and the department can issue show cause notices for recovery of differential duty. The Third Member also noted that even in a revenue-neutral situation, the department can recover the differential duty in accordance with the provisions of Section 11A.

Final Order:

In view of the majority order, the demand of duty beyond the period of limitation was set aside. The penalty imposed under Section 11AC was also set aside. The matter was remanded to the Commissioner for re-quantification of duty within the period of limitation. The appeal was disposed of accordingly.

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