2018 (11) TMI 971 - AT - Central Excise

Area based exemption - relevant date for commencement of commercial production to avail the benefit of notification - N/N. 50/2003-CE dated 10th June - It has been held by the adjudicating authority that there was no DM/RO plant in the factory before 31.10.2003, which is one of the essential ingredient for the manufacture of the cosmetic products manufactured and cleared bythe appellant - whether or not the appellant commenced commercial production on or before 31st March, 2010, so as to avail the benefit of notification? Held that - As the time limit for availing the notification the appellant was approaching fast the appellant decided to use distilled water for the purpose of manufacture of lotion and boosting shampoo. The department has not disputed the use of the distilled water for the manufacture of the above products - It has been affirmed by the Chemist of the unit that DM/RO plant is meant to produce distilled water required for the manufacture of their final product. The Appellant has used the distilled water for the manufacture of said product which cannot be disputed by the department. The only non-existence of the DM/RO plant will not prove that the products has not been manufactured by the appellant on or before 31.10.2010. The other ground taken by the department is that the Drugs Licence which is required for thepurpose of manufacture of the cosmetic products has been issued on 30.3.2010 and therefore, the appellant could not have manufactured the said product before obtaining the same from the competent authority. We have seen drug licence, it is issued by the competent authority on 30.3.2010 before commencement of last date as contained in the Notification No. 50/2003. The product which are being manufactured by the appellant is not the one which required the complex manufacturing process and in order to avail area based exemption before the expiry of the date they could manage to manufacture the goods before the last of the notification. The condition only prescribes that commencement of the production should start on or before 31.10.2010. It nowhere prescribes clearance of the goods before 31.10.2010, that is last date contained in the notification. Even if the appellant manufactured products before 31.10.2010, it cannot said with certainly that they not manufactured the goods before that date. The appellant has relied upon the various decisions about the excisability and marketability of the product. Excisability is to be decided on the point of manufacturing of the sale where marketability is altogether different event. The excise duty is required to be paid on the manufacture of the goods however, the payment of duty has been deferred to the marketing thereof. The department has not verified all these submissions made by the appellant and concluded that the manufacturing activity has not started before 31.3.2010, which is not correct on the part of the Revenue - The due verification was required to be done by the Revenue before proceeding with denial of exemption notification raising against the appellant - there is no evidence to the effect that these activities were not undertaken by the appellant. The appellant has started commencement of the production before 31.10.2010 and therefore, eligible for area based exemption - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the appellant commenced commercial production on or before 31st March 2010 to avail the benefit of Notification No. 50/2003-CE dated 10th June 2003.
2. Whether the appellant was liable to pay Central Excise duty, including education cess and secondary higher education cess, along with penalties under the Central Excise Act, 1944.
3. Whether the demand raised by the department was time-barred.

Issue-wise Detailed Analysis:

1. Commencement of Commercial Production:
The appellant, M/s Proveda Herbals, claimed to have commenced commercial production on or before 31st March 2010 to avail the benefits of Notification No. 50/2003-CE dated 10th June 2003. The department, upon verification, found that the appellant had not commenced commercial production by the stipulated date. The visiting Central Excise officers on 24th April 2010 observed that no plant and machinery necessary for production were installed, and essential ingredients like DM water were not procured or used by 31st March 2010. The appellant contested this by providing various documents, including invoices, stock registers, and a statement from their chemist, asserting that commercial production of Winter Cherry Moisturizing Lotion and Boosting Shampoo had indeed commenced by the required date.

2. Liability to Pay Central Excise Duty and Penalties:
The department issued show cause notices to the appellant, demanding Central Excise duty, including education cess and secondary higher education cess, along with penalties under Sections 11A/11A(4), 11AB, and 111AC of the Central Excise Act, 1944, read with Rule 25 of the Central Excise Rules, 2002. The appellant argued that they had fulfilled the conditions for exemption under the notification and that the production had commenced before the sunset date. The Tribunal observed that the use of distilled water instead of DM water, due to the absence of an installed DM plant by 31st March 2010, did not negate the commencement of production. The Tribunal also noted that the Drug Licence was issued on 30th March 2010, and the appellant had produced goods in anticipation of this licence.

3. Time-barred Demand:
The appellant argued that the demand was time-barred as the department was aware of the manufacturing activities and commencement of production. The Tribunal found that the department had not conducted a proper investigation into the appellant's submissions and had prematurely concluded that production had not commenced before 31st March 2010. The Tribunal referenced a similar case (Vega Auto Accessories Pvt. Ltd. vs. CCE & ST, Meerut-I) where the timely declaration of commencement of production and subsequent clearances were accepted despite the absence of certain machinery.

Conclusion:
The Tribunal concluded that the appellant had indeed commenced production before 31st March 2010, making them eligible for the area-based exemption under Notification No. 50/2003-CE. The appeal was allowed, and the demand for duty and penalties was set aside. The Tribunal emphasized that the department had not adequately verified the appellant's claims and had relied on presumptions rather than concrete evidence. The judgment was pronounced in court on 16th November 2018.

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