2018 (1) TMI 764 - AT - Central Excise

Benefit of N/N. 108/1995-CE dated 28.08.1995 - supplies to projects financed by the World Bank, Asian Development Bank or International Organization approved by the Government of India - denial of benefit on the ground that specified goods were cleared to the contractors of the project instead of the Project Authorities. Whether the denial of exemption on the ground that the impugned goods are supplied to the contractor of the project instead of the Project Authorities is correct or not? - Held that - The Hon ble High Court in the case of The Commissioner of Central Excise Versus M/s. Caterpillar India Pvt. Ltd. 2013 (7) TMI 244 - MADRAS HIGH COURT , held that the use of the phrase supply to the projects financed by United nations or International Organization and approved by the Government of India clearly shows that the condition for grant of exemption is supply of the goods towards the project. That since the conditions are satisfied, the benefit of exempton cannot be denied stating that the goods were supplied to the contractor - the denial of exemption benefit on the ground that the goods were cleared to contractors cannot sustain. Denial of exemption on the basis of Explanation 2 inserted in N/N. 108/1995-CE w.e.f. 01.03.2008 - Held that - The appellant has complied with the condition of furnishing certificate of designated authorities. The department allowed clearance of the goods without any murmur on the validity of the certificate. The department cannot later turn around to deny exemption by interpreting Explanation 2 to the effect that the exemption is not available if the goods are withdrawn from project site. Denial of exemption is unjustified - appeal allowed.

Summary

Issues Involved:
1. Denial of exemption on the ground of supplying goods to contractors instead of Project Authorities.
2. Denial of exemption based on Explanation 2 inserted in Notification 108/1995-CE regarding withdrawal of goods from project sites.

Analysis:

Issue 1: Denial of exemption based on supply to contractors
The appellants were engaged in manufacturing and supplying goods to projects financed by international organizations, claiming exemption from excise duty. The authorities alleged that the exemption was not applicable as goods were supplied to contractors instead of Project Authorities. The appellants cited various legal precedents where courts upheld exemption even when goods were supplied to contractors. The tribunal agreed with the appellants, stating that the condition for exemption is met if goods are supplied towards the project, regardless of the recipient being a contractor. The tribunal relied on previous judgments affirming exemption in similar cases, concluding that denial of exemption based on supply to contractors was incorrect.

Issue 2: Denial of exemption based on Explanation 2 in Notification 108/1995-CE
The second issue revolved around the interpretation of Explanation 2 in the notification, which clarified conditions for exemption regarding withdrawal of goods from project sites. The department argued that goods like cement and steel, which permanently become part of the project, are eligible for exemption, while capital goods withdrawn after project completion are not. The department cited a tribunal decision to support this stance. However, the tribunal rejected this argument, emphasizing that the exemption is not limited to goods permanently part of the project. The tribunal highlighted that the Explanation cannot restrict exemption only to certain goods and that previous court decisions supported exemption even when goods were supplied to contractors. The tribunal concluded that the denial of exemption based on Explanation 2 was unjustified and set aside the impugned order, allowing the appeals with consequential reliefs.

In summary, the tribunal ruled in favor of the appellants on both issues, emphasizing that the denial of exemption was incorrect based on legal precedents and interpretations of the relevant notification.