CESTAT Chennai Holds Cashew Shell Liquid Eligible For SSI Exemption, Sets Aside ₹3.22 Lakh Excise Demand

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Cashew Shell Liquid (CNSL) is eligible for Small Scale Industry (SSI) exemption under Notification No. 8/2003-CE, as amended in 2006 and read with the Corrigendum dated February 28, 2006.

The tribunal set aside a Rs. 3.22 lakh excise duty demand raised on the manufacturer for allegedly wrongfully availing SSI exemption on CNSL clearances.

The notification provides central excise exemption to eligible small-scale units up to a specified turnover threshold

The bench, consisting of Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao were dealing with the case concerning the eligibility of Cashew Shell Liquid (CNSL) for Small Scale Industry (SSI) exemption under the Central Excise Law.

The Appellant is engaged in the manufacture of CNSL, classifiable under Chapter Heading 1302 19 20 of the Central Excise Tariff Act, 1985. 

The department alleged that CNSL was cleared without payment of duty, wrongly claiming SSI exemption.

The case of the department was that after the amendment of Notification No. 8/2003-CE by Notification No. 8/2006-CE, goods falling under Chapter 13 were excluded from the scope of SSI exemption.

A show cause notice was issued, and the demand was confirmed by the adjudicating authority along with interest under Section 11AA of the Central Excise Act, 1944 amd penalty under Rule 25 of the Central Excise Rules, 2002. The Commissioner (Appeals), Madurai, upheld the order.

The appellant contended that Notification No. 8/2006-CE suffered from a drafting error in the substituted Annexure, which was corrected by a corrigendum dated 28.02.2006 clarifying that "all goods falling under Chapters 9 to 20 (except heading 0902)" were eligible for SSI exemption.

The tribunal accepted the appellant's submission and held that the corrigendum issued prior to the effective date of Notification No. 8/2006-CE could not be ignored.

Rejecting the department's reliance on later rate notifications, such as Notification Nos. 1/2011-CE, 2/2011-CE, 16/2012-CE, and 19/2012-CE, the Tribunal held that these only prescribed rates of duty and did not withdraw or override the SSI exemption.

"The Department's attempt to rely upon Notification Nos. 1/2011-CE, 2/2011-CE, 16/2012-CE and 19/2012-CE is wholly misplaced. These notifications merely prescribe concessional rates of duty for CNSL depending upon whether CENVAT credit is availed or not. They do not, either expressly or by necessary implication, withdraw or override the SSI exemption granted under Notification No. 8/2003-CE,", stated the bench.

The bench opined that,

"Once it is held that the Appellant was legally entitled to SSI exemption during the relevant period, the very foundation of the demand collapses. Consequently, the demand of duty confirmed in the impugned order is unsustainable in law."

Holding that CNSL was eligible for SSI exemption during the relevant period, the Tribunal concluded that the very basis of the demand failed.

The Tribunal held that,

"Cashew Shell Liquid (CNSL) falling under Chapter Heading 1302 19 20 is eligible for SSI exemption under Notification No. 8/2003-CE as amended by Notification No. 8/2006-CE, read with Corrigendum dated 28.02.2006."

Accordingly, the demand of duty, interest and penalty was set aside, and the impugned order of the Commissioner (Appeals) was quashed. 

The appeal was allowed.

For Appellant: Advocate, Ieswarya N.

For Respondent: Authorised Representative, Vineet Goyal