2018 (7) TMI 308 - AT - Central Excise

Demand of duty - pre-mix (a commodity used for the manufacture of mosquito coils) - intermediate goods - revenue neutral situation - extended period of limitation - Held that - If the appellant had paid duty while clearing the pre-mix powder to their sister units, the same would be eligible for Cenvat Credit to their sister units at Guwahati. The entire exercise would be revenue neutral one - The Hon. Apex Court in the case of Nirlon Ltd. vs. CCE, Mumbai 2015 (5) TMI 101 - SUPREME COURT has observed that there can be no malafide or intent to evade payment of duty when the entire exercise is revenue neutral - The pre-mix powder having been cleared to their sister units, the entire exercise being revenue neutral one, the demand of duty invoking the extended period cannot sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues: Demand of duty on pre-mix powder, classification under Chapter Heading 3824, marketability of pre-mix powder, revenue neutrality, invocation of extended period in Show Cause Notice.

Analysis:

1. Demand of Duty on Pre-Mix Powder:
The case involved the demand of excise duty on pre-mix powder transferred by the appellants to their sister units without payment of duty. The department contended that the pre-mix powder was an intermediate product classifiable under Chapter Heading 3824, thus attracting duty. The Commissioner (Appeals) upheld the demand. However, the appellants argued that the pre-mix powder was not a new product, was not marketable, and was used solely for manufacturing mosquito coils in their sister unit. The adjudicating authority also noted that the pre-mix powder was not marketable. The Tribunal ultimately held that since the pre-mix powder was transferred to the sister units for further processing into final products on which duty was paid, the demand of duty on the pre-mix powder could not be sustained.

2. Classification under Chapter Heading 3824:
The department argued that the pre-mix powder fell under Chapter Heading 3824 based on the HSN Notes, which include mixtures of natural products. The appellants, on the other hand, contended that the pre-mix powder was not classifiable under Chapter Heading 3824 as it was not a distinct marketable product. The Tribunal considered the arguments but focused on the revenue neutrality aspect and the specific end-use of the pre-mix powder in manufacturing mosquito coils, ultimately setting aside the demand of duty.

3. Marketability of Pre-Mix Powder:
One of the key points of contention was the marketability of the pre-mix powder. The appellants argued that there was no evidence to establish that the pre-mix powder was capable of being marketed as a distinct product. The Tribunal noted the lack of evidence supporting the marketability of the pre-mix powder and emphasized that the primary purpose of the pre-mix powder was for internal use in manufacturing mosquito coils, rather than for standalone sale in the market.

4. Revenue Neutrality and Extended Period in Show Cause Notice:
The appellants raised the argument that the entire transaction involving the pre-mix powder transfer to the sister units was revenue neutral. They contended that if duty had been paid on the pre-mix powder, it would have been available as Cenvat Credit to the sister units, making the overall process revenue neutral. The Tribunal referred to relevant judgments, including the one by the Hon. Apex Court, to support the principle that in revenue-neutral situations, allegations of suppression do not hold. Therefore, the demand invoking the extended period in the Show Cause Notice was deemed unsustainable by the Tribunal.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential reliefs, if any, based on the considerations of revenue neutrality, lack of marketability of the pre-mix powder, and the specific end-use of the pre-mix powder in the manufacturing process of mosquito coils.