2025 (1) TMI 664 - AT - Central Excise

Benefit of the Exemption on the manufacture of mehandi paste - Recovery of central excise duty with interest and penalty - availment of N/N. 12/2012-CE dated 17.03.2012, as subsequently amended by N/N. 12/2013CE dated 01.03.2013, by the appellant on the manufacture of mehandi paste - extended period of limitation. Benefit of the Exemption on the manufacture of mehandi paste - HELD THAT - The period of dispute in the present case is from 01.08.2014 upto 30.06.2017. The Exemption Notification, dated 17.03.2012, against serial no. 134, describes the excisable goods as henna powder, not mixed with any other ingredient . This was subjected to six percent excise duty. The amendment made on 17.03.2012 substituted serial no. 134 as henna powder or paste, not mixed with any other ingredient . It was subjected to Nil rate of duty. It is the said amendment that would be applicable to the facts of the present case - exemption would be available to an assessee if henna powder is mixed with a liquid, so far that the liquid is a medium to change the form of henna powder into paste. The liquid is not restricted to water. It can be any liquid which is a medium to change the form of henna powder into paste. What has been excluded are products like henna dye and such other products which are cosmetics. In Prem Henna 2019 (3) TMI 847 - CESTAT NEW DELHI , in the matter of the appellant itself and in the matter of manufacture of henna paste from henna powder, the show cause notice that was issued to the appellant alleged that the appellant was mixing clove oil with henna powder for the manufacture of henna paste and, therefore, since another ingredient was added to henna powder, the appellant would not be entitled to the benefit of the Exemption Notification. Rejecting this contention, the Tribunal held that clove oil is a liquid used to make henna paste from henna powder and make it marketable as such paste in cones. Such a process for making the paste marketable/usable by the customers would not mean that the appellant would not be entitled to the benefit of the Exemption Notification. In this connection, the Tribunal placed reliance upon the letter dated 10.07.2014 issued by the Board regarding the Exemption Notification. The Commissioner, in the present case, has not accepted the two orders in Prem Henna 2019 (3) TMI 847 - CESTAT NEW DELHI and in M/S. PREM MEHANDI CENTRE APPELLANT VERSUS CCE, JAIPUR 2018 (12) TMI 2009 - CESTAT NEW DELHI for the reason that the department did not file appeals to challenge these orders passed by the Tribunal and had accepted the decisions of the Tribunal only on the ground of monetary limit. In this connection, the Commissioner placed reliance upon section 35R of the Central Excise Act to hold that the final orders passed by the Tribunal did not have a binding effect. The effect of section 35R of the Central Excise Act and the Circular dated 20.10.2010 issued by the Central Board of Indirect Taxes would need to be considered. The Commissioner, therefore, clearly fell in error in holding that in cases where the department decides not to pursue the matter before a higher appellate forum due to monetary limits, the decision of the Tribunal or the High Court shall not have any precedence value. In fact, the observations made by the Commissioner are against all propriety and judicial discipline. So long as the orders of the Tribunal have not been set aside, the Commissioner is bound to follow the decision of the Tribunal. In Smt. Kaushalya Devi Bogra and others vs. The Land Acquisition Officer and another 1984 (2) TMI 349 - SUPREME COURT , the Supreme Court also observed that the direction of the Appellate Court is binding on the courts subordinate thereto and that judicial discipline requires and decorum known to law warrants that appellate directions should be taken as binding and followed. In the instant case, though there were two binding decisions of the Tribunal on the issue that had arisen for consideration before the Commissioner, but the Commissioner decided to not follow the decisions as according to him they had no precedence value. Extended period of limitation - HELD THAT - It would not be necessary to examine the contention raised by the learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the case. Conclusion - The appellant would clearly be entitled to avail the benefit of the Exemption Notification dated 17.03.2012, as amended on 01.03.2013, when manufacturing henna paste from henna powder. The order dated 30.12.2020 passed by the Commissioner is, accordingly, set aside - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the appellant is entitled to the benefit of the Exemption Notification No. 12/2012-CE dated 17.03.2012, as amended by Notification No. 12/2013-CE dated 01.03.2013, for the manufacture of henna paste from henna powder.
• Whether the test reports relied upon by the department can be the basis for denying the exemption.
• Whether the addition of oils to henna powder to make henna paste constitutes mixing with "any other ingredient" under the Exemption Notification.
• Whether the decisions of the Tribunal in similar cases have binding precedent value.
• Whether the extended period of limitation and the imposition of penalties and interest are justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Exemption Notification

• Legal Framework and Precedents: The Exemption Notification exempts henna powder or paste not mixed with any other ingredient from excise duty. The appellant argued that the Tribunal had previously ruled in their favor regarding similar issues.
• Court's Interpretation and Reasoning: The court emphasized that the exemption applies to henna powder mixed with a liquid as a medium to change its form into paste, not restricted to water alone.
• Key Evidence and Findings: The appellant relied on previous Tribunal decisions and a clarification from the Central Board of Excise and Customs.
• Application of Law to Facts: The court found that the appellant's use of oils did not constitute mixing with "any other ingredient" as per the exemption criteria.
• Treatment of Competing Arguments: The department argued that oils constituted other ingredients, but the court rejected this, citing the clarification and previous rulings.
• Conclusions: The appellant is entitled to the exemption for henna paste manufacture.

Issue 2: Validity of Test Reports

• Legal Framework and Precedents: The department relied on test reports indicating the presence of extraneous materials in the henna paste.
• Court's Interpretation and Reasoning: The court noted that previous Tribunal decisions had questioned the methodology of these tests.
• Key Evidence and Findings: Fresh tests conducted after remand showed compliance with standards for henna paste.
• Application of Law to Facts: The court found the earlier test reports unreliable and not applicable to the relevant period.
• Treatment of Competing Arguments: The appellant argued successfully that the tests were not conclusive.
• Conclusions: The test reports could not be used to deny the exemption.

Issue 3: Precedent Value of Tribunal Decisions

• Legal Framework and Precedents: The department argued that decisions not appealed due to monetary limits have no precedent value.
• Court's Interpretation and Reasoning: The court held that Tribunal decisions remain binding unless overturned by higher courts.
• Key Evidence and Findings: The court cited multiple decisions supporting the appellant's position.
• Application of Law to Facts: The court emphasized judicial discipline and the binding nature of Tribunal decisions.
• Treatment of Competing Arguments: The court rejected the department's reliance on monetary limits to disregard precedent.
• Conclusions: Tribunal decisions have binding precedent value.

Issue 4: Extended Period of Limitation and Penalties

• Legal Framework and Precedents: The department invoked the extended period of limitation and imposed penalties.
• Court's Interpretation and Reasoning: The court did not find it necessary to address this issue due to the resolution of the main exemption question.
• Key Evidence and Findings: The focus was on the exemption eligibility, rendering the limitation argument moot.
• Application of Law to Facts: The court set aside the Commissioner's order, negating penalties and interest.
• Treatment of Competing Arguments: The appellant's arguments were implicitly accepted by resolving the exemption issue.
• Conclusions: The penalties and interest were unjustified.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The principles of judicial discipline require that the orders of higher appellate authorities are unreservedly followed by the subordinate authorities."
• Core Principles Established: Tribunal decisions bind lower authorities; exemption applies if henna powder is mixed with a liquid for form change; test reports must follow proper methodology.
• Final Determinations on Each Issue: The appellant is entitled to the exemption; test reports are unreliable; Tribunal decisions are binding; penalties and interest are set aside.