2018 (10) TMI 1247 - AT - Central Excise

100% EOU - clearance of goods into the domestic tariff area if manufactured out of exclusively indigenous raw material - Benefit of N/N. 8/97-CE - case of Revenue is that there is neither physical nor accounting mechanism to facilitate segregation of imported and indigenously procured cotton and also that the assessee had been mixing wastes/rejects with prime cotton without discriminating between those arising from use of imported and indigenous raw material. Held that - The order now impugned before us is dealt with the dispute that had been brought up before us on an earlier occasion as also the demand of duty for a subsequent period that was not covered by our remand order - The remand by the Tribunal was specific in directing the original authority to consider the contents of the balance-sheet adduced by the appellant for the first time ever. It was mandated on the part of the original authority to delve into the conclusions that could be drawn from the balance sheet referred to; any other interpretation of the contents of the order would be non-contextual. It would appear that the audited balance sheet, evidencing specific quantities and values of imported and indigenously procured cotton would imply the existence of records that facilitated such segregation for statutory audit. The direction of the Tribunal was intended to that end. The original authority has failed to do so and, thereby, vitiated the impugned order. In the impugned order, the original authority has drawn upon an additional ground of waste of unidentifiable provenance having been mixed with prime cotton to conclude that the strict segregation mandated in the exemption notification supra has been contravened - On that issue, the decision of the Hon ble Supreme Court in re Favourite Industries 2012 (4) TMI 65 - SUPREME COURT OF INDIA has, in upholding the decision of the Tribunal, cleared the ambiguity holding that There cannot be any addition or subtraction from the notification for the reason the exemption notification requires to be strictly construed by the Courts. The wordings of the exemption notification have to be given its natural meaning, when the wordings are simple, clear and unambiguous. Matter remanded back to the original authority to decide the matter afresh after considering the availability of records that segregate imported from indigenously procured cotton and in the light of the decision of the Hon ble Supreme Court - appeal allowed by way of remand.

Issues involved:
Entitlement for benefit of notification no. 8/97-CE for 100% export oriented units; segregation of imported and indigenously procured cotton; strict compliance with exemption notification requirements; interpretation of exemption notification; duty liability determination based on available records.

Analysis:

Issue 1: Entitlement for benefit of notification no. 8/97-CE
The dispute revolved around the entitlement of a 100% export oriented unit to the benefits under notification no. 8/97-CE. The appellant, operating under the EXIM Policy, sought clearance of goods into the domestic tariff area manufactured from exclusively indigenous raw material. The central excise authorities contended that there was a lack of mechanism for segregating imported and indigenously procured cotton, leading to a duty liability. The impugned order confirmed duty liability and imposed penalties, challenged on grounds of incorrect presumptions and non-alignment with relevant legal precedents.

Issue 2: Segregation of imported and indigenously procured cotton
The Tribunal emphasized the importance of establishing that dutiable goods cleared into the domestic tariff area were exclusively manufactured from indigenously procured cotton. The original authority failed to consider the balance sheet provided by the appellant, which contained details crucial for determining segregation. The Tribunal found that the failure to delve into these details vitiated the impugned order, highlighting the necessity for statutory audit records facilitating such segregation.

Issue 3: Compliance with exemption notification requirements
The impugned order raised concerns about waste of unidentifiable provenance mixed with prime cotton, suggesting a violation of the strict segregation mandated by the exemption notification. Citing legal precedents, including the decision in Commissioner of Central Excise v. Favourite Industries, the Tribunal emphasized the need for strict interpretation of exemption notifications based on clear and unambiguous wordings. The Tribunal concluded that the impugned order did not align with the legal principles established in relevant judgments.

Issue 4: Interpretation of exemption notification
The Tribunal extensively cited legal precedents to underscore the necessity of interpreting exemption notifications strictly based on their wording. The judgments highlighted the importance of giving effect to clear and unambiguous wordings, ensuring that exemptions are not granted through unjustified constructions. The Tribunal emphasized the need for a liberal construction of beneficial notifications while strictly interpreting general exemptions, aligning with the legal principles established by various Supreme Court decisions.

Issue 5: Duty liability determination based on available records
The Tribunal found that the findings in the impugned order were not sustainable in law due to critical aspects related to duty liability determination. Consequently, the impugned order was set aside, and the matter was remanded back to the original authority for a fresh decision considering the availability of records segregating imported from indigenously procured cotton in line with the decision of the Hon'ble Supreme Court.

Overall, the judgment focused on ensuring strict compliance with exemption notification requirements, proper interpretation of legal principles, and the necessity of clear record-keeping for duty liability determination in cases involving the segregation of imported and indigenously procured materials.

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