2014 (12) TMI 953 - AT - Central Excise

Denial of area based exemption - manpower recruitment agency or manufacturer of goods - benefit of notification No.214/86-CE was deniable to it not being a job worker - Since appellant failed to file the required declaration to claim area based exemption, department was deprived of examining whether the appellant was entitled to the exemption before its first clearance was made. That resulted in denial of benefits of notification No.50/2003-CE dated 10/06/2003 to it - whether the appellant was a mere service provider to HUL or a manufacturer under section 2(f) (ii) of the Act read with in terms of chapter Note 6 of Chapter 34 of Central Excise Tariff Act 1985 Held that - Primary object of the Notification No. 50/2003-CE, dated 10.06.2003 is to grant duty exemption to manufacturing units situated in the area specified therein subject to fulfillment of conditions prescribed therein read with the Board Circular No.908-CX, dated 23.12.2009 as well as Circular No.757/73/2003-CX, dated 22.10.2003 F.No.201/54/2003-CX-6 . It is not in dispute that the appellant was situated in the specified area of Himachal Pradesh and entitled to the exemption benefit granted by the notification read with the Board circulars. However relying on the copy of agreement dated 01.09.1977 and Board Circulars, the appellant bona fide believed that it was a mere service provider and not a manufacturer for the reasons mentioned hereinbefore as urged by it and failed to file necessary declaration for consideration of its exemption status by the Authority. Registration of the appellant under Finance Act, 1994 and its existence in the specified area of Himachal Pradesh, as well as its activity carried out as job worker of HUL was well known to Record. Appellant bona fide believed that it was not manufacturer and not liable to excise duty and if held to be manufacturer, it is entitled to the exemption by Notification No. 50/2003 read with the Board circulars aforesaid. There is nothing on record to show that either appellant or HUL suppressed any fact to the authority. Record also reveals that appellant has not acted mala fide. It is primarily entitled to the benefit of exemption notification aforesaid. It only failed to file necessary declaration under bonafide belief as stated above. Non filing declaration is not suppression of fact. So also there is nothing on record to appreciate that appellant had any intention to evade duty. Therefore, appellant acting bona fide is not debarred it to file the same before the authority to re-examine its eligibility to the exemption, otherwise that would defeat object of the area based exemption - Matter remanded back - Decided in favour of assessee.

Issues Involved:
1. Denial of area-based exemption.
2. Classification of the appellant's activity as "manufacture."
3. Requirement and impact of filing a declaration for exemption.
4. Entitlement to Notification No. 214/86-CE benefits.
5. Time-barred demand for duty.
6. Applicability of penal provisions and interest.
7. Refund of service tax paid.

Detailed Analysis:

1. Denial of Area-Based Exemption:
The appellant was denied the area-based exemption under Notification No. 50/2003-CE dated 10.06.2003 for failing to file the required declaration. The adjudicating authority concluded that the absence of this declaration deprived the department of examining the appellant's entitlement to the exemption before the first clearance, thus failing to fulfill a substantial condition of the notification.

2. Classification of Appellant's Activity as "Manufacture":
The appellant contended that banding unit-packed soaps did not amount to "manufacture." However, the adjudicating authority held that the activity fell under the definition of "manufacture" as per Chapter Notes of Chapter 33 and 34 and section 2(f) (iii) of the Central Excise Act, 1944. The activity of banding was deemed to convert unit-packed soap cases into multi-piece packs, thereby making them marketable.

3. Requirement and Impact of Filing a Declaration for Exemption:
The appellant argued that it was entitled to the area-based exemption as it was situated in a notified area and that the failure to file the declaration was due to a bona fide belief that it was a service provider and not a manufacturer. The adjudicating authority, however, emphasized the mandatory nature of the declaration for availing the exemption, concluding that the appellant was not entitled to the benefits due to non-compliance.

4. Entitlement to Notification No. 214/86-CE Benefits:
The appellant claimed eligibility for exemption as a job worker under Notification No. 214/86-CE. The adjudicating authority rejected this claim, stating that the appellant was not a job worker since the goods cleared by HUL were duty-free under Notification No. 50/2003-CE. The adjudicating authority also noted that the appellant's activity constituted "manufacture" and thus did not qualify for the job worker exemption.

5. Time-Barred Demand for Duty:
The appellant argued that the demand for the period 01.01.2006 to 24.11.2006 was time-barred due to the absence of suppression or mis-declaration. The adjudicating authority found that the appellant had failed to comply with the notification requirements, which justified the demand within the permissible time frame.

6. Applicability of Penal Provisions and Interest:
The adjudicating authority imposed a penalty equal to the central excise duty of Rs. 37,46,69,391/- under section 11AC of the Act, along with interest. The appellant argued that the penalty was unwarranted as there was no intention to evade duty. The adjudicating authority, however, concluded that the appellant's failure to file the required declaration constituted a violation justifying the penalty.

7. Refund of Service Tax Paid:
The adjudicating authority noted that the appellant was registered as a "manpower recruitment agency" and paid service tax accordingly. However, it was found that the appellant did not actually provide manpower supply service. Consequently, the adjudicating authority directed that the service tax paid should be refunded to the appellant upon appropriate application.

Conclusion:
The matter was remanded for the appellant to file the necessary declaration for the adjudicating authority to re-examine its eligibility for area-based exemption. The adjudicating authority was instructed to grant a reasonable opportunity of hearing to the appellant and pass an appropriate order. The appellant was also entitled to a refund of the service tax paid, as it was not providing manpower supply services.

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