Procedural Lapse Cannot Defeat Excise Exemption Benefit When Notification Is Silent: CESTAT Kolkata

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 20 July held that the Department cannot deny an excise exemption merely because a manufacturer did not intimate the jurisdictional Central Excise authorities before clearing goods without payment of duty when the exemption notification does not impose such a requirement.

A Single Member Bench comprising Technical Member K. Anpazhakan allowed the appeal filed by Power Tools and Accessories and set aside the demand of central excise duty of Rs. 6.72 lakh, along with interest and penalty. He observed:

“I find that the notifications 6/2006-CE dated 01.03.2006, superseded by N.F. No. 12/2012-CE dated 20.05.2012, does not prescribe any condition that the Appellant should give any prior or post intimation to their jurisdictional Central Excise officer regarding clearance of the goods without payment of duty.... Non intimation to the jurisdictional AC/DC can at the maximum be considered only as a procedural breach and the same cannot result in denial of the said exemption."

Power Tools and Accessories, the appellant, manufactured Aluminium Baxter Flyers on a job-work basis for Sugan Engineering Private Limited, which supplied aluminium ingots as raw material. The principal manufacturer supplied the finished Baxter Flyers to jute mills after carrying out heat treatment and balancing processes for use in manufacturing jute textiles.

The appellant cleared the goods without payment of central excise duty by claiming exemption under Notification No. 6/2006-CE, later superseded by Notification No. 12/2012-CE. Following an audit for the period from April 2011 to December 2012, the Department issued a show cause notice alleging that the appellant failed to satisfy Condition No. 2 of the exemption notification.

The Department alleged that the appellant did not establish that the goods were ultimately used by jute mills and did not obtain the satisfaction of the jurisdictional Assistant or Deputy Commissioner before claiming the exemption. The adjudicating authority confirmed a duty demand of Rs. 6,72,997 along with interest and equivalent penalty, which the Commissioner (Appeals) upheld.

Before the Tribunal, Power Tools and Accessories argued that Aluminium Baxter Flyers are components exclusively used in jute spinning machinery and have no commercial use outside the jute industry. It produced sample invoices to establish that the goods, after undergoing heat treatment by the principal manufacturer, reached jute mills. It also submitted that the notification only required it to prove that the goods were cleared for the specified use and did not require prior permission or intimation to the jurisdictional excise authorities.

The Revenue argued that the appellant could not claim the exemption since it supplied the goods to the principal manufacturer, who carried out further processing before supplying them to jute mills. It also contended that the appellant failed to produce documents showing that it informed the jurisdictional authorities before clearing the goods without payment of duty.

Allowing the appeal, the Tribunal held that the exemption notification required the appellant to establish only that the goods were intended for use in a jute mill. It noted that the notification did not require the appellant to supply the goods directly to jute mills or ensure their use in the same form in which they were manufactured.

The Bench held that the expression “intended for use” covered goods that underwent further processing before reaching jute mills. It also found that the invoices produced by the appellant established that the Baxter Flyers ultimately reached jute mills and that the Department failed to produce any evidence showing diversion of the goods.

Further, the Tribunal relied on the Supreme Court's decision in Sambhaji v. Gangabai and held that procedural requirements should not defeat substantive rights. It observed that the exemption notifications did not require prior or post-clearance intimation and that the Department could not read such a condition into the notifications.

Accordingly, the CESTAT held that the appellant fulfilled the conditions of the exemption notifications and set aside the demand of central excise duty, interest and penalty, allowing the appeal with consequential relief.

For the Appellant: Shri Aditya Dutta, Advocate

For the Respondent: Shri S.K. Jha, Authorized Representative