2008 (9) TMI 254 - AT - Central Excise

Duty demand on intermediary products in spite of the Notification No. 2/2001 which exempts all goods falling under the First and Second Schedule to the CET donated or purchased out of cash donations, for the relief and rehabilitation of the people affected by the earthquake in the State of Gujarat from the whole of the duty of excise - Revenue claim that during the relevant period, the intermediary products which have been manufactured by the assessee namely the chassis and the engines are not entitled for any exemption Notification, rejected assessee appeal allowed

Issues Involved:
1. Exemption applicability of intermediary products under Notification No. 2/2001.
2. Interpretation and applicability of Notification No. 67/95 and its amendment Notification No. 31/2001.
3. Revenue's appeal against the set-off of 8% reversed by the assessee.
4. Assessee's claim for refund of 8% reversal under Rule 57AD.

Detailed Analysis:

1. Exemption Applicability of Intermediary Products under Notification No. 2/2001:
The primary issue revolves around whether intermediary products (chassis and engines) used in the manufacture of motor vehicles, which were donated for earthquake relief in Gujarat, are exempt from excise duty under Notification No. 2/2001 dated 27-1-2001. The assessee argued that the notification exempts all excisable goods donated for earthquake relief, including intermediary products. They cited several case laws to support their contention that the notification should be interpreted to fulfill its purpose, i.e., to exempt all goods intended for relief and rehabilitation without imposing duty on intermediary products.

The tribunal agreed with the assessee, emphasizing that interpreting the notification to exclude intermediary products would defeat its very purpose. The tribunal referenced the Rajashree Cement case, where a similar issue was decided in favor of the assessee, holding that intermediary products used in the manufacture of exempted final products are also exempted. Therefore, the tribunal concluded that the intermediary products in question are not liable for central excise duty.

2. Interpretation and Applicability of Notification No. 67/95 and its Amendment Notification No. 31/2001:
The revenue contended that during the relevant period, intermediary products were not exempt under Notification No. 67/95, which exempts goods captively consumed within the factory only if the final products are dutiable. They argued that the amendment brought by Notification No. 31/2001, which allowed exemption for intermediary products used in the manufacture of exempted final products upon reversing 8% of the sale value, was not retrospective.

The tribunal, however, found that Notification No. 2/2001, which exempts all goods donated for earthquake relief, should be interpreted to include intermediary products without needing to rely on Notification No. 67/95. The tribunal held that applying Notification No. 67/95 and its amendment would be irrelevant in this case due to the specific context of the goods being donated for earthquake relief.

3. Revenue's Appeal Against the Set-off of 8% Reversed by the Assessee:
The revenue appealed against the set-off of 8% reversed by the assessee, arguing that the intermediary products should be liable for duty independently of the 8% reversal required under Rule 57AD for exempted final products. They contended that the set-off should not have been given as both liabilities are distinct.

The tribunal dismissed the revenue's appeal, stating that since the intermediary products are exempt from duty under Notification No. 2/2001, the issue of set-off does not arise. The tribunal upheld the assessee's interpretation and confirmed that the intermediary products are not liable for duty, rendering the revenue's appeal infructuous.

4. Assessee's Claim for Refund of 8% Reversal under Rule 57AD:
The assessee, in their cross-objection, argued that the 8% reversal done in respect of the sale value of the final products under Rule 57AD was incorrect and sought a refund. The tribunal noted that this issue did not arise in the Order-in-Original and thus refrained from passing any order on it. However, they observed that the assessee had correctly reversed 8% of the value of the goods cleared for the victims and concluded that this reversal need not be disturbed, rejecting the assessee's claim for a refund.

Conclusion:
1. The assessee's appeal is allowed, exempting intermediary products used in the manufacture of final products donated for earthquake relief from excise duty.
2. The revenue's appeal is rejected.
3. The reversal of 8% done by the assessee is upheld, and their claim for a refund is denied.

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