2016 (8) TMI 117 - AT - Central Excise

Whether market purchase goods can be treated as duty paid goods - manufacture of knitted or crocheted fabrics of cotton - procurement of textile fabrics i.e. raw material/inputs - Notification No. 14/2002-CE dated 1.3.2002 - Held that - . This will be an anomalous or absurd situation or else textile processors will be forced to avail Cenvat credit route alone to avoid cascading effect of taxation. In this context Explanatory Note of Budget Bulletin 2002 become relevant when it conveys that benefit of Notification No. 14/2002-C.E., should be available if no credit is taken by the manufacture. For such interpretation Explanation-II to Notification No. 14/2002-C.E., creating fiction of Deemed duty paid , becomes relevant and has to be harmoniously read with the conditions prescribed under Notification No. 14/2002-C.E. It is also a well accepted judicial discipline that if two interpretations of a statute are possible then the one more favourable to the tax payer should be taken Benefit of exemption allowed to the assessee.

Summary

Issues Involved:
1. Wrongful availment of concessional rate of duty under Notification No. 14/2002-CE.
2. Interpretation of the condition related to duty payment on inputs under the said notification.
3. Applicability of the "deemed duty paid" provision in Explanation-II of Notification No. 14/2002-CE.
4. Relevance of the Apex Court's decision in Dhiren Chemical Industries.

Issue-wise Detailed Analysis:

1. Wrongful Availment of Concessional Rate of Duty:
The appellants, M/s Arora Knit Fabrics Pvt. Ltd., were issued a demand show cause notice for wrongly availing a concessional rate of duty under Notification No. 14/2002-CE dated 1.3.2002. The notification provided for a concessional rate of duty on the condition that the goods were made from textile fabrics on which appropriate duty of excise had been paid. It was alleged that the textile fabrics used as raw materials were exempted from payment of duty, thus not fulfilling the condition for the concessional rate.

2. Interpretation of the Condition Related to Duty Payment on Inputs:
The appellants argued that market purchases of goods cannot be treated as non-duty paid. They relied on the decision of the larger bench of the Tribunal in the case of Arvind Products Ltd., which interpreted the same condition of Notification No. 14/2002-CE and held that market purchases cannot be treated as non-duty paid. The Tribunal in Arvind Products Ltd. noted that a harmonious construction of the statute or provisions of an exemption notification is necessary when expressions used do not convey a clear and unambiguous interpretation.

3. Applicability of the "Deemed Duty Paid" Provision in Explanation-II:
The Tribunal observed that Explanation-II of Notification No. 14/2002-CE creates a fiction that for the purpose of the condition of this notification, taxable yarn or fabrics shall be deemed to be duty paid even without production of documents evidencing payment of duty. This provision was meant to extend the benefit of the exemption to manufacturers, subject to the condition that no Cenvat credit is taken on inputs or capital goods. The Tribunal emphasized that the benefit of the rate of duty should be allowed without insisting upon any documentary proof for payment of duty, aligning with the legislative intent.

4. Relevance of the Apex Court's Decision in Dhiren Chemical Industries:
The Tribunal noted that the decision in Dhiren Chemical Industries, which held that exempted goods attracting nil rate of duty cannot be treated as goods on which payment of duty at the appropriate rate has been made, did not consider the deemed fiction created by Explanation-II of Notification No. 14/2002-CE. The Tribunal held that the decisions in the cases of CCE, Ludhiana v. Prem Industries, Simplex Mills Co. Limited v. CCE, and Morarjee Gokuldas Spg. & Wvg. Co. Limited v. CCE were correct interpretations of the exemption notification, considering the deemed duty paid provision.

Conclusion:
In view of the larger bench decision in the case of Arvind Products Ltd., which squarely covered the issue at hand, the appeal was allowed. The Tribunal concluded that the benefit of Sr. No. 12 of Notification No. 14/2002-CE would be admissible to the appellants by considering the fabric received for processing as 'deemed duty paid' as per Explanation-II of the notification. Any other interpretation would render the explanation redundant. The appeal was thus decided in favor of the appellants.