2016 (6) TMI 767 - AT - Central Excise

Area based exemption - denial of benefit of the exemption on the intermediate products namely water filter cartridges and EVA pipes. - Notification No.50/2003-CE dated 10.06.2003 - substantial expansion in the installed capacity - Held that - It is admitted by the appellant that the substantial expansion in respect of the intermediate products have been undertaken only after the period of dispute. This brings us to the more fundamental question whether to increase the installed capacity of the unit, the capacity of each and every products manufactured in the unit needs to be increased. This aspect has been considered by this Tribunal over and over again. It has been held that only the overall increase in the installed capacity is to be taken into consideration while considering the expansion and there is no requirement that the expansion should take place in each and every section of the manufacturing unit. Validity of Show cause notices - Held that - It appears that the demand has been crystalised as a result of the investigation ordered by the Commissioner whose reports dated 19.11.2007 and 13.02.2008, the Commissioner relies in the order. Inasmuch as copies of these reports have not been furnished to the appellant, the Commissioner has passed this order behind the back of the appellant clearly disregarding principles of natural justice. We also find that the basis of the demand does not emerge from the impugned order itself, making this error sufficient to set-aside the impugned order. Demand set aside - Decided in favor of assessee.

Summary

Issues:
1. Denial of exemption under Notification No. 50/2003-CE for intermediate products.
2. Interpretation of substantial expansion criteria for availing exemption.
3. Violation of principles of natural justice.
4. Reopening of demands on intermediate products.

Analysis:
1. The appellant challenged the denial of exemption for water filter cartridges and EVA food grade pipes under Notification No. 50/2003-CE. The Commissioner allowed exemption for main products but denied it for intermediate products completed after the disputed period.

2. The issue revolved around the interpretation of substantial expansion criteria. The Circular clarified substantial expansion as an increase in installed capacity through additional plant and machinery. The appellant argued that expansion for the main products covered all goods manufactured in the unit, citing Tribunal judgments.

3. The appellant objected to the Commissioner relying on undisclosed reports and violating natural justice principles. The Commissioner's order lacked transparency in quantifying the duty demand, leading to a flawed decision-making process.

4. The Commissioner's attempt to reopen demands on intermediate products previously dropped raised concerns. The Tribunal found the demand calculation unclear and unsupported, indicating an arbitrary decision-making process.

The Tribunal set aside the Commissioner's order, citing violations of natural justice and erroneous interpretation of substantial expansion criteria. The appellant was deemed eligible for the exemption under Notification No. 50/2003-CE for all products, including intermediate ones integral to the manufacturing process.