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2009 (9) TMI 547 - AT - Central ExciseEngines- Captively consumed- The appellants are engaged in manufacture of tractors classifiable under Chapter Heading No. 87.01 of the Central Excise Tariff Act, 1985. They also manufacture engines which are required to be part of the tractors and which are classifiable under Heading 8408 of the said Act. The tractors are exempted from the payment of excise duty in terms of Notification No. 23/2004-C.E., dated 9-7-2004 and No. 6/2006-C.E., dated 1-3-2006. During the inspection it was found that the appellants did not pay the duty in relation to the engines classifiable under Heading 84.08. It was also found that such engines were captively used for manufacture of tractors which are entitled for exemption in terms of the said Notification. Held that- statutory Note 2 to section XVII was in existence since 1986 and Notification issued with full knowledge thereof did not make any provision contrary thereto. Since the Notifications had to be read strictly and their language was clear, section note could not restrict ambit of their exemption, CBEC understanding of issue was same as reflected in C.B.E. & Circular No. 839/16/2006-CX, dated 16.11.2006. Exemption allowed for engines since only condition of their being captively consumed in factory of production satisfied.
Issues Involved:
1. Entitlement to exemption under Notification No. 23/2004-C.E. and Notification No. 6/2006-C.E. for engines classifiable under Chapter Heading 84.08. 2. Interpretation of the term "parts" in the exemption notifications. 3. Applicability of Section Note 2(e) of Section XVII of the Central Excise Tariff Act. 4. Validity of the extended period of limitation for demand prior to August 2005. 5. Binding nature of departmental circulars and Board clarifications on the Tribunal. Issue-wise Detailed Analysis: 1. Entitlement to Exemption under Notification No. 23/2004-C.E. and Notification No. 6/2006-C.E. for Engines Classifiable under Chapter Heading 84.08: The appellants, engaged in manufacturing tractors and engines, claimed exemption from excise duty for engines used in manufacturing tractors under Notification No. 23/2004-C.E. and Notification No. 6/2006-C.E. The Commissioner rejected this claim, leading to the present appeals. The Tribunal noted that the exemption notifications clearly referred to parts used within the factory for manufacturing goods under Heading 8701, without restricting parts to specific chapters. The Tribunal concluded that the engines, being parts used in tractor manufacturing, were entitled to the exemption. 2. Interpretation of the Term "Parts" in the Exemption Notifications: The appellants argued that the term "parts" in the exemption notifications should be interpreted broadly to include engines used in tractor manufacturing. The Tribunal agreed, emphasizing that the language of the exemption notifications was plain and clear, and did not restrict parts to specific chapters. The Tribunal cited previous judgments, including Mahindra & Mahindra Ltd. v. CCE, Nagpur and VST Tillers Tractors Ltd. v. CCE (Adj.) Bangalore, which supported a broad interpretation of "parts" in similar contexts. 3. Applicability of Section Note 2(e) of Section XVII of the Central Excise Tariff Act: The Department argued that Section Note 2(e) excluded goods classifiable under Headings 8401 to 8479 from being considered "parts" or "parts and accessories" under the exemption notifications. The Tribunal disagreed, noting that the exemption notifications were issued with full knowledge of the Tariff Act's provisions. The Tribunal held that the exemption notifications' clear language prevailed and that the engines used in tractor manufacturing were entitled to the exemption despite Section Note 2(e). 4. Validity of the Extended Period of Limitation for Demand Prior to August 2005: The appellants contended that the demand for duty prior to August 2005 was barred by limitation, as there was no suppression of facts or intent to evade duty. The Tribunal did not explicitly address this issue in detail, as it found the appellants entitled to the exemption, rendering the demand for duty moot. 5. Binding Nature of Departmental Circulars and Board Clarifications on the Tribunal: The appellants cited a Board clarification under Circular No. 839/16/2006-CX, which supported their claim for exemption. The Department argued that such clarifications were not binding on the Tribunal. The Tribunal acknowledged the Board's clarification, which stated that parts falling under any chapter used in manufacturing goods under Heading 8701 were entitled to the exemption. The Tribunal found this clarification consistent with the exemption notifications and supportive of the appellants' claim. Conclusion: The Tribunal concluded that the appellants were entitled to the exemption under Notification No. 23/2004-C.E. and Notification No. 6/2006-C.E. for engines used in manufacturing tractors. The Tribunal set aside the impugned order demanding duty and imposing penalties, allowing the appellants' claim for exemption. The appeals were disposed of in favor of the appellants.
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