2006 (4) TMI 164 - HC - Central Excise

Production capacity based duty - Whether the CEGAT can allow refund u/s 11B of Central Excise Act, 1944 when it was specifically not allowed by the sub rule (2) of the Rule 96ZB of Central Excise Rules, 1944? - HELD THAT - The application is in respect of removal of the manufactured articles from the premises whereas intimation only is needed in respect of change in machines installed in the factory premises. Apparently, the Assistant Commissioner as well as the Commissioner (Appeals) were under impression that application required under Rule 96AC relates to removal of cold rolling machines whereas there is no such requirement of making such application in that regard. It goes without saying that, if in any particular month, no machine is operated and no production had taken place, there cannot be any levy of excise Duty. The manufacture of goods is condition precedent for charging of excise duty without which no levy can be made. Therefore, the rule cannot be made to go beyond the scope of charging provision. On the undisputed premises that no production had taken place from the cold rolling machine which has been removed on 29th May, 1998. In other words, no production has been taken place in respect of cold rolling machine which ceased to operate before the first July, 1996, no review could have been allowed in respect of estimated production in that machine. This is the simple logic which prevailed within the Tribunal and in our opinion rightly. No contrary view can be taken from the reading of the Rules also. We are, therefore, of the opinion that the conclusion reached by the Tribunal was valid. Moreover, when there is no production of any articles in relation to the machine which was not in existence, the question of passing on duty to consumers of existing goods can arise so as to require the invocation of principle of unjust enrichment to deny refund. Therefore, there is no justification for taking the view that since the tax has been paid under the special provision it is not subject to refund. Refund is a consequence of recovery of duty which is not leviable under the provisions of taxing statute or of excess payment of Duty. In given circumstances, such excess collection of Duty may be refused to be refunded, if it results in unjust enrichment because passing of duty to buyers of goods. It depends on furnishing satisfactory proof by the manufacturer that such duty has been passed on to buyers. However, in case like the present where goods have not at all been manufactured and yet on estimated basis of imaginary production Duty has been demanded, the question of passing of such duty collected from the assessee to buyers of the non-existence production cannot arise. We are therefore, also of the opinion that the direction of the Tribunal to refund excess amount received in respect of machine which had ceased to function during the month of July to August also does not call for any interference. Consequently, the question referred to us is answered affirmative that is to say in favour of the assessee and against the revenue.

Summary

Issues Involved:

1. Whether the Central Excise and Gold Control Appellate Tribunal (CEGAT) can allow a refund under Section 11B of the Central Excise Act, 1944, when it was specifically not allowed by sub-rule (2) of Rule 96ZB of the Central Excise Rules, 1944.

Issue-wise Detailed Analysis:

1. Context and Background:
The respondent assessee engaged in the manufacturing of stainless steel pattas/patties was subject to Central Excise Duty under Chapter 72 of the Central Excise and Tariff Act. The dispute arose concerning the levy of duty for the period from June 1, 1998, to August 31, 1998, as compounded duty for a cold rolling machine that ceased operation on May 29, 1998.

2. Special Procedure for Duty Payment:
The assessee availed the special procedure under Chapter E-VI of the Central Excise Rules, 1944, which included provisions from 96ZA to 96ZGG. The special procedure allowed the assessee to pay duty at a compounded rate per machine rather than on actual production.

3. Assessee's Contention:
The assessee argued that after dismantling one of the two cold rolling machines on May 29, 1998, they were liable to pay compounded duty only for the one machine that remained operational from June 1, 1998.

4. Revenue's Position:
The competent authority insisted that the assessee was required to pay duty for three successive months after the removal of one machine, based on the maximum number of machines installed in the preceding three months, as per sub-rule (2) of Rule 96ZB read with Rule 96AC.

5. Tribunal's Ruling:
The Tribunal upheld the assessee's contention, directing a refund for the duty paid during the period when the dismantled machine was not operational. It concluded that none of the rules under Chapter E-VI mandated duty payment for a machine that was dismantled and not in production.

6. Legal Interpretation:
The court analyzed Rule 96ZB and Rule 96ZC, emphasizing that the special procedure for duty payment under Rule 96ZB is based on the average production per machine. Sub-rule (2) of Rule 96ZB, which calculates duty based on the maximum number of machines in the preceding three months, must be read in conjunction with sub-rule (1).

7. Application and Intimation Requirements:
The court differentiated between the requirement of an application for removing manufactured articles and the mere intimation needed for changing the number of machines. The Assistant Commissioner and Commissioner (Appeals) misinterpreted this distinction, erroneously linking the application requirement to the removal of machines.

8. Fundamental Principle of Excise Duty:
The court reiterated that excise duty is contingent on the production of goods. Without production, no duty can be levied. Since the machine was dismantled and non-operational from June to August 1998, no duty was leviable for that period.

9. Unjust Enrichment:
The court noted that in cases where no goods were produced, the principle of unjust enrichment does not apply. Therefore, the refund of excess duty paid for the non-operational machine was justified.

Conclusion:
The court affirmed the Tribunal's decision, stating that the Tribunal rightly concluded that the duty was not leviable for the dismantled machine and directed the refund. The question referred was answered in favor of the assessee and against the revenue, with no orders as to costs.