2017 (11) TMI 281 - AT - Central Excise

Restoration of appeal - N/N. 5/1998-CE dated 2nd June 1998 N/N. 6/2000-CE dated 1st March 2000 and N/N. 3/2001-CE dated 1st March 2001 - utilisation of materials procured against CT-2 form by which goods are eligible to be procured at concessional rate of duty subject to fulfillment of the conditions prescribed in notification - Revenue alleged that the materials received against these CT-2 forms had not been used in the manufacture of power driven pumps designed for pumping water - inclusion of value of exempt raw material in the assessable value of ineligible finished goods - whether compliance with the mandatory condition prescribed in N/N. 5/1998-CE dated 2nd June 1998 is sine qua non and failure to comply with such condition can be visited with denial of duty exemption? Held that - The facts relating to the procurement of goods by availing the conditional exemption and the utilisation of the goods is not in dispute - Undoubtedly duty is leviable as per rule 6 of erstwhile Central Excise (Removal of Goods at Concessional Rate of Duty for the Manufacture of Excisable Goods) 2001 on goods procured in accordance with this procedure. That however is intended to provide legal sanctity for payment of duty by the buyer of goods cleared without payment of duty. This has been duly acknowledged in the order of the lower authority for confirmation of the demand on goods cleared as such i.e. bought out. For the goods that were not so cleared but were used in manufacture of goods other than that intended in the exemption notification or used otherwise the first appellate authority has considered the payment of duty on clearance at a value inclusive of the inputs to be sufficient compliance. The specific provision in the Rules supra for clearance as bought out items does not cover other clearances. All manufactured goods to the extent that they are not exempted are required to be cleared on payment of duty. The exemption availed on the goods procured by the appellant enabled the manufacturer to clear the goods without payment of duty but which nevertheless requires the recipient to discharge the burden of duty liability in the event of non-utilisation of the goods for the intended purpose. The liability to discharge duty on the goods manufactured out of the inputs so procured remains unchanged and is mandated in the Central Excise Act 1944; discharge of that liability will not suffice to make good the duty liability that was waived under the exemption notification. The order of the original authority is restored - appeal allowed being restored as sought.

Summary

Issues Involved:
1. Compliance with conditions prescribed in exemption notifications.
2. Proper maintenance and furnishing of records.
3. Utilization of procured materials for intended purposes.
4. Examination of duty liability and penalties.
5. Interpretation of relevant legal provisions and precedents.

Issue-wise Detailed Analysis:

1. Compliance with Conditions Prescribed in Exemption Notifications:
The appeals arose from the utilization of materials procured against CT-2 forms under exemption notifications no. 5/1998-CE, no. 6/2000-CE, and no. 3/2001-CE. The central issue was whether the materials received were used in the manufacture of power-driven pumps designed for pumping water as stipulated in the notifications. The Revenue alleged non-compliance, asserting that the materials were not used for the intended exempted purposes, leading to the issuance of show cause notices and subsequent demands for duty and penalties.

2. Proper Maintenance and Furnishing of Records:
The Revenue contended that the appellant failed to maintain proper records of the inputs received against CT-2 forms and did not furnish statutory records to the audit party. The adjudicating authority's reliance on the respondent's statements without scrutinizing the records was challenged as arbitrary. The Revenue argued that the lack of proper record-keeping indicated non-compliance with the exemption conditions.

3. Utilization of Procured Materials for Intended Purposes:
The investigation revealed that the materials procured were used for manufacturing pumps other than those specified in the exemption notifications and for other purposes such as spares and bought-out items. The first appellate authority's decision to consider the payment of duty on the manufactured goods as sufficient compliance with the exemption conditions was disputed. The Tribunal emphasized that the exemption was contingent on the specific use of the materials, and any deviation warranted the denial of the exemption.

4. Examination of Duty Liability and Penalties:
The adjudicating authority confirmed demands and imposed penalties based on the non-utilization of materials for the intended purposes. For instance, the Chinchwad unit's demand of ?13,43,674 was reduced to ?39,146 by the first appellate authority, which was challenged by the Revenue seeking restoration of the original demand. Similarly, at the Pimpri plant, the adjudicating authority's demand of ?32,62,541 was contested, with the first appellate authority dropping the penalty but confirming the duty liability for inputs cleared as bought-out items.

5. Interpretation of Relevant Legal Provisions and Precedents:
The Tribunal referred to the Supreme Court's decision in Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal, emphasizing that strict compliance with exemption conditions is mandatory. The Tribunal also cited the Larger Bench decision in Supreme Lamps v. Commissioner of Central Excise, Meerut, which reinforced the necessity of following the prescribed procedures to prevent diversion and misuse of exempted goods. The Tribunal concluded that the justification of accounting neutrality and substantial compliance was not supported by law, and the non-utilization of exempted inputs as prescribed warranted the denial of the exemption.

Conclusion:
The Tribunal set aside the orders of the first appellate authority and restored the original adjudication orders, confirming the recovery of duty and penalties as proposed in the show cause notices. The appeals were disposed of by reinstating the duty liability and penalties, emphasizing the importance of strict adherence to the conditions of exemption notifications. The Tribunal's decision underscored the necessity of maintaining proper records and utilizing procured materials strictly for the intended exempted purposes to avail the benefits of duty exemptions.