2018 (9) TMI 1931 - HC - Central Excise

Exemption of central excise duty under the notification dated 1-3-2001 - independent processor - it is the stand of the petitioner that during the relevant point of time i.e. between 2001-2004 the petitioner had been involving or engaging only in processing of fabrics as an independent processor and not involving any other activities even though number of activities had been mentioned in the memorandum of articles of the petitioner company - HELD THAT - The manufacturer is the petitioner company. The petitioner company even according to the respondents has not engaged in the spinning of yarn or cotton weaving of cotton fabrics and the petitioner company does not have any proprietary interest over the said factories or companies. Merely because one or more shareholders of the petitioner company is having proprietary interest in some other factory engaged in yarn or cotton it does not mean that the petitioner is having direct control and proprietary interest over the said factories. Since the petitioner company is a registered company under the Companies Act no doubt it is a juristic person and every shareholder of the petitioner company is independently a juristic person. Merely because one or more shareholders of the petitioner company is having proprietary interest in other factories that would not ipso facto make the petitioner company that it also have such proprietary interest over the said factories. This distinction has not been considered by the sixth respondent while making the recommendatory note through her order dated 13-2-2003 supplied to the first respondent. The intention of the notification to give exemption to excise duty is to encourage the independent processor and in this regard the Government of India has given power to the first respondent to independently assess every claim made in this regard by a processor as to whether he is an independent processor for the purpose of exemption of excise duty and such power shall be exercised cautiously and diligently. In the case in hand merely because the petitioner is a limited company and it is having memorandum of articles and objects to have various activities apart from textile industry based on which no decision can be taken that the petitioner company could not be eligible to get the benefit of independent processor merely because it is having other objects in the memorandum of articles. If this kind of decision is taken to reject the claim of the petitioner then the very purpose of giving exemption to the eligible processor would get defeated thereby the very object of giving exemption notification would also get defeated - the reasoning given by the sixth respondent in her communication dated 13-2-2003 would not be sustainable and based on which without giving an opportunity to the petitioner since the first respondent mechanically passed the impugned order rejecting the claim of the petitioner which can also be unsustainable and therefore this Court has no hesitation to interfere with both the impugned orders. The matter is remitted back to the first respondent for re consideration - While making such re-consideration the first respondent must independently apply his mind of course on the inputs supplied by the sixth respondent by taking into account the supporting materials supplied by the petitioner to establish the status as an independent processor for the relevant period i.e. between 2001-2004 where assertively the petitioner claimed that he did not involve in any other manufacturing or spinning or woven process of fabrics except the independent processing as set out in the exemption appended to the notification. Petition allowed by way of remand.

Summary

Issues Involved:
1. Entitlement to exemption from excise duty under Notification No. 11/2001-Central Excise.
2. Definition and recognition of "independent processor."
3. Validity of the rejection of the petitioner's application for exemption.
4. Procedural fairness and adherence to principles of natural justice.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption from Excise Duty under Notification No. 11/2001-Central Excise:

The petitioner, a limited company engaged in textile processing, sought exemption from excise duty under Notification No. 11/2001-Central Excise dated 1-3-2001, which exempts certain excisable goods, including cotton fabrics woven on handlooms and processed by an independent processor. The relevant period for this exemption was 2001-2004. The petitioner claimed entitlement to this exemption, arguing that it operated as an independent processor exclusively processing fabrics.

2. Definition and Recognition of "Independent Processor":

The term "independent processor" was defined in the notification as a manufacturer engaged exclusively in processing fabrics with the aid of power, without any proprietary interest in factories engaged in spinning or weaving. The petitioner applied for a certificate confirming its status as an independent processor, submitting supporting documents, including a certificate from the fourth respondent dated 10-9-2001, which recognized the petitioner as an independent processor.

3. Validity of the Rejection of the Petitioner's Application for Exemption:

The petitioner's application was rejected by the first respondent on 18-7-2003, based on a recommendation from the sixth respondent dated 13-2-2003. The sixth respondent's recommendation was influenced by the fact that shareholders of the petitioner company had interests in other textile industries, such as spinning and weaving. The court found that the sixth respondent's reasoning was flawed, as the proprietary interest of individual shareholders in other companies should not affect the petitioner's status as an independent processor. The first respondent's order was deemed cryptic and lacking proper consideration of the petitioner's supporting materials.

4. Procedural Fairness and Adherence to Principles of Natural Justice:

The court emphasized that the first respondent, as the authority empowered to grant the certificate, should have independently assessed the petitioner's claim and provided an opportunity for the petitioner to respond to any adverse findings. The first respondent's acceptance of the sixth respondent's report without giving the petitioner a chance to be heard was a violation of natural justice principles.

Conclusion:

The court quashed the impugned orders of the sixth respondent dated 13-2-2003 and the first respondent dated 18-7-2003. The matter was remitted back to the first respondent for reconsideration. The first respondent was directed to independently apply its mind, taking into account the supporting materials provided by the petitioner, and to pass an order within two months. Until a decision is made and a certificate is issued, the respondents were restrained from demanding excise duty from the petitioner. The writ petition was ordered accordingly, with no order as to costs, and the connected miscellaneous petition was closed.