2017 (6) TMI 46 - AT - Central Excise

100% EOU - N/N. 1/1995-CE dated 4.1.1995 - clandestine removal of finished goods which were manufactured using the duty-free raw materials as well as capital goods - whether the raw materials/capital goods used for manufacture of finished products have been subjected to duty as per the order of the Settlement Commission are liable to duty or not? - Held that - if the goods are not exported, the exemption as per the Notification is eligible if the finished goods are cleared on payment of appropriate excise duty - In the present case, undisputedly, the appellants have paid the excise duty on the finished goods. Therefore, the duty liability on the finished products have attained finality as per the order of the Settlement Commission dated 6.9.2007 - the department was all through aware of the SCN as well as the proceeding pending with regard to the demand of duty on the finished goods. In spite of that, there has been a delay of seven years in issuing the SCN demanding duty on inputs as well as capital goods. Extended period of limitation - Held that - Since it is a continuous one, the time limit/limitation cannot be applied in the present case cannot be accepted for the reason that the department would very well have covered the same issue regarding the demand of duty on inputs/capital goods in the SCN issued for demanding duty on finished goods - the demand is barred by limitation. Appeal allowed - decided in favor of appellant.

Issues:
1. Duty liability on inputs and capital goods procured under CT-3 certificate availing exemption under Notification No.1/95-CE.
2. Applicability of exemption clause in Notification No.1/95.
3. Issue of limitation regarding the show cause notice issued after a prolonged period.
4. Double taxation concern on demanding duty on raw materials after duty on finished goods has been settled.
5. Interpretation of settlement order's conclusive nature under section 32M of the Central Excise Act, 1944.

Analysis:

1. The case involved a dispute regarding duty liability on inputs and capital goods procured under CT-3 certificate under Notification No.1/95-CE. The appellants, registered as 100% EOU, faced a show cause notice for alleged clandestine removal of finished goods manufactured using duty-free raw materials and capital goods. The Settlement Commission had already settled duty liability on the finished goods. The issue was whether duty on inputs and capital goods was still applicable post-settlement.

2. The exemption clause in Notification No.1/95 was a crucial aspect. The appellant argued that since they had paid duty on finished goods, they were eligible for exemption on raw materials and capital goods under clause 5 of the Notification. The appellant also highlighted the payment of depreciated value on capital goods and raised a limitation defense due to a delayed show cause notice issued after seven years.

3. The issue of limitation was contested by both parties. The Revenue argued that continuous obligations like those under Notification No.1/95 were not subject to limitation constraints. However, the appellant contended that the delayed show cause notice, issued after the settlement on finished goods, was unsustainable and barred by limitation, especially considering the department's awareness of the ongoing proceedings.

4. Concerns over potential double taxation were addressed in the judgment. The Tribunal emphasized that demanding duty on raw materials after settling duty on finished goods would amount to double taxation. The appellant had already paid duty on depreciated value of capital goods, making a further show cause notice invoking an extended period unsustainable.

5. The interpretation of the settlement order's conclusive nature under section 32M of the Central Excise Act, 1944, played a significant role. The Tribunal held that when duty on finished goods had been settled by the Settlement Commission, there could be no further liability on raw materials used in their manufacture. The order's conclusive nature prevented reopening matters covered by it, safeguarding against double taxation and supporting the appellant's case.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential relief, emphasizing the settled duty liability on finished goods and the unsustainable nature of the delayed show cause notice demanding duty on inputs and capital goods.

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