2024 (3) TMI 976 - AT - Central Excise

Area Based exemption in Kutch district - admissibility of exemptions for goods manufactured using plant and machinery installed after the cut-off date of 31.12.2005. - Wrongful availment of benefit of N/N. 39/2001-CE dated 31.07.2001 by availing re-credit/refund of duty paid on finished excisable goods manufactured by both the oil splitting units - Penalty on managing director. HELD THAT - It is pertinent to note that the exemption under the Notification was limited to twice the value of the investment, for each year, in cases where the original value of the plant and machinery installed in the factory was below Rupees 20 crores on the date of commencement of the commercial production and in cases where the original value of investment in plant and machinery was in excess of 20 crores, there was no limitation with respect to the extent of the exemption available under the Notification. The Notification, as initially enacted, did not provide for any time period within which the commercial production had to commence, being the date relevant for reckoning the original value of investment in plant and machinery as also for reckoning the 5 year period for which the exemption was to be available. All that was required was that any civil construction work in the factory premises and any installation of plant and machinery therein commences only after 31st July 2001 but before the cut-off date. It is impermissible to read in any condition or word into an exemption notification, especially a benevolent one which has been issued with the objective of encouraging investment in the earthquake ravaged region of Kutch. In our view there is neither any legal basis nor rationale for reading in the word 'ALL' in the exemption notification and with reference to the same construe that since some machinery was installed after the cut-off date, the benefit of the exemption would not be available, to goods manufactured using the said machinery. This Tribunal has also in the case of M/S WELSPUN LTD. VERSUS C.C.E. S.T. RAJKOT 2019 (1) TMI 371 - CESTAT AHMEDABAD held that in the context of this very notification that there is no bar in installing Plant and Machinery post 31.12.2005 as long as the unit has commenced commercial production not later than 31.12.2005. The reasoning of the adjudicating authority that under the Himachal/Uttarakhand exemption scheme, exemption was even extended to existing units, undertaking substantial expansion, which was missing in Kutch, would in our view make no difference, to the question whether any addition of plant and machinery after the cut-off date would dis-entitle the unit to the benefit of the exemption. The aspect regarding the unit commencing commercial production by a cut-off date equally applies to the Kutch as also the Himachal/Uttarakhand exemption notification - the clarification issued by the CBEC vide Circular No. 939/29/2010-CX dated 22.12.2010 to the effect that there is no bar or restriction on any addition/modification in the plant or machinery or on the production of new products by an eligible unit after the cut-off date and during the exemption period of ten years, would apply equally in the context of the Kutch notification. The presumption of the adjudicating authority that this second splitting column was installed within 7 days of the same having been shipped by the manufacturer in October 2006, which does not seem to be logical and reasonable especially when viewed in light of the statement recorded under Section 14 of the installation agency, as per which the column was installed in March 2007. The combined production achieved even after the installation of the second Splitter seems to be lesser than what could have been achieved by a single Splitter alone. Further the 200 TPD capacity as explained by the appellant is the output guaranteed by the supplier of technology at 99% degree of split. Obviously the production numbers clearly show that the daily production was higher than 200 TPD and that the plant was functioning operating at a lesser degree of Split and was able to achieve a production of around 15000 MT per month - the second Splitter was installed with a view to improve the quality of the output and not to increase the production, which fact seems to be vindicated by the production data. We are therefore of the view that, applying the TRU clarification dated 10.7.2008 the additional plant and machinery having been installed with a view to improve the quality of production and not with a view to increase the production, the benefit of exemption cannot be denied to goods manufactured using the second Splitting Column. The imposition of penalty on the Managing Director, Mr.Rustom Joshi is also not sustainable. The impugned order is set aside. The appeals are allowed.

Issues Involved:
1. Eligibility of exemption for goods manufactured using plant and machinery installed after 31.12.2005.
2. Consideration of CBEC circulars versus internal communications.
3. Raising of demand for central excise duty without appeal against re-credit/refund orders.
4. Raising of demand beyond 5 years from the relevant date.
5. Denial of exemption based on the purpose of installation of the second splitting column.
6. Invocation of extended period of limitation based on fraud, suppression, or willful misstatement.

Summary:

1. Eligibility of exemption for goods manufactured using plant and machinery installed after 31.12.2005:
The Tribunal held that the adjudicating authority erred by adding a condition to the exemption notification that "ALL" civil construction and installation of plant and machinery should have been completed before the cut-off date, which does not exist in the notification. The Tribunal emphasized that an exemption notification must be interpreted strictly and literally, without importing conditions that are not explicitly stated.

2. Consideration of CBEC circulars versus internal communications:
The Tribunal found that the adjudicating authority improperly ignored CBEC circulars, which clarified that the benefit of the exemption would not be lost even if additional plant and machinery were installed after the cut-off date. Instead, the adjudicating authority relied on internal communications between the TRU and Chief Commissioners, which do not hold the same legal weight as CBEC circulars.

3. Raising of demand for central excise duty without appeal against re-credit/refund orders:
The Tribunal did not address this issue in detail, as it found the demands raised against the appellant unsustainable on other grounds.

4. Raising of demand beyond 5 years from the relevant date:
The Tribunal did not explicitly address this issue, focusing instead on the broader legal and factual matrix that rendered the demands unsustainable.

5. Denial of exemption based on the purpose of installation of the second splitting column:
The Tribunal concluded that the second splitting column was installed to improve the quality of the final product, not to increase production capacity. This conclusion was supported by production data showing no significant increase in production after the installation of the second column. Therefore, the benefit of the exemption could not be denied under the TRU clarification dated 10.07.2008.

6. Invocation of extended period of limitation based on fraud, suppression, or willful misstatement:
The Tribunal did not find any evidence of fraud, suppression, or willful misstatement that would warrant the invocation of the extended period of limitation.

Conclusion:
The Tribunal set aside the impugned order, allowed the appeals with consequential relief, and found the imposition of penalty on the Managing Director, Mr. Rustom Joshi, unsustainable. The judgment was pronounced in the open court on 20.03.2024.

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