2017 (9) TMI 275 - AT - Central Excise

SSI exemption - denial on the ground that appellant did not file prescribed declarations - N/N. 9/2003-CE dated 01.03.2003 - Held that - As there are divergent views of the Members, therefore, the matter is referred to the Hon ble President to appoint third Member to resolve the issue - matter referred to third member appointed by Hon ble President.

Summary

Issues Involved:
1. Eligibility for SSI exemption notification despite non-filing of prescribed declarations.
2. Interpretation of exemption notifications and compliance with conditions.
3. Relevance of filing ER-3 returns in lieu of the prescribed option/declaration.

Issue-wise Detailed Analysis:

1. Eligibility for SSI Exemption Notification Despite Non-filing of Prescribed Declarations:
The appellant was denied the benefit of the SSI exemption notification for failing to file the required declarations. The appellant argued that non-filing of declarations should not be fatal and that their ER-3 returns demonstrated their intention to avail the exemption. They relied on the Tribunal's decision in CCE, Lucknow Vs. Kanodia Polychem (P) Limited and the Supreme Court's decision in CC (Prv.), Amritsar Vs. Malwa Industries Limited, which emphasized a liberal construction of exemption notifications if the eligibility criteria are met. Conversely, the respondent argued that strict compliance with the notification conditions was necessary, citing the Supreme Court's decision in Eagle Flask Industries Limited vs. Commissioner.

2. Interpretation of Exemption Notifications and Compliance with Conditions:
The Tribunal examined whether the appellant’s failure to file the declaration as required under Notification No.9/2003-CE disqualified them from the exemption. The appellant had regularly filed ER-3 returns, claiming the exemption. The Tribunal noted that the Supreme Court in Malwa Industries Limited held that while exemption notifications should be construed strictly, they should not be interpreted so narrowly as to defeat their purpose. The Tribunal found that the appellant’s regular filing of ER-3 returns and payment of duty at concessional rates indicated their intention to avail the exemption, thus the non-filing of declarations should not be fatal.

3. Relevance of Filing ER-3 Returns in Lieu of the Prescribed Option/Declaration:
The Tribunal analyzed whether filing ER-3 returns could substitute for the mandatory option/declaration. The Member (Technical) emphasized that the notification required an option to be filed before the first clearance, which was substantive and mandatory. The Supreme Court in CCE, New Delhi Vs. Hari Chand Shri Gopal underscored the importance of procedural compliance to prevent misuse of exemptions. The Tribunal in Surat Metallics Pvt. Ltd. held that non-compliance with such mandatory conditions disqualified the appellant from the exemption. The Member (Technical) concluded that ER-3 returns could not replace the specific requirements of the notification.

Separate Judgments:
The Member (Judicial) held that the appellant was entitled to the exemption, relying on the liberal interpretation principle from Malwa Industries Limited and Kanodia Polychem (P) Limited. Conversely, the Member (Technical) held that the appellant was not entitled to the exemption due to non-compliance with the mandatory declaration requirement, citing Hari Chand Shri Gopal and Surat Metallics Pvt. Ltd. The divergent views led to a reference to the Hon'ble President to appoint a third Member to resolve the difference of opinion.

Conclusion:
The judgment highlights a critical legal debate on the interpretation of exemption notifications and procedural compliance. The Member (Judicial) favored a liberal approach, while the Member (Technical) emphasized strict adherence to procedural requirements. The resolution of this difference will hinge on the appointed third Member's interpretation of the relevant legal principles and precedents.