2017 (11) TMI 1037 - AT - Central Excise

SSI Exemption - rejection on the ground of not filing of prescribed declarations - N/N. 9/2003-CE dated 01.03.2003 - case of appellant is that mere non-filing of declarations by the appellant cannot be fatal for the appellant to deny exemption under the notification in question - in case the appellant has not filed declaration as required under N/N. 9/2003-CE dated 01.03.2003, whether the appellant is entitled for the benefit of exemption notification or not? Held that - Admittedly, the appellant is an small scale industry and is otherwise entitled to the benefit of notification. In terms of SI.No.2 of the notification, a manufacturer intended to avail the benefit of notification is required to file his option in writing to their jurisdictional Central Excise authority - The declaration requires an assessee to give various informations about them to their jurisdictional Central Excise authority. Such information is regarding name and address of the manufacturer, location of the factory, description of inputs and final products, the date from which option has been exercised and aggregate value of clearances. It is also seen that legislative intent in issuing the said notification is to grant concessional rate of duty to the SSI unit. The appellant had admittedly satisfied all substantial conditions of the notification so as to earn the benefit. Denial of benefit on the ground that the option was not filed separately, if the same is otherwise available to the assessee, would defeat the legislative intent. It is well settled that an interpretation which defeats the purpose, for which a particular notification stands issued by Government, is not required to be adopted - Admittedly, in the present case, the purpose of small scale notification is to grant benefit to the SSI and to encourage the small scale industries. Such purpose cannot be defeated on the ground that option was not made separately on a piece of paper but the same was conveyed to the Revenue in the form of ER-3 returns. The benefit of notification in question is based upon the fulfilment of other conditions, like assessee being a small scale manufacture, the quantum of clearances effected in a particular year and the use of brand name etc. Filing of declaration has to be held as procedural conditions. Some conditions are substantive, mandatory and based on considerations of policy and some other merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes, which they were intended to serve. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility for SSI exemption notification due to non-filing of prescribed declarations.
2. Interpretation of procedural versus substantive conditions in exemption notifications.
3. Applicability of judicial precedents on exemption notifications.

Issue-wise Detailed Analysis:

1. Eligibility for SSI exemption notification due to non-filing of prescribed declarations:

The appellant was denied the benefit of SSI exemption notification No. 9/2003-CE dated 01.03.2003 for not filing the prescribed declarations. The appellant contended that the non-filing of declarations should not be fatal as they regularly filed ER-3 returns indicating their intention to avail the exemption. The respondent argued that strict compliance with the notification conditions was necessary, citing precedents like Eagle Flask Industries Limited and Saboo Cylinders (P) Limited which emphasized strict adherence to notification conditions.

2. Interpretation of procedural versus substantive conditions in exemption notifications:

The core issue was whether the non-filing of the declaration under the notification was a procedural lapse or a substantive requirement. The appellant relied on the Supreme Court's decision in Malwa Industries Limited, which advocated a liberal interpretation of exemption notifications if the assessee fulfills the eligibility criteria. The Member (Judicial) supported this view, citing that the appellant’s ER-3 returns sufficiently indicated their intent to avail the exemption, and non-filing of a separate declaration should not negate their entitlement.

Conversely, the Member (Technical) argued that the filing of the declaration was a substantive condition, not merely procedural, as it ensured proper accounting of aggregate clearances and prevented misuse of the exemption. This view was supported by the Supreme Court's decision in Hari Chand Shri Gopal, which emphasized strict adherence to procedural requirements to prevent diversion and misuse of goods.

3. Applicability of judicial precedents on exemption notifications:

The Member (Judicial) relied on the precedent set by the Supreme Court in Malwa Industries Limited and the Tribunal's decision in Kanodia Polychem (P) Limited, which supported a liberal interpretation of exemption notifications. The Member (Technical) referred to the Supreme Court's decision in Hari Chand Shri Gopal and the Tribunal's decision in Surat Metallics Pvt. Ltd., which underscored the importance of adhering to procedural requirements for availing exemptions.

Majority Decision:

The Third Member, agreeing with the Member (Judicial), held that the non-filing of the declaration was a procedural lapse and should not result in the denial of the exemption. The legislative intent of the notification was to grant benefits to small-scale industries, and this purpose should not be defeated by a narrow interpretation of procedural requirements. The appellant had fulfilled all substantive conditions and had regularly informed the authorities through ER-3 returns. Therefore, the appellant was entitled to the benefit of the SSI exemption notification.

Conclusion:

The appeal was allowed, and the impugned order was set aside, granting the appellant the benefit of the SSI exemption notification No. 9/2003-CE dated 01.03.2003. The decision emphasized a liberal interpretation of procedural requirements in exemption notifications to fulfill the legislative intent of supporting small-scale industries.