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TMI Blog2008 (4) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Rule 19(2) of the Central Excise Rules, 2002. - I need not embark on further discussion on other conditions of Notification 44/2001. Where it is found that a mandatory condition was not satisfied by the assessee, he was not entitled to claim duty-free clearance of the goods under Rule 19(2). The issue is held against the appellants. – Held that benefit is not available - Rules in contradistinction from circulars, instructions etc. stand on a higher footing and hence can hardly be said to be hollow pieces of legislation. They are made to be complied with. In the present case, admittedly, the clearances in question were not effected by following the 2001 Rules, a requirement laid down under Notification 44/2001-C.E. (N.T.) for the purpose of claiming the benefit of Rule 19(2) of the Central Excise Rules, 2002. I can hardly consider that requirement to be relaxable. - Coming to revenue neutrality, I find that this issue has been debated by both sides with extensive reference to the provisions of EXIM Policy and the Handbook of Procedure. On the one hand, learned counsel has argued that, as the supply of goods in question to advance licence holders were ‘deemed exports’ under para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od 1-9-2000 to 31-3-2004 along with interest treating the additional discount given to them as additional consideration flowing back to the appellant and imposed a penalty of same amount. (d) In the case relating to appeal no. E/240/07, Commissioner based on a show cause notice dated 13-9-2005, has confirmed a demand of duty amounting to Rs. 84,24,746/- relating to the period from Oct., 2004 to Dec., 2004 along with interest and imposed a penalty of Rs. 15 lakhs on the appellant. (e) In appeal no. E/241/07, Commissioner based on a show cause notice dated 4-5-2005, has confirmed a demand of duty amounting to Rs. 2,50,22,199/- relating to the period from Dec., 2003 to Sept., 2004 along with interest and imposed a penalty of Rs. 2,50,22,199/ on the appellant. 4. Ld. Advocate for the appellant made the following submissions:- (a) The various incentives extended by the Central Govt., could not be considered as additional consideration in terms of Rule 6 of Central Excise (Valuation) Rules, 2000. (b) The decision of the Hon'ble Supreme Court in the case of CCE, Bhubaneshwar v. IFGL Refractories Ltd. [2005 (186) E.L.T. 529 (S.C.)] relates to the period prior to amendment to Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants had fulfilled all the 7 to 8 conditions laid down under the said notification. The primary condition of obtaining the certificate from the jurisdictional Asstt. Commissioner of the buyer that the latter was entitled to receive the goods without payment of duty itself cannot be satisfied, since the goods had already been received on payment of duty. (e) These requirements are substantial requirements of the notification and not procedural. It was therefore submitted that while the option to choose the procedure under the Rule 19(2) was available to the buyer before the removal of the goods in question, at this stage, the said option cannot be considered at all, unless the entire duty paid had been recovered from the buyers. Such an option was not only impractical but also not supported by law. (f) As per the benefit of deemed exports under para 8.3(a) and para 8.4.1(i) the appellants had already availed of the advance licences for intermediate supply and cannot now also claim refund of terminal excise duty. (g) Mere submission of copy of discount policy to the department without disclosing the terms and conditions of the policy and without disclosing the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods free of duty under this notification after observing the conditions laid down there in and chose to supply/receive the goods on payment of duty. As RIL themselves have chosen to clear the goods after payment of duty, they were required to clear the goods on payment of correct duty. There mere fact that under other schemes goods can be supplied without payment of central excise duty to holders of advance licence does not entitle a supplier to mis-declare the value of the goods or pay less duty." 6.3 At the outset it is to be noted that the Notification No. 44/2001 is effective from 26-6-2001 only. However, the demand confirmed in the case relating to appeal No. E/228/2007 is for the period from 1-9-2000 onwards. Further, the notification enables the exporter-manufacturer to apply to the jurisdictional central excise officers seeking permission to receive the required raw materials/inputs for the use in the manufacture of goods to be exported. Such permission shall be granted subject to verification of relevant facts such as input output ratio and certificates enabling them to procure such quantity of material and based on those certificates the supplying units can clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r completion of the export obligation. In other words, even a licence holder holding licence in post-exportation scenario can import the materials and use the materials only for producing final goods. In view of having fulfilled export obligation he was free to sell the finished goods in the domestic market. In the present case, some of the advance licence holders are found to be holding licences issued on post-export basis. Such licence holders cannot apply for permission to receive the materials under Rule 19 read with notification No. 44/2001, without payment of duty for use in the manufacture of export goods as the goods have already been exported by the licence holders. 6.6 A claim has been made that the supplies made to advance licence holders are deemed exports and therefore the duty paid in respect of such supplies is available as refund of terminal excise duty. At the outset it is to be noted that the refund of terminal excise duty is administered by the Commerce Ministry under the exim policy and the same is outside the purview of Customs Excise Authorities. The eligibility or otherwise cannot be determined in a proceedings before the excise authorities. The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal Nos. E/240 and 241/07. The penalties are set aside in all these cases. 10. The appeal No. E/228/07 is fully allowed and appeal No. E/240 241/07 are partly allowed on the above terms. (Pronounced in Court on_____________) Sd/- M. Veeraiyan) Member (Technical) 11. [Order per: Archana Wadhwa, Member (J)]. - The orders proposed by learned Member (Technical) allowed Appeal No. E/228/07, on the point of limitation, by setting aside the confirmation of demand and penalty imposed upon the appellant. I agree with the said order passed by learned Member (Technical) in the said appeal. However, in the other two appeals being Appeal Nos. E/240 241/07, my learned brother has set aside the penalty with which I concur but the demand of duty stand confirmed along with confirmation of interest with which, I find myself unable to agree and record a separate order. 12. In as much as the detailed facts already stands reproduced in the order of the learned brother, I am not repeating the same to avoid redundancy. However, in as much as both the said appeals No. E/240 241/07 stand passed by the Commissioner in de novo proceedings, I would like to reproduce the entire re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the impugned order of the Commissioner, I find that he has agreed with the assessee that they would have been entitled to the benefit of the said rule 19(2) and Notification No. 44/2001-CE(NT), dated 26-6-01, if the conditions of the Notification were fulfilled but observed that in as much as the appellants did not opt for the supply/receipt of the goods free of duty under this notification after observing the conditions laid down therein and has chosen to clear the goods on payment of duty, the mere fact that under other schemes goods can be supplied without payment of duty, will not come to their rescue. I do not agree with the above view of the Commissioner in as much as it was not open to him to deny the benefit of the notification on the ground of not having claimed the same at the time of clearance of the goods, on account of binding nature of the directions of the Tribunal. The terms of remand order were clear and the directions to examine the applicability of the said notification were given after noticing the fact that the benefit was not claimed initially, applying ratio of the law declared by various judicial authorities that exemption benefit would be available even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established by evidence aliunde. The Court said that the intention of the Legislature was to grant exemption only upon the satisfaction of the substantive condition of the provision and the condition in the proviso was held to be of substance embodying considerations of policy. Shri Narasimhamurthy would say the position in the present case was no different. He says that the notification of 11th August, 1975 was statutory in character and the condition as to 'prior permission' for adjustment stipulated therein must also be held to be statutory. Such a condition must, says Counsel, be equated with the requirement of production of the declaration form in Kedarnath's case and thus understood the same consequences should ensue for the non-compliance./Shri Narasimhamurthy says that there was no way out of this situation and no adjustment was permissible, whatever be the other remedies of the appellant. There is a fallacy in the emphasis of this argument. The consequence which, Shri Narasimhamurthy suggests, should flow from the non-compliance, would, indeed, be the result if the condition was a substantive one and one fundamental to the policy underlying the exemption. Its stringency a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aste/by-product, if any, on payment of applicable rate of duty. This would be so in the case of any manufacture even in the normal course and therefore there is no reason to doubt the satisfaction of this condition. In the present case, there is no contest before us on this ground. (vi) Condition (vii) and (ix) are meant to ensure the due export of goods by the Advance licence holder. Since export of the goods is not in doubt, this requirement stands satisfied. 16. In view of the submissions as above, the first condition of the buyers having sought permission for procuring materials without payment of duty stood satisfied as supplies in question have been effected only against an invalidation of the Advance Licence made by the DGFT. In terms of the said invalidation, the said Licenses were invalidated for direct import and supplier's were to be effected by the appellant against the said licences. The other stipulation regarding verification of input-output norms also stood satisfied as the Advance License is issued based on standard input-output norms. The condition that the appellant should have supplied the goods against permission granted to it also stands satisfied as the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licy of Government, taxes on the goods cannot be exported. Pursuance to this policy, various schemes/procedures stand formulated, in terms of both the raw material required for use in the manufacture of the goods to be exported as well as in respect of export production to be cleared, without their being any incidence of Customs and Central Excise duty on such goods. Rule 19 of the Central Excise Rules, 2002, and Notification No. 44/2001-C.E. (N.T.), dated 26-6-01 is one of such procedures in terms of which a manufacture can clear his goods to a holder of advance licence without payment of any Central Excise duty. The manufacturing assessee also have an option to clear the goods on payment of duty, on which either they themselves or their buyers can claim refund of terminal excise duty in terms of Para 8.5 of the EXIM policy or the buyers can claim Modvat credit of duty so paid. As such, a view can be taken that where the goods are supplied on invalidation of advance licence, either no duty is payable by the supplier or where the duty is paid, the same is available as Cenvat credit or is refundable either to the supplier or to the buyer. Thus, in any case, there would be no inciden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort levy in such a situation. 21. I further note that learned Member (Technical) in Para 6.6, while dealing with the above contention of the appellant, has observed that -"This is not a case like a duty paid under excise law by the supplier of raw material being available as credit to the recipients under the Excise law only in which case, Revenue neutrality is within the competence of the excise authority and can be dealt with by the Tribunal as an appellate body." (It is the specific stand of the appellant that whatever duty was paid by them at the time of clearance of the goods was availed by the buyer as Cenvat credit and as such in this respect also entire situation was revenue neutral). By applying the above quoted observations made by the learned Member (Technical), no demand is required to be confirmed in the present case in as much as the differential duty, if any, was available as credit to the buyer, who were actually availing the credit of whatever duty was being paid by the appellant. To the same effect is the decision of the Hon'ble Supreme Court in case of Coco-Cola India (P) Ltd. v. CCE, Pune - 2007 (213) E.L.T. 490 (S.C.). However, findings of the revenue neutral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his behalf. On the other hand, the learned Member (Judicial), in her dissenting order, observed that the adjudicating authority travelled beyond the Tribunal's remand orders by denying the aforesaid benefit of Rule 19(2) to the assessee on the ground that it had not been claimed at the time of clearance of the goods. The learned Member further held that the only substantive condition attached to Notification 44/2001 was condition No. (iv) which stipulated that the goods supplied by the manufacturer should be utilised by the buyer-exporter in the manufacture of goods to be exported or should be used as replenishment of excisable inputs of identical specifications and technical characteristics, which had been used in the manufacture of goods already exported in discharge of export obligation under DEEC. The learned Member held the view that, inasmuch as the clearance of goods by the assessee had been made to holders of advance licences who invalidated those licences in favour of the assessee and there was no dispute with regard to utilisation of such goods by the licence-holders, the substantive condition should be held to have been complied with. The learned Member (Judicial) is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te ultimately came up before this Tribunal, at which stage the assessee raised the new plea of revenue neutrality. The Tribunal remanded the cases to the Commissioner. The remand orders dated 20-7-2006 and 31-5-2006 will be referred to in some detail later in this order. Suffice to say that the Commissioner, pursuant to the remand ordered by the Tribunal, undertook de novo adjudication of the cases and the orders passed by him are impugned in the captioned appeals. Yet another relevant fact is that it is not in dispute that the advance licence holders got those licences invalidated for direct import and, pursuant thereto, the assessee obtained advance intermediate licences from the DGFT. These advance intermediate licences enabled the assessee to import duty-free their raw materials which were required in the manufacture of polymer granules. Obviously, the polymer granules so manufactured by the assessee were only to be supplied to the above advance licence holders. It is not in dispute that these transactions were permitted by law. The question is whether, having chosen to supply the granules to the above category of buyers on payment of duty without claiming the benefit of Rule 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove benefit on its merits. Obviously, this remand order presupposed the applicability of the notification to the transactions in question and required the adjudicating authority to examine whether the assessee fulfilled the mandatory requirements so as to claim the benefit. That this was the scope of the remand order dated 31-5-2006 is abundantly clear from the last sentence of para 3 of the order, which reads thus: "The Commissioner should hear the appellants and thereafter arrive at duty demands, if any, ......". On a perusal of the impugned orders, I find that, as rightly pointed out by the learned counsel, the adjudicating authority did not choose to examine, as required in the remand order, whether the assessee had established compliance, at least substantial compliance, with the conditions of Notification 44/2001. In further appeals filed by the assessee, the learned Members of the regular Bench addressed this question and arrived at conflicting conclusions. In this scenario, I think, I must independently examine the matter before endorsing any one of the views. 28. After examining the records and hearing both sides, I have found a fallacy on both sides. What the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds to avail of the benefit of exemption from payment of duty under Rule 19(2) of the Central Excise Rules, 2002. Fairly enough, neither side has made this an issue before me. The 2001 Rules contain provisions, some of which were to be followed by the manufacturer of excisable goods and the other provisions to be followed by the recipient of the goods. The gist of these provisions is that, where the recipient is entitled to procure the goods duty free, he has to obtain permission for that purpose from his jurisdictional Assistant Commissioner. The Assistant Commissioner would certify that the party is entitled to duty-free procurement of his raw material (excisable goods) for use in the manufacture of final product meant for disposal permitted by the law. This certificate would be transmitted to the manufacturer/supplier of the raw material, who would produce that certificate before the jurisdictional Assistant Commissioner and get his permission for removal of goods without payment of duty. Obviously, the assessee's right to remove their product without payment of duty to the advance licence holder is an offshoot of the latter's right to duty-free procurement of raw material. The E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court's decision in Cosmonaut Chemicals v. UOI - 2009 (233) E.L.T. 46 (Guj.). The Government of India's decisions cited by the learned counsel vide 2006 (203) E.L.T. 321 (GOI), 2006 (204) E.L.T. 632 (GOI) and 2006 (205) E.L.T. 1027 (GOI) are all to the effect that any procedural infraction of notification/circular has to be condoned in a case of demand of excise duty, if export of the goods has already taken place. In Cosmonaut Chemicals case, again, the question considered by the High Court was whether duty of excise could be demanded on goods in respect of which there was proof of export. It was held that the claim of the party for rebate could not be defeated on the ground that the export documents did not have customs endorsement thereon. Contextually, the Hon'ble High Court held that any procedure prescribed under a subsidiary legislation had to be in aid of justice and procedural requirements could not be read so as to defeat the cause of justice. As against the arguments of the learned counsel, the learned Commissioner representing the Revenue has also cited case law in support of her plea that the requirement of the 2001 Rules to be complied with by the manufacturer/supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. After giving careful consideration to the submissions, I find that it is not in dispute that mandatory conditions attached to exemption from payment of duty cannot be relaxed while conditions which are purely procedural, can be relaxed so as to enable the assessee (claimant) to enjoy the benefit of such exemption. One of the principles laid down by the apex court in Mangalore Chemicals (supra) is that conditions based on considerations of policy are substantive and mandatory while those which belong to the area of procedure, are not likewise. Almost the entire body of case law placed before me is on whether the benefit of exemption notification could be granted to the claimant dehors certain conditions attached thereto. In the context of the present cases, it may be mentioned, at the risk of repetition, that the benefit claimed by the assessee is under Rule 19(2) and the conditions attached thereto are obtaining under Notification 44/2001-C.E. (N.T.). One has to examine as to which of these conditions could be said to be based on considerations of policy and hence mandatory. I have already had a look at the provisions of Notification 44/2001 and it appears to me that a manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court in Mihir Textiles case:- "This is not a case where a certain provision is mandatory or directory. Here the question is whether concessional relief of duty which is made dependent on the satisfaction of certain conditions can be granted without compliance of such conditions. No matter even if the conditions are only directory." The benefit of removal of goods without payment of duty under Rule 19(2) in the present case was dependent on whether the recipient of the goods was entitled to duty-free procurement of such goods. This entitlement of the recipient (advance licence holder) was to be certified by the Assistant Commissioner of Central Excise having jurisdiction over him. Such certificate would be produced before the Assistant Commissioner having jurisdiction over the assessee so that the latter could remove the goods without payment of duty under Rule 19(2). Going by the ruling of the Apex Court in Mihir Textiles etc., one cannot say that the above requirements of the assessee having to follow the 2001 Rules in terms of condition (ii) of Notification 44/2001 as applicable to Rule 19(2) was not mandatory. I need not embark on further discussion on othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The para opened like this; "Deemed exports shall be eligible for any/all of the following benefits ...". The learned counsel argued that the EXIM Policy enabled a deemed exporter to claim any or all of the benefits, while the learned Commissioner argued that he could claim any such benefit only in terms of the provisions of the Handbook of Procedure. It was in this context that para 8.2 of Chapter 8 of the Handbook of Procedure (Vol. 1), 2002-07 was referred to by the learned Commissioner. Contextually, I have also come across certain other provisions of Chapter 8 of the Handbook of Procedure, which indicate that deemed exporters, in certain situations, were entitled, during the above period, to the benefits listed in paragraphs 8.3(b) (c) of the Policy, whichever was applicable. I have also come across a proviso which, in the situation specified therein, was to the effect that the deemed exporter would be entitled only to the benefit of para 8.3(b) of the Policy. Para 8.4 of the Handbook of Procedure deals with deemed exports to EOUs etc. and says that the supplier of such goods shall be entitled to the benefits listed in paragraphs 8.3(a), (b) (c) of the Policy, whichever is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his plea was definitely raised before the regular Bench and the same was rightly considered by the learned Member (Judicial). I have to go by the texts of the orders recorded by the learned Members of the Bench. It appears that, at the final hearing stage of the appeals, the counsel for the appellants filed written submissions wherein they inter alia raised the above plea. Even the written submissions filed on behalf of the department also contain a reference to that plea. The learned Member (Judicial) considered the plea. In the circumstances, I have to reject the learned Commissioner's claim that the plea of revenue neutrality with reference to CENVAT credit was not made by the assessee at any stage and hence does not call for consideration at this stage. 34. It is not in dispute that CENVAT credit of the amount of duty paid by the assessee on the goods in question was taken by their buyers. If that be so, similar credit of any differential duty if paid by the assessee, can also be taken by the buyers. This certainly is a revenue-neutral situation, a position supported by several decisions available on record. Some of these decisions cited by the learned counsel are listed bel ..... 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