2024 (12) TMI 406 - AT - Central Excise

Denial of benefit of exemption N/N. 67/1995-C.E. dated 16-03-1995 as amended - Short physical removal of goods - Revenue was of the view that though there was no physical removal of goods, the factum of sale indicates a transfer of ownership of the goods and that certainly amounted to nothing short of physical removal of goods and therefore the appellant ought to have paid the duty along with applicable interest - HELD THAT - In the instant case when the Appellant manufactured the tools, they attract the levy of excise duty. Be that as it may, since the tools are not removed and are used within the factory, in view of the explanation appended to Rule 5, the date when such tools are issued for use within the factory, becomes the date of removal of such tools by virtue of the explanation to Rule 5, thereby giving rise to the requirement to discharge the duty liability thereupon. The Central Government has, in exercise of the powers conferred by sub-section (1) of Section 5A, being satisfied that it is necessary in the public interest so to do, exempted, inter-alia, capital goods as defined in Cenvat Credit Rules, 2002 manufactured in a factory and used within the factory of production by way of the notification No.67/95-CE dated 16-03-1995 as amended. It is the benefit of this notification to which the appellant has staked claim. Since the said notification providing for exemption from duty is a beneficial exemption that the Central Government has notified in public interest, we find that the claim for exemption made by the appellant in respect of the tools manufactured in the factory and used within the factory is tenable, given that admittedly there is no physical removal of the said tools from the factory. The appellant is entitled to the benefit of the notification No.67/95 dated 16-03-1995 as amended, as claimed and the demands of duty, appropriate interest and penalties imposed by the original authority as upheld by the learned appellate authority, are untenable. Having found that the appellant herein has succeeded on merits, there is no necessity to examine the claim of limitation raised and have not done so. The impugned order is set aside - appeal allowed.

Issues Involved:

1. Eligibility for exemption under Notification No. 67/1995-C.E. for tools manufactured and used within the factory.
2. Alleged contravention of Central Excise Rules and suppression of information to evade duty.
3. Applicability of excise duty on tools sold but retained for use within the factory.
4. Interpretation of "removal" under Central Excise Rules and its impact on duty liability.

Detailed Analysis:

1. Eligibility for Exemption under Notification No. 67/1995-C.E.:

The primary issue was whether the appellant was eligible for the exemption under Notification No. 67/1995-C.E. for tools manufactured and used within the factory premises. The appellant argued that despite the sale and payment of VAT, the tools were used within the factory, thus qualifying for the exemption. The Tribunal agreed with the appellant, emphasizing that the notification exempts capital goods manufactured and used within the factory, irrespective of ownership transfer. The Tribunal found that the exemption is based on the location of use, not ownership, and since the tools were not physically removed from the factory, the exemption applied.

2. Alleged Contravention of Central Excise Rules and Suppression of Information:

The Revenue alleged that the appellant contravened various Central Excise Rules and suppressed information with the intent to evade duty. The Tribunal examined these allegations and found them unsustainable. The appellant had maintained all records, including sale invoices with VAT, negating the charge of suppression. The Tribunal highlighted that excise duty is levied on manufacture, not sale, and the appellant's actions did not constitute suppression of information.

3. Applicability of Excise Duty on Tools Sold but Retained for Use:

The Revenue contended that the sale of tools constituted a transfer of ownership, equating to physical removal, thus attracting excise duty. The Tribunal rejected this view, stating that excise duty is applicable on manufacture, and the tools, though sold, remained within the factory for job work. The Tribunal reiterated that the definition of "removal" under the rules did not support the Revenue's stance, as the tools were used within the factory and not physically removed.

4. Interpretation of "Removal" under Central Excise Rules:

The Tribunal analyzed the concept of "removal" under the Central Excise Rules, particularly Rule 5, which states that the date of removal is when goods are issued for use within the factory. The Tribunal concluded that since the tools were used within the factory, there was no "removal" as per the rules, and thus, no duty liability arose. The Tribunal also noted that the exemption under Notification No. 67/1995-C.E. nullified any duty that might have been applicable due to internal use.

Conclusion:

The Tribunal concluded that the appellant was entitled to the exemption under Notification No. 67/1995-C.E., and the demands for duty, interest, and penalties were untenable. The Tribunal set aside the impugned order and allowed the appeal, granting consequential benefits to the appellant. The decision emphasized the principle that excise duty is on manufacture, not sale, and reinforced the applicability of exemptions based on the use within the factory.

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