2016 (10) TMI 30 - AT - Central Excise

SSI Exemption - Whether or not appellant can change it s option under clause 2 (i) of Notification No. 9/03-CE dated 1/3/2003 in the same financial year - appellant initially filed declaration in April, 2004 where exemption under Notification No. 91/03-CE was availed and Central Excise duty was paid @ 9.6% and subsequently appellant vide letter dated 1/9/2004 intimated the Department that they will be paying full rate of duty @16% - Held that - in view of the provisions contained in clause 2(i) of exemption under Notification No. 9/03-CE, option exercised once cannot be changed by the appellant in the same financial year. This issue has been decided in the case of Canara Poly Pack Ltd. Vs. Commr. of C.Ex., Bangalore-III 2007 (9) TMI 286 - HIGH COURT OF KARNATAKA AT BANGALORE by Hon ble Karnataka High Court where it has been held that option once exercised shall not be withdrawn by the manufacturer during the remaining part of the same financial year. Therefore, in this case option exercised in April, 2004 by the appellant will continue to hold good for the entire financial year. Appellant was not entitled to change such option exercised once and start paying duty at full rate. Therefore, observations made by first appellate authority in Order-in-Appeal to deny exemption for the entire financial year is ex facie wrong and is set aside. In such cases of interpretational disputes, Bench is of the considered opinion that no penalty proposed in the show cause notice is imposable. Recovery of Cenvat credit - improper utilisation of CENVAT Credit - clearances of goods when 16% rate was wrongly paid by the appellant - Held that - this aspect will only be decided by the adjudicating authority in remand proceedings as directed by the first appellate authority. - Appeal partly allowed and partly remanded back

Summary

Issues:
1. Interpretation of Notification No. 9/2003-CE dated 1/3/2003 regarding the option of availing exemption.
2. Whether the appellant can change its option under clause 2 (i) of Notification No. 9/03-CE dated 1/3/2003 in the same financial year.
3. Recovery of CENVAT Credit utilized by the appellant for clearances of goods when 16% rate was wrongly paid.

Analysis:
1. The appellant appealed against the Order-in-Appeal dated 21/02/2007, where the first appellate authority allowed the appeal filed by the Revenue, denying the appellant the benefit of Notification No. 9/2003-CE dated 1/3/2003. The issue revolved around the improper utilization of CENVAT Credit. The appellant argued that the exemption under the notification was initially availed, but later, they informed the Department of paying duty at the full rate. The appellant contended that the benefit of the exemption notification cannot be denied for the entire financial year. The Revenue relied on a case law where it was held that the option once exercised under the notification cannot be withdrawn.

2. The Tribunal analyzed the clause 2 (i) of Notification No. 9/03-CE dated 1/3/2003, which states that the manufacturer's option for availing the exemption must be exercised before the first clearances and cannot be withdrawn during the remaining part of the financial year. The appellant had initially exercised the option in April 2004 but later started paying duty at the full rate. The Tribunal held that as per the notification, the option once exercised cannot be changed in the same financial year. Referring to the Karnataka High Court case, it was established that the option once exercised shall hold good for the entire financial year. Therefore, the Tribunal set aside the observations made by the first appellate authority and decided that no penalty should be imposed in such interpretational disputes.

3. The show cause notice dated 24/02/2005 framed the issue of recovery of CENVAT Credit utilized by the appellant for clearances of goods when the full rate of duty was paid. The Tribunal directed the case to be remanded to the adjudicating authority to decide this issue afresh. The appellant was granted a personal hearing before the final order was passed. The appeal was partly allowed, and the recovery of CENVAT Credit was to be decided in the remand proceedings.

In conclusion, the Tribunal clarified the interpretation of the notification regarding the option of availing exemption and emphasized that once the option is exercised, it cannot be changed in the same financial year. The case was remanded for further decision on the recovery of CENVAT Credit, ensuring the appellant's right to a personal hearing.