2013 (4) TMI 83 - HC - Central Excise

Entitlement to exemption of excise duty to the extent of 0.5% of tolerance limit on the production of aerated and mineral water - petitioners submitted that the CBEC circulars dated 8.9.1971 and 17.9.1975 are binding upon the authorities and therefore petitioners are entitle to exemption of excise duty & the withdrawal of the above circulars vide circular dated 9.7.2010 is only prospective in nature and cannot be applied to the excise goods produced prior to its issuance - Held that - A plain reading of the above circular brings to the forefront with certainty that the aforesaid circular aims to avoid disputes in future and as such is clearly prospective in its tenor. It does not provide that it would be applicable retrospectively or to transactions/production of excise goods prior to its issuance or its enforcement. The circulars dated 8.9.1971 and 17.9.1975 accords benefit to the assessee and as such are essential piece of sub-ordinate legislation furnishing legitimate aid to the construction of relevant provisions so as to give effect to internal complexity for fiscal adjustment. In CCE Vs. Mysore Electrical Industries Limited (2006 (11) TMI 202 - SUPREME COURT OF INDIA) held that a circular which is beneficial in nature applies retrospectively but a circular which is oppressive has to be applied prospectively. In short, a circular which is against the assessee is always prospective in nature. Also in Suchitra Components Limited Vs. Commissioner of Central Excise Guntur (2007 (1) TMI 4 - SUPREME COURT OF INDIA) it was observed that when a circular is against the assesee they have a right to claim enforcement of the same prospectively. Thus, applying the above principle, as the circular dated 9.7.2010 is against the assessee, as it purports to withdraw the benefit extended to the asseseee vide circulars dated 8.9.1971 and 17.9.1975, it has to be treated as prospective in nature and cannot be applied with retrospective effect. Department to insist for claiming remission under Rule 21 of the Rules in respect of exemption of excise duty on 0.5% of the tolerance limit permitted in the circulars - Held that - The circular dated 8.9.1971 in plain and simple language permits exemption of excise duty on 0.5% of the aerated waters produced on account of loss due to breakage of bottles during movement subject to its verification by the Range Staff. Once such breakage is certified by the Range Staff, no excise duty on it would be payable. In case the loss is not certified or is more than 0.5%, then it has to be decided by the Assistant Collector. The remission of excise duty under Rule 21 of the Rules which essentially means waiver or cancellation of excise duty legally payable in general terms where the goods have been lost or destroyed by natural causes, or by unavoidable accident or claimed to be unfit for consumption or marketing. Rule 21 of the Rules gets attracted only where the party claims exemption from excise duty for the loss or destruction of goods by natural causes or due to unavoidable circumstances or where they are rendering unfit for consumption or marketing. The procedure for remission of excise duty prescribed under Rule 21 of the Rules is to be followed where it is being claimed for reasons other than those prescribed in the circulars. However, as regards 0.5% tolerance limit provided for aerated water it stands exempt on being certified by the Range Staff in terms of the circulars. The said circulars have the effect of impliedly reducing the quality of aerated water produced by 0.5% of the monthly production. In this situation, when the quantity produced stand reduced there is no necessity for claiming any remission. In addition to the above, when the department itself through its staff certifies the loss due to breakage of bottles in handling, their remains no justification for any further investigation in granting exemption to the extent indicated as Rule 21 of the Rules also permits remission subject to satisfaction of the Commissioner. The limited exemption of excise duty provided by the circulars is not in conflict with Rule 21 of the Rules rather it supplements the same. Thus irrespective of the fact that the petitioners have not claimed remission of excise duty either under Rule 21 of the Rules or Rule 49 of the 1944 Rules, they are entitle to exemption to the extent of 0.5% of the excise goods produced/manufactured by them in their monthly returns pursuant to the circulars dated 8.9.1971 and 17.9.1975 as the same has been certified by the department - in favour of assessee.

Summary

Issues Involved:
1. Binding effect of circulars dated 8.9.1971 and 17.9.1975.
2. Retrospective application of the withdrawal of circulars dated 9.7.2010.
3. Requirement of remission procedure under Rule 21 of the Central Excise Rules, 2002 for claiming benefit of the circulars.

Issue-wise Detailed Analysis:

1. Binding Effect of Circulars Dated 8.9.1971 and 17.9.1975:
The petitioners argued that the circulars dated 8.9.1971 and 17.9.1975, issued by the Central Board of Excise and Customs (CBEC), were binding on the authorities and entitled them to an exemption of excise duty on 0.5% of the aerated waters produced due to breakage of bottles during handling and movement. The court noted that these circulars were issued under the authority of Section 37B of the Central Excise Act, 1944, and provided a tolerance limit for breakages. The circulars were meant to address practical issues of breakage during handling and were binding on the department. The Supreme Court's decisions in UCO Bank Calcutta Vs. Commissioner of Income Tax W.B. and Paper Products Limited Vs. Commissioner of Central Excise supported the view that circulars issued by the Board are binding on the department.

2. Retrospective Application of the Withdrawal of Circulars Dated 9.7.2010:
The petitioners contended that the withdrawal of the circulars by the circular dated 9.7.2010 should only have a prospective effect and not apply to excise goods produced prior to its issuance. The court agreed, stating that the circular dated 9.7.2010 aimed to avoid future disputes and did not explicitly state that it would apply retrospectively. The court cited the Supreme Court decisions in CCE Vs. Mysore Electrical Industries Limited and Suchitra Components Limited Vs. Commissioner of Central Excise Guntur, which held that beneficial circulars apply retrospectively, while oppressive ones are prospective. Thus, the withdrawal of the circulars was deemed prospective and not applicable to the period from June 2002 to September 2007.

3. Requirement of Remission Procedure Under Rule 21 of the Central Excise Rules, 2002:
The respondents argued that the petitioners were not entitled to the benefit of the circulars without following the remission procedure under Rule 21 of the Central Excise Rules, 2002. The court noted that Rule 21 provides for remission of excise duty for goods lost or destroyed by natural causes or unavoidable accidents. However, the court found that the circulars specifically addressed the issue of breakages of aerated waters due to handling and did not require the remission procedure under Rule 21. The circulars allowed for a 0.5% exemption on breakages certified by the Range Staff, making the remission procedure unnecessary in this specific context. The court emphasized that the circulars were not in conflict with Rule 21 but rather supplemented it, ensuring fair enforcement and avoiding undue hardship to the assessee.

Conclusion:
The court quashed the impugned orders dated 22.10.2009, 31.3.2010, and 16.4.2012, and directed that the petitioners were entitled to the exemption of 0.5% of the excise goods produced/manufactured by them as per the circulars dated 8.9.1971 and 17.9.1975. The writ petitions were allowed.