2012 (12) TMI 463 - AT - Central Excise

Demand of excise duty on cement clinkers produced - captively consumed in the same factory for production of cement which was exempted from duty - according to the appellants excise duty is payable on removal of goods from a factory the demands are not maintainable Held that - As can be seen from facts recorded above, the disappearance of Explanation-II positioned below sub-rule (3) of the Rule 4 is a very obvious conclusion for private publishers of the amended Rules and persons carrying out amendments on the web site of C.B.E. & C. It is most probably a matter of surprise to the policy makers because there was no policy change announced to the effect that excise duty need not be paid for captive consumption from 25-2-2003. It can also be a source of worry to them for the future. It may be a matter of embarrassment to the person who drafted the amendment. It appears to be a matter of delight for the Counsels who argue that duty liability can no longer arise in the case of captive consumption of excisable goods. It is a matter of labour for judicial forums to decide whether the explanation has gone or not. Explanation-II explicitly stated to be for the purpose of Rule 4 put placed after sub-rule (3) but before the non obstante clause 4 did not get omitted by amendments made by Notification No. 24/03-C.E. (N.T.). The fact that Explanation-I if retained is redundant is not a sufficient reason to conclude that both explanations were dropped. There cannot be any argument that the appellants were under the bona fide impression that duty liability on goods captively consumed has been done away with by issue of Notification No. 24/03-C.E. (N.T.), because no such argument was taken any time in proceedings before lower authorities and was taken for the first time before the Apex Court. There was no policy change announced to that effect. The appellants cannot take note of the wrongly constructed rules after amendment as published on web-site of C.B.E. & C. and at the same time ignore the supplementary instruction issued by C.B.E. & C. Even in the absence of Explanation No. II in Rule 4 of Central Excise Rules duty liability will arise in this case. Thus we are of the view that Explanation-II of Rule 4 has not been dropped by Notification No. 24/2003-C.E. (N.T.). Further even in the absence of the explanation there is a duty liability that arises when clinker is removed within the factory for manufacture of cement.

Summary

Issues Involved:
1. Demand of excise duty on cement clinkers produced and captively consumed within the same factory.
2. Impact of amendments to Rule 4 of Central Excise Rules, 2002 by Notification No. 24/2003-C.E. (N.T.).
3. Interpretation of Explanation-II under Rule 4 of Central Excise Rules, 2002.
4. Historical context and implications of retrospective amendments to Central Excise Rules, 1944.

Issue-wise Detailed Analysis:

1. Demand of Excise Duty on Cement Clinkers:
The dispute centers on whether excise duty is payable on cement clinkers produced in a factory and used within the same factory for producing cement, which is exempt from duty. The Tribunal upheld the demand for excise duty on such clinkers, noting that the appellants challenged these demands before the Supreme Court. The Supreme Court directed the Tribunal to decide on the new legal issue raised by the appellants regarding the interpretation of Rule 4 of the Central Excise Rules, 2002.

2. Impact of Amendments to Rule 4 by Notification No. 24/2003-C.E. (N.T.):
The appellants argued that after the amendment to Rule 4 by Notification No. 24/2003-C.E. (N.T.), there is no provision to consider goods used within the same factory for further manufacture as removed from the factory, thus excise duty should not be payable. The Tribunal examined whether the amendments effectively omitted Explanation-II under Rule 4, which deemed goods used within the factory as removed for the purposes of excise duty.

3. Interpretation of Explanation-II under Rule 4:
The Tribunal analyzed whether Explanation-II, which stated that goods used within the factory are deemed removed, was omitted by the amendment. The Revenue argued that Explanation-II was not omitted, as it applied to the entire Rule 4 and not just sub-rule (3). The Tribunal concluded that Explanation-II was not omitted by the amendment and remained applicable, thus supporting the duty liability on captively consumed goods.

4. Historical Context and Implications of Retrospective Amendments:
The Tribunal provided a detailed historical context, noting that similar issues had been litigated in the 1980s, leading to retrospective amendments to the Central Excise Rules, 1944. These amendments aimed to clarify that excise duty was payable on goods used within the factory for further manufacture. The Tribunal referenced past decisions and legislative changes to support the view that the duty liability on captively consumed goods was consistent with the legislative intent and historical practice.

Conclusion:
The Tribunal concluded that Explanation-II under Rule 4 was not omitted by the 2003 amendment and that duty liability arises on captively consumed goods, such as cement clinkers used within the same factory for producing cement. This decision aligns with historical legislative amendments and judicial interpretations, ensuring uniform tax incidence irrespective of whether goods are processed in a composite or disintegrated factory setup. The Tribunal's decision was pronounced on 3-5-2012.