2025 (3) TMI 330 - AT - Central Excise

Area based exemption - N/N. 50/2003-CE. - Determination of the eligibility of the appellant for exemption - applicability of the doctrine of res judicata - HELD THAT - The scope of the remand is not limited as submitted by the learned Counsel for the appellants. However Hon ble supreme Court has directed this bench to reconsider the point raised in the civil appeal by Revenue. It is the contention of the appellants that the department after due verification has given permission to M/s Stanley controls to avail exemption District industries Centre DIC has permitted; Chartered Engineer certified the shifting and installation/commencement of production; it is incorrect to state that the unit was not functioning; even if it is assumed that the unit is not functioning there is no condition that the said unit must be functioning on the day of transfer - M/s Stanley Controls has filed returns for all the quarters for the period 30.09.2009 to 31.12.2012 on one single date i.e on 14.01.2013 together just before the takeover; they have shown production/clearance of 80 Nos of Solenoid Valves valued at Rs 73, 301 during the quarter ending September 2009 whereas they have shown clearance of 1050 Nos of said valves valued at Rs. 36 750 without showing any production of these valves in the register for the quarter ending 31.12.2012; even after filing declaration dated 25.03.2013 by the applicant with the department to continue to avail the area-based exemption their Quarterly Returns for the period from 01.01.2013 to 31.12.2013 shows NIL production/clearance. The appellants have not given any documentary evidences to controvert the findings of the adjudicating authority or the appellate authority to the effect that M/s Stanley Controls was a working unit prior to its takeover by the appellants. Therefore M/s Stanley Controls was a non-working and a defunct unit at the time of its sale and therefore not eligible for area -based exemption as envisaged under notification no. 50/2003-CE dated 10.06.2003 as amended. Consequentially the appellants having purchased an ineligible unit are also not eligible for area-based exemption. M/s Stanley Controls was not working as on the date of transfer. A fa ade of taking over a working unit was made to avail exemption contained under Notification No. 49-50/2003 dated 10.06.2003. However various documents and records and the inferences drawn by them have exposed the attempt. We are of the considered opinion that the CBEC Circular permits only transfer of a unit availing exemption but not the exemption alone. Conclusion - i) M/s Stanley Controls was not operational at the time of transfer rendering the appellant ineligible for the exemption. ii) The demand for duty interest and penalties upheld. Appeal disposed off.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether M/s Stanley Controls was a functional unit at the time of its takeover by the appellant, M/s Khurana Oleo Chemicals, and thus eligible for area-based exemption under Notification No. 50/2003-CE.
• Whether the appellant, after taking over M/s Stanley Controls, is eligible to continue availing the area-based exemption for the residual period.
• The applicability of the doctrine of res judicata in preventing the Revenue from challenging the exemption eligibility after a previous decision.
• The legality of the demand for duty, interest, and penalties imposed on the appellant, considering the exemption status.

ISSUE-WISE DETAILED ANALYSIS

1. Functional Status of M/s Stanley Controls at the Time of Takeover

• Relevant Legal Framework and Precedents: The area-based exemption under Notification No. 50/2003-CE is contingent on the operational status of the unit at the time of takeover. The Supreme Court remanded the matter to determine this specific issue.
• Court's Interpretation and Reasoning: The Tribunal focused on whether M/s Stanley Controls was operational at the time of its acquisition by the appellant. The Tribunal noted that the Supreme Court's remand order required a fresh examination of this issue.
• Key Evidence and Findings: The Tribunal found that M/s Stanley Controls had filed all quarterly returns on a single day before the sale, indicating a lack of genuine operational activity. The evidence suggested that the unit was non-functional, with minimal production and clearance activities.
• Application of Law to Facts: The Tribunal concluded that M/s Stanley Controls was not operational at the time of transfer, which disqualified it from availing area-based exemption.
• Treatment of Competing Arguments: The appellant argued that the unit was functional and that the exemption should continue. However, the Tribunal found the appellant's evidence insufficient to counter the findings of non-functionality.
• Conclusions: The Tribunal held that M/s Stanley Controls was a non-working and defunct unit at the time of its sale, making it ineligible for the area-based exemption.

2. Eligibility for Continued Exemption Post-Takeover

• Relevant Legal Framework and Precedents: The continuation of area-based exemption requires the unit to be operational at the time of takeover. The Tribunal examined whether the appellant could inherit the exemption status.
• Court's Interpretation and Reasoning: The Tribunal emphasized that the exemption is tied to the operational status of the unit, not merely its transfer.
• Key Evidence and Findings: The Tribunal found that the appellant did not maintain production at the old premises and failed to provide credible evidence of operational continuity.
• Application of Law to Facts: The Tribunal determined that the appellant could not claim the exemption as the unit was non-functional at the time of acquisition.
• Treatment of Competing Arguments: The appellant's reliance on certificates and declarations was deemed insufficient to establish operational status.
• Conclusions: The Tribunal concluded that the appellant was not entitled to the area-based exemption after taking over a non-functional unit.

3. Doctrine of Res Judicata

• Relevant Legal Framework and Precedents: The doctrine of res judicata prevents re-litigation of settled issues. The appellant argued that the exemption eligibility was previously settled and could not be reopened.
• Court's Interpretation and Reasoning: The Tribunal found that the Supreme Court's remand order specifically required reconsideration of the unit's operational status, thus reopening the issue.
• Conclusions: The Tribunal held that the issue of exemption eligibility was not barred by res judicata due to the Supreme Court's directive for fresh consideration.

4. Legality of Duty, Interest, and Penalties

• Relevant Legal Framework and Precedents: The imposition of duty, interest, and penalties is contingent on the exemption status.
• Court's Interpretation and Reasoning: The Tribunal upheld the duty demand and penalties based on the ineligibility for exemption.
• Conclusions: The Tribunal dismissed the appellant's challenge to the duty, interest, and penalties, affirming their legality.

SIGNIFICANT HOLDINGS

• Core Principles Established: The operational status of a unit at the time of takeover is crucial for determining eligibility for area-based exemptions. The exemption cannot be inherited if the unit was non-functional.
• Final Determinations on Each Issue: The Tribunal concluded that M/s Stanley Controls was not operational at the time of transfer, rendering the appellant ineligible for the exemption. Consequently, the demand for duty, interest, and penalties was upheld.

The Tribunal's decision underscores the importance of substantiating claims of operational status to qualify for area-based exemptions and clarifies the limits of the doctrine of res judicata in cases remanded for specific reconsideration.