2020 (1) TMI 537 - AT - Central Excise

Area based exemption - Benefit under exemption Notification No. 32/99-CE dated July 8, 1999 - correctness or otherwise of availment of cenvat credit - HELD THAT - Notification No. 32/99-CE dated July 8, 1999 exempted from excise duty and additional excise duty goods, cleared from a unit located in the places specified in the notification situated in the specified States of North East India, from so much of such duties leviable thereon under, inter alia, the Central Excise Act, as is equivalent to the amount of duty paid by the manufacturer, other than the amount paid by utilisation of cenvat credit under the Cenvat Credit Rules. As per the impugned order Ishaan, by a letter dated 04.07.2002 informed the jurisdictional Assistant Commissioner, the prescribed authority under Notification No. 32/99-CE, that their factory located in the specified area and had started commercial production with effect from 22.03.2002 and requested sanction of eligibility certificate and that the Assistant Commissioner by an order dated 27.09.2002 held that Ishaan is eligible for exemption under the said notification by way of refund of duty paid from account current on the products allowed to be manufactured and cleared; accordingly an amount of ₹ 10,21,26,696/- was refunded to Ishaan during the period from October 2002 to December 2004 for clearances claimed to have been during March 2002 to November 2004 - By the impugned order the Revenue has sought to recover an amount of ₹ 8,92,62,243/- out of the said refunded amount in terms of Section 11A(2) of the Act, pursuant to a show cause notice issued under the Proviso to Section 11A of the Act, as amount wrongly refunded under the said Notification No. 32/99-CE. A further sum of ₹ 53,05,582/- has also been confirmed against Ishaan as wrong cenvat credit availed and utilised in terms of Rule 12/14 of the Cenvat Credit Rules 2002/2004 read with Section 11A of the Act. In the present case, since according to the show cause notice and the impugned order themselves there was no manufacture of the subject goods, there can be no levy and hence no requirement to make payment of any duty of central excise payable in respect of subject machineries under the Act. Consequently, the question of any recovery of duties of excise not levied or not paid or short levied or short paid or erroneously refunded in terms of Section 11A(1) of the Act also does not arise. Appeal disposed off.

Issues Involved:
1. Availability of benefit under exemption Notification No. 32/99-CE dated July 8, 1999.
2. Correctness of availment of Cenvat credit by Ishaan Technologies Pvt. Ltd.
3. Validity of proceedings initiated by the show cause notice dated February 28, 2006.
4. Appropriation of a sum of ?2,37,57,760/- deposited by Manaksia Ltd., Anjar, Kutch.
5. Imposition of penalties on various noticees under Rule 26 of CCR 2002.

Issue-wise Detailed Analysis:

1. Availability of Benefit under Exemption Notification No. 32/99-CE:
The core issue was whether Ishaan Technologies Pvt. Ltd. (Ishaan) was entitled to the exemption under Notification No. 32/99-CE, which provided a refund of duty paid from the account current. The Commissioner confirmed the demand of ?9,45,67,825/- against Ishaan, stating that there was no manufacture of goods in its factory, and thus, the refund was wrongly availed. However, the Tribunal found that the Assistant Commissioner had already sanctioned the eligibility for exemption, and the order was not challenged by the Revenue under Section 35E of the Act. The Tribunal held that the Revenue could not initiate proceedings under Section 11A of the Act to recover the amount, as there was no manufacture of excisable goods, and thus, no duty was payable.

2. Correctness of Availment of Cenvat Credit by Ishaan:
The Commissioner also demanded recovery of ?53,05,582/- as wrongly availed Cenvat credit. The Tribunal noted that the exemption notification did not allow a refund of the Cenvat credit utilized, and Ishaan had effectively reversed the Cenvat credit by utilizing it for payment of excise duty. Thus, the Tribunal found no wrongful availment of Cenvat credit and held the demand unsustainable.

3. Validity of Proceedings Initiated by Show Cause Notice Dated February 28, 2006:
The Tribunal referred to the Gauhati High Court's decision in Commissioner of C.Ex. Vs. Jellalpore Tea Estate, which held that Section 11A of the Act could not be invoked to recover amounts refunded under a notification without challenging the original refund order under Section 35E. Since the Assistant Commissioner's order granting the refund was not challenged, the Tribunal found the proceedings initiated under Section 11A to be contrary to law and unsustainable.

4. Appropriation of ?2,37,57,760/- Deposited by Manaksia Ltd., Anjar, Kutch:
The Commissioner appropriated ?2,37,57,760/- deposited by Manaksia Ltd., Anjar, towards the duty demand confirmed against Ishaan. The Tribunal held that there was no sanction under Section 11 of the Act for recovering a sum of money due from one person from another separate legal entity unless it was owed or due to the person against whom the duty was confirmed. The Tribunal found the appropriation unsustainable and directed the refund of the amount to Manaksia Ltd., Anjar.

5. Imposition of Penalties on Various Noticees under Rule 26 of CCR 2002:
The Commissioner imposed penalties on various noticees under Rule 26 of CCR 2002. The Tribunal found that since the demands of duty and interest against Ishaan were unsustainable, the penalties imposed on other appellants were also unsustainable. The Tribunal set aside all the penalties imposed by the Commissioner.

Conclusion:
The Tribunal allowed the appeals filed by Ishaan and other appellants, setting aside the duty demands, interest, and penalties confirmed by the Commissioner. The Tribunal also allowed the appeal of Manaksia Ltd., Anjar, directing the refund of ?2,37,57,760/-. The appeals filed by the Revenue were rejected.

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