2009 (3) TMI 140 - AT - Central Excise

Exemption - Reverse Osmosis Desalination Plants - Notification No. 6/2002-C.E. dated March 1 2002 held that - If all the machineries that are required to set up a plant can get a benefit there is no justification to deny the benefit to the plant itself. It is only logical that the exemption which is available to all items of machinery including instruments apparatus and appliances auxiliary equipment and their components/parts required for setting up of water treatment plants should be available to the plant also. Any contrary interpretation which defeats the objective of the Notification needs to be avoided.

Issues Involved:
1. Denial of exemption under Notification No. 6/2002-C.E.
2. Demand and recovery of central excise duty.
3. Levy and recovery of interest.
4. Imposition of penalty.

Detailed Analysis:

1. Denial of Exemption under Notification No. 6/2002-C.E.
The appellants, engaged in the manufacture of purification/filtration/desalination plants, claimed exemption under Notification No. 6/2002-C.E. for 17 Reverse Osmosis Desalination Plants (RODP) supplied to the Ministry of Defence. The Show Cause Notice alleged that the exemption was only for machinery and parts required for setting up a water treatment plant, not the plant itself. The Commissioner upheld this view, denying the exemption and confirming the demand for duty.

The appellants argued that the notification's language was clear and unambiguous, covering both machinery and the plant itself. They contended that the RODP supplied were components necessary for setting up a water treatment plant and thus eligible for exemption. They also referred to a CBEC Circular clarifying the applicability of the exemption to the entire plant.

2. Demand and Recovery of Central Excise Duty
The Commissioner demanded Rs. 87,16,610/- as central excise duty under Section 11A(1) of the Central Excise Act, 1944. The appellants contested this, arguing that the exemption applied to the entire plant, not just individual components. They cited the CBEC Circular and the Supreme Court judgment in Zuari Industries Ltd. v. CCE, which supported their interpretation of the notification.

3. Levy and Recovery of Interest
Interest was levied under Section 11AB of the Central Excise Act, 1944. The appellants argued that since the demand for duty was unsustainable, the question of interest did not arise.

4. Imposition of Penalty
A penalty of Rs. 10,00,000/- was imposed under Rule 25 of the Central Excise Rules, 2002. The appellants argued that the issue was purely one of interpretation of the notification, relying on the Tribunal decision in Komal Straw Board and Mill Board Industries v. CCE, Ludhiana.

Tribunal's Findings:
The Tribunal carefully considered the submissions and found that the appellants had indeed cleared Desalination Plants, which are water treatment plants as per the explanation in the notification. The Tribunal noted that the CBEC Circular clarified that the exemption applied to the entire plant, whether imported or manufactured domestically. The Tribunal criticized the Commissioner's discriminatory approach of taxing domestically manufactured goods while exempting imported ones.

The Tribunal held that the exemption under Notification No. 6/2002-C.E., as amended, applied to the entire plant, not just individual components. Consequently, the demand for duty of Rs. 87,16,610/- was set aside. Since the demand was unsustainable, the question of interest and penalty did not arise, and both were also set aside.

Conclusion:
The appeal was allowed, and the impugned order was modified to grant the exemption under Notification No. 6/2002-C.E., as amended, to the Desalination Plants cleared by the appellants. The demand for duty, interest, and penalty was set aside.

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