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2023 (8) TMI 315 - AT - Central ExciseCaptive consumption - benefit of N/N. 8/2004-CE dated 21.01.2004 - intermediate product called 'Compound' used for captive consumption in the same factory - Extended period of limitation - revenue neutrality - HELD THAT - The Appellants manufactured two products one, compound and the other, chewing tobacco in the same factory and compound was used entirely captively. According to the Department while chewing tobacco is exempt under notification No. 8/2004-CE, compound is not, even though both are products specified under notification No. 8/2004-CE. The substantive condition for exemption under notification No. 8/2004-CE is that an amount equal to the duty payable on the specified product should be invested in the North East for any of the notified purposes through the mechanism of Escrow Account deposit and withdrawal. Other conditions are purely procedural. It is not in dispute that the Appellants used the compound only for captive consumption and nothing was cleared from the factory as such. Once the condition of deposit of an amount equal to the duty payable, but for exemption under notification No. 8/2004-CE stands satisfied for chewing tobacco, the same condition gets automatically satisfied for compound captively consumed as well. This is for the reason that the amount of duty payable on compound, but for the exemption contained in notification No. 8/2004-CE, is nothing but ZERO. It is calculated that the amount to be deposited/invested for compound keeping this in mind, the amount comes to be ZERO because in a tax regime in which 8/2004-CE is nonexistent, the intermediate compound having been used captively in dutiable chewing tobacco gets the benefit of duty exemption under notification No. 52/2002-CE and thus no amount of duty is payable on compound. Thus, the exemption to chewing tobacco under notification No. 8/2004-CE automatically accompanies with it the exemption to captively used compound under the same very notification. In other words, exemption to compound travels along with exemption on chewing tobacco. In the present case also, the Appellants were liable to pay Additional Duty as per Finance Act, 2005. The word exempted used in the proviso to notification No. 52/2002-CE has to be interpreted keeping in view the context and purpose of exemption to chewing tobacco under 8/2004-CE, otherwise it would defeat the very purpose of exemption and cause anomaly. The finished goods Chewing Tobacco were not wholly exempted. Consequently, the benefit of Notification 52/2002-CE also cannot be denied to demand duty on the intermediate product Compound manufactured and captively consumed in the manufacture of Chewing Tobacco. Extended period of limitation - HELD THAT - They stated that no evidence of suppression of facts with intention to evade duty has been brought on record either in the SCN or discussed in the findings of the impugned order, except merely stating that suppression of facts involved in this case. Revenue neutrality - HELD THAT - The contention of the Appellants agreed upon that the entire exercise would be revenue neutral and the Appellants would not have achieved any benefit by not paying duty on the intermediate product namely, Compound . The demand of duty is not sustainable on the ground of limitation also - Since, demand of duty is not sustainable, the demand of interest and penalty also not sustainable - the demand confirmed against the Appellants in the impugned order is not sustainable - Appeal allowed.
Issues Involved:
1. Applicability of Notification No. 52/2002-CE to intermediate products when the final products are conditionally exempt under Notification No. 8/2004-CE. 2. Whether the exemption under Notification No. 8/2004-CE is conditional or absolute. 3. Calculation of duty on intermediate products. 4. Time-bar and suppression of facts for invoking the extended period of limitation. Summary: Issue 1: Applicability of Notification No. 52/2002-CE The primary issue was whether the intermediate product 'Compound' used in the manufacture of 'Chewing Tobacco' is eligible for exemption under Notification No. 52/2002-CE when the final product is exempt under Notification No. 8/2004-CE. The Tribunal observed that Notification 52/2002-CE exempts goods used within the factory for the manufacture of final products unless the final products are wholly exempt from duty. The appellants contended that since the final products were conditionally exempt, the intermediate products should also be exempt. Issue 2: Conditional vs. Absolute Exemption The Tribunal held that the exemption under Notification No. 8/2004-CE is conditional, not absolute. The exemption is granted on the condition that the manufacturer invests an amount equal to the duty saved in the North East area. This conditional nature of the exemption means that Notification 52/2002-CE is applicable, allowing the intermediate product 'Compound' to be exempt from duty. Issue 3: Calculation of Duty The appellants argued that the duty on the intermediate product 'Compound' should be calculated as zero because the final product 'Chewing Tobacco' is conditionally exempt. The Tribunal agreed, stating that if the exemption under Notification No. 8/2004-CE is conditional, then the intermediate product should also be exempt, and the duty payable on it would be zero. Issue 4: Time-bar and Suppression of Facts The Tribunal found that there was no suppression of facts with the intent to evade duty. The manufacturing process and the intermediate product were declared to the department, and audits were conducted without any objections. Therefore, the extended period for demanding duty could not be invoked, making the demand time-barred. Conclusion: The Tribunal set aside the impugned order, holding that the demands for duty, interest, and penalties were not sustainable. The appeals filed by the appellants were allowed with consequential relief.
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