2018 (1) TMI 40 - AT - Central Excise

Area Based Exemption - N/N. 56/2002-CE dated 14.11.2002 - assessee located in the area of Jammu, is entitled to the refund of the amount of duty which they pay in cash. If, under a mis-apprehension liability, the assessee has paid the higher duty in cash, they would be entitled to the refund of the same. - they did not avail the credit of additional duty of customs - Difference of opinion - Held that - As there are contrary views and difference of opinion between the Members, therefore, the matter be placed before the Hon ble President to refer the matter to the third member to resolve the following issues - Whether in view of the revenue neutral situation, the compliance with the condition of notification 56/2002-CE should not be insisted upon and the appeal allowed, as held by Member (Judicial) - matter referred to Third Member.

Summary

Issues Involved:
1. Applicability of exemption Notification No.56/2002-CE dated 14.11.2002.
2. Claiming refund of duty paid in cash without availing Cenvat credit.
3. Allegations of suppression and misstatement by the appellant.
4. Imposition of penalty and interest by the Revenue.
5. Interpretation of conditions in the exemption notification.
6. Discrepancy in the self-credit of duty leading to undue refund.
7. Judicial precedents on strict compliance with exemption conditions.
8. Bona fide mistake and rectification by the appellant.
9. Difference of opinion between the Members on the imposition of penalty and interest.

Detailed Analysis:

1. The case revolves around the appellant's engagement in manufacturing medicines under exemption Notification No.56/2002-CE. The notification mandates availing Cenvat credit on inputs and utilizing it for duty payment on the final product. The appellant imported raw materials, paid additional customs duty in cash, but did not claim Cenvat credit, leading to a shortfall in duty payment and subsequent refund claim.

2. The Revenue alleged that the appellant's actions resulted in erroneous excess refunds due to non-fulfillment of notification conditions. A show cause notice was issued, proposing recovery, interest, and penalty. The appellant argued that the omission was inadvertent, disadvantageous to them, and rectified by subsequently availing the credit for future payments.

3. The original adjudicating authority found the appellant's actions as suppression and misstatement, leading to excessive refunds, warranting recovery, interest, and penalty. However, the appellant contended that the situation was revenue-neutral, as they paid duty in cash under a misapprehension, rectifying the mistake by later availing the credit.

4. The Tribunal observed that the appellant was entitled to a refund of duty paid in cash, which was in line with the revenue-neutral situation. The non-availment of credit was disadvantageous to the appellant, as they had to pay excess cash for duty. Thus, the Tribunal held that the appellant did not claim excess refund, leading to the dismissal of the demand and interest.

5. Member (Technical) highlighted the strict compliance requirement of the exemption notification, emphasizing the monthly orientation of utilizing Cenvat credit before cash payment. The appellant's improper self-credit led to undue refunds, exceeding the permissible exemption limit. Citing judicial precedents, the Member upheld the demand for wrongly availed refund but set aside the penalty and interest due to the bona fide mistake rectification.

6. The differing opinions between the Members led to a referral to the Hon'ble President to resolve whether strict compliance with the notification condition should be insisted upon despite the revenue-neutral situation, as held by Member (Judicial), or to uphold the demand for wrongly availed refund without imposing interest and penalty, as held by Member (Technical).

This comprehensive analysis covers the issues, arguments, findings, and differing opinions presented in the legal judgment delivered by the Appellate Tribunal CESTAT CHANDIGARH.