2011 (11) TMI 255 - AT - Central Excise

Manufacture of Ion Exchange Resins whether the copolymer beads cleared by the appellants to their sister unit for further processing are marketable or not - allegations of suppression against the appellant - cancellation of certificate issued under Rule 57E of Central Excise Rules assessee contended about non-marketability of intermediate stage beads captively consumed by them period involved May 1995 to March 1997 - Held that - It is proved on record that copolymer beads have been imported by M/s. Doshion Veolia Water Solutions Pvt. Ltd. in 2010 and Bills of Entry are placed on record. Therefore, relying on the decision of Nestle India Ltd (2011 -TMI - 208471 - CESTAT, NEW DELHI) wherein it was held it was not necessary that identical product should be marketable. Even if similar product is proved to be marketable, the test of marketability is satisfied. it is held that copolymer beads are marketable. Evidence of marketability of the product was produced by way of Bills of Entry only in 2010. Therefore, the issue of marketability of impugned product was not decided at that time thus it is held that extended period of limitation is not invokable. When demands are not sustainable, demanding interest and imposing penalty are also not sustainable. Rule 57(E)(3) was introduced to deny the Modvat Credit if the differential duty payable by the manufacturer was due to fraud, suppression, mis-statement etc only with effect from 01.03.97. The said rule does not have retrospective operation. Hence, for goods cleared prior to March, 1997, the said rule 57(E)(3) cannot be applied. See CCE V/s T I Metal Sections (2003 - TMI - 52365 - CESTAT, South Zonal Bench, Chennai). - Decided partly in favor of assessee.

Issues Involved:
1. Marketability of copolymer beads.
2. Invocation of extended period for demand.
3. Cancellation of the Rule 57E certificate.
4. Revenue neutrality and duty payment.
5. Imposition of penalty and interest.
6. Time-barred demand.

Issue-wise Detailed Analysis:

1. Marketability of Copolymer Beads:
The main contention was whether the copolymer beads were marketable. The appellants argued that the beads were intermediate products, not marketable in their crude form, and used exclusively within their manufacturing process. They cited various judicial precedents and technical literature to support their claim. However, the Tribunal noted that the Revenue provided evidence of similar products being imported, thus proving marketability. It was held that even if the exact product wasn't sold, the existence of a market for similar products satisfied the marketability test.

2. Invocation of Extended Period for Demand:
The appellants contended that the demand was time-barred as it was issued beyond the normal period. They argued that there was no suppression of facts since they had declared the value and paid differential duties as directed by the authorities. The Tribunal agreed with the appellants, noting that the issue of marketability was not settled until much later, and thus, the extended period could not be invoked. The Tribunal relied on the Supreme Court's decision in Ion Exchange and other cases to conclude that the extended period was not applicable.

3. Cancellation of the Rule 57E Certificate:
The Tribunal found the cancellation of the Rule 57E certificate to be incorrect. The certificate was issued for differential duty paid by the appellants, which was taken as credit by their other unit. The Tribunal noted that Rule 57(E)(3), which denies credit if differential duty is due to fraud or suppression, was introduced only in March 1997 and does not apply retrospectively. Therefore, the cancellation of the certificate for the period before March 1997 was held to be unsustainable.

4. Revenue Neutrality and Duty Payment:
The appellants argued that the duty now being demanded had already been paid by their other unit, making the entire exercise revenue-neutral. The Tribunal agreed, noting that the duty paid by one unit was available as credit to the other unit, resulting in no net loss to the Revenue. The Tribunal cited several decisions, including International Auto and Hindustan Zinc, to support the view that in cases of revenue neutrality, the demand should not be sustained.

5. Imposition of Penalty and Interest:
Since the Tribunal found that the demands were not sustainable due to being time-barred and the issue of marketability not being settled, it also held that the imposition of penalty and interest was not justified. The Tribunal emphasized that penalties could not be imposed when the primary demand itself was not sustainable.

6. Time-barred Demand:
The Tribunal concluded that the entire demand was time-barred. The appellants had declared the value and paid differential duties as directed by the authorities, and there was no evidence of suppression of facts. The Tribunal noted that the issue of marketability was not clear at the time, and the appellants had acted in a bona fide manner. Therefore, the extended period could not be invoked, and the demand was barred by limitation.

Conclusion:
The Tribunal allowed the appeal, setting aside the demand, penalty, and interest. It also held that the cancellation of the Rule 57E certificate was incorrect. The decision emphasized the importance of proving marketability and the proper invocation of the extended period for demand. The Tribunal's ruling was based on established legal principles and precedents, ensuring that the appellants were not unfairly penalized.

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