2016 (12) TMI 1219 - AT - Central Excise

Benefit of notification no. 14/2002-CE dated 1st March 2002 - interpretation of statute - payment of duty on inputs to avail exemption - Held that - The Hon ble Supreme Court in Leisure Sports and Leisure Apparels 2016 (8) TMI 128 - SUPREME COURT held that A reading of the Budget Explanatory Note makes it clear that those who did not want to avail MODVAT facility were allowed to clear the goods without payment of any excise duty - the contention of Revenue that assesses are not entitled to the exemption in notification no. 14/2002-CE does not find sustenance - demand of duty along with interest, as well as imposition of penalty also set aside - appeal allowed - decided against Revenue.

Issues:
1. Eligibility for concessional and 'nil' rate of duty under notification no. 14/2002-CEW dated 1st March 2002.
2. Interpretation of conditions for exemption under notification no. 14/2002-CE.
3. Discrepancy in demands and dropping of demands by various Commissioners.
4. Reference to larger bench decision and Supreme Court rulings on the issue.

Issue 1: Eligibility for concessional and 'nil' rate of duty under notification no. 14/2002-CEW dated 1st March 2002:
The appeals revolve around the eligibility of assessees for the concessional and 'nil' rate of duty under notification no. 14/2002-CE dated 1st March 2002. The assessees were availing the benefit of this notification, which exempted payment of duty on specified final products subject to discharging appropriate duty on intermediates/inputs. The issue arose when the condition of discharging 'appropriate duties' on intermediates/inputs was interpreted to deny exemption to final products where the intermediates/inputs did not have paid duty. The Central Board of Excise and Customs clarified through circulars that exemptions would not apply if inputs were exempted from excise duty or subject to a 'nil' rate of excise duty.

Issue 2: Interpretation of conditions for exemption under notification no. 14/2002-CE:
The Hon'ble Supreme Court's decision in Sports & Leisure Apparel Ltd v. Commissioner of Central Excise, Noida clarified the conditions for availing the benefit of exemption under notifications 14/2002-CE and 15/2002-CE. The Court emphasized that the legal fiction created by Explanation II to the exemption notifications meant that no duty was required to be paid by manufacturers of knitted garments. This interpretation was supported by the Government's Budgetary Notes. The Court held that the duty shall be deemed to have been paid even without the production of documents evidencing payment of duty.

Issue 3: Discrepancy in demands and dropping of demands by various Commissioners:
The appeals involved challenges against orders confirming or dropping demands by different Commissioners of Central Excise. Various demands were confirmed or dropped based on the interpretation of whether appropriate duties were discharged on intermediates/inputs. The decisions were influenced by circulars issued by the Central Board of Excise and Customs, enabling textile units to avail exemptions under specific excise schemes designed for the industry.

Issue 4: Reference to larger bench decision and Supreme Court rulings on the issue:
The judgment referred to a Larger Bench decision in Arvind Products Ltd v. Commissioner of Central Excise, Ahmedabad, which was approved by the Hon'ble Supreme Court. The Larger Bench had accepted the plea of the assessees, emphasizing that the benefit of exemption notification should be available. The Supreme Court dismissed the appeal of Revenue, affirming the assessees' entitlement to the exemption under notification no. 14/2002-CE. Consequently, the appeals of Revenue were rejected, and the appeal of M/s Hindoostan Spinning and Weaving Mills Ltd was allowed.

This comprehensive analysis of the judgment highlights the key legal issues, interpretations, and references to relevant legal precedents and decisions, providing a detailed understanding of the case.

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