2025 (1) TMI 1253 - AT - Central Excise

Recovery of Central excise Duty with interest and penalty - duty on intermediate product PPFMY which arises during the course of manufacture of the finished products - confirmation of duty with interest and penalty - HELD THAT - As the Tribunal has in Appellant s own case M/S ASMA TRADERS VERSUS CCE ST KANPUR 2018 (1) TMI 1535 - CESTAT ALLAHABAD held that PPMFY arises during the continuous manufacturing process of Narrow Woven Fabric is not marketable and hence no goods/excisable goods comes into existence. The claim of the Appellant in the present proceedings that they were paying duty on the intermediate product goes contrary to this order as Appellant can pay duty only on the goods/ excisable goods which come into existence and are subject to duty. Undisputedly the Appellant has taken a cenvat credit on inputs used in the manufacture of finished goods. In terms of the condition of Exemption N/N. 30/2004-Central Excise the benefit of said Notification would not be available to them and they are required to pay central excise duty on the finished goods - the demand has been confirmed against the Appellant without allowing the benefit of the duty already paid by them by treating PPMFY as excisable goods. The quantum demand confirmed needs to be worked out after making adjustment for the duty already paid. Conclusion - The demand for excise duty on the final product Narrow Woven Fabric due to the appellant s availing of CENVAT credit on inputs upheld. The penalty imposed under Section 11AC(1)(a) was set aside. Matter is remanded for re-quantification of the demand of duty giving credit of the duty already paid - appeal allowed by way of remand.

The legal judgment involves an appeal against the Order-In-Appeal No.21-&-22-CE-Alld-2021, dated 27/01/2021, passed by the Commissioner (Appeals) CGST & Central Excise, Allahabad. The appeal challenges the confirmation of a demand for Central Excise duty, interest, and the imposition of a penalty on the appellant, a manufacturer of Narrow Woven Fabric.

The core issues considered in this appeal include the applicability of Central Excise duty on intermediate and final products, the entitlement to exemption under Notification No.30/2004-Central Excise, and the validity of penalties imposed under Section 11AC of the Central Excise Act, 1944.

**Issue 1: Applicability of Central Excise Duty on Intermediate and Final Products**

The appellant was initially paying excise duty on the finished goods, Narrow Woven Fabric, until April 2015. Subsequently, they began paying duty under protest on the intermediate product, Polypropylene Multifilament Yarn (PPMFY), claiming exemption for the final product under Notification No.30/2004-Central Excise. The exemption was conditional upon not availing credit on inputs used for manufacturing the finished goods.

The relevant legal framework includes Section 11A(4) of the Central Excise Act, 1944, which governs the recovery of duties not levied or short-levied, and Notification No.30/2004-Central Excise, which exempts certain goods from excise duty provided no credit on inputs is taken.

The Court noted that the appellant had taken CENVAT credit on inputs used in manufacturing the intermediate product, PPMFY, but not on the final product. However, the Tribunal previously ruled in the appellant's case that PPMFY was not marketable and thus not liable for duty. The Court found that the appellant's claim of paying duty on the intermediate product contradicted this ruling, as duty is only payable on marketable goods.

**Issue 2: Entitlement to Exemption under Notification No.30/2004-Central Excise**

The appellant argued that they were entitled to exemption for the final product under Notification No.30/2004-Central Excise, as they did not take credit on inputs for the finished product. The Court examined the notification, which provides exemption from excise duty for specified goods unless credit on inputs or capital goods is availed under the CENVAT Credit Rules.

The Court concluded that since the appellant availed credit on inputs, they were not entitled to the exemption. The Court referenced several precedents, including Supreme Court rulings, emphasizing strict compliance with conditions for availing exemptions in taxing statutes.

**Issue 3: Validity of Penalties Imposed under Section 11AC of the Central Excise Act, 1944**

The penalty was imposed on the appellant for the alleged non-compliance with excise duty regulations. The Court observed that during the disputed period, an order confirmed the duty on intermediary goods, which was later set aside by the Tribunal. Given this context, the Court found the penalty unsustainable and set it aside.

**Significant Holdings**

The Court upheld the demand for excise duty on the final product, Narrow Woven Fabric, due to the appellant's availing of CENVAT credit on inputs. However, it remanded the matter to the Original Authority for re-computation of the demand, allowing for adjustments based on the duty already paid on PPMFY.

The penalty imposed under Section 11AC(1)(a) was set aside, as the circumstances did not warrant such a penalty, especially considering the prior Tribunal decision regarding the non-marketability of PPMFY.

In conclusion, the appeal was allowed in part, with the penalty being overturned and the matter remanded for re-quantification of the duty demand, ensuring credit for previously paid duties is accounted for.

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