2008 (2) TMI 63 - AT - Central Excise

Not. 8/04 provide area based exemption to tobacco products provided an amount equal to the duty is deposited in an Escrow Account amt. duly deposited by assessee but earned some interest on that amount no part of the principal amount or the interest earned has been misutilised - there is no bar for earning interest on above amount - exemption can t be denied because asssessee has duly deposited amount in escrow bank & complied with conditions of above notification

Summary

Issues involved: Interpretation of exemption Notification No. 8/04-CE and Notification No. 28/04-CE, compliance with conditions of the exemption, imposition of penalties, limitation period for demands, withdrawal and investment timeline from Escrow Account.

Interpretation of exemption Notification: The appeals involved demands exceeding Rs. 50.00 crores against the appellant-companies and personal penalties, focusing on the interpretation of exemption Notification No. 8/04-CE and Notification No. 28/04-CE. The dispute centered on the mechanism for exemption for tobacco products manufactured in the North-East Region, requiring an amount equivalent to duty to be deposited in an Escrow Account. The appellants faced issues due to not opening separate accounts for units in different States, lack of a tripartite agreement, and directing the bank to transfer money for interest. Both sides presented oral and written submissions, citing case laws on interpreting exemption notifications.

Compliance with exemption conditions: The Tribunal examined the case records, submissions, and actions of the appellants. It noted that the appellants informed the department about opening the Escrow Account and complied with subsequent requirements like opening separate accounts and signing a tripartite agreement. The appellants directed the bank to earn interest on the deposited amount, which was clarified by the Minister of State for Finance as permissible under the Notification. The Tribunal found that the appellants substantially complied with the conditions of the exemption, ensuring the deposited amount was not diverted or misused.

Imposition of penalties and limitation period: The appellants argued for a limitation on the demands imposed, citing the department's awareness of the Escrow Account and its directions. The Tribunal observed that there was no evidence of non-compliance with deposit requirements or misuse of funds. It criticized the Adjudicating Commissioner's mechanical view and imposed penalties, emphasizing the developmental objective of the exemption. The Tribunal concluded that the penalties imposed were lenient, indicating no significant malfeasance by the officials or companies.

Withdrawal and investment timeline from Escrow Account: The Tribunal acknowledged the requirement to withdraw and invest the Escrow Account funds within a specified period. Due to the department's actions, the appellants couldn't meet the timelines. To provide relief, the Tribunal extended the withdrawal period to six months and allowed utilization within sixty days post-withdrawal to align with the exemption conditions. The Tribunal directed the authorities to permit the appellants to withdraw and utilize the funds accordingly.

In conclusion, the Tribunal allowed all appeals, setting aside duty demands, interest, and penalties imposed, emphasizing the appellants' substantial compliance with exemption conditions and the developmental intent of the Notification.