CESTAT Hyderabad Remands Excise Duty Dispute After Retrospective Relief

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, has remanded an excise duty dispute involving supplies made to Indian Railways for fresh adjudication after finding that a retrospective exemption introduced through the Finance Act, 2015 could affect the basis on which the demand was confirmed.

A coram of Judicial Member Angad Prasad and Technical Member A.K. Jyotishi observed that the exemption covered the same period involved in the dispute. The tribunal therefore held that the matter required reconsideration by the adjudicating authority.

"...Parliament enacted the Finance Act, 2015, whereby, Entry No. 205A was inserted in Notification No. 12/2012-C.E. granting exemption in respect of rails supplied free of cost by Indian Railways for manufacture of glued joints. More importantly, the exemption was made applicable retrospectively for the period from 17.03.2012 to 03.02.2014. The period covered by the retrospective exemption is precisely the same period involved in the present proceedings", the tribunal noted.

Srinivasa Enterprises, which manufactures glued joints supplied to Indian Railways, received rails free of cost from the Railways for use in the manufacturing process. The tax department alleged that the value of those rails should have been included in the assessable value of the glued joints for excise duty purposes. On that basis, duty, interest and penalties were proposed.

The adjudicating authority confirmed the demand. It held that no exemption was available during the relevant period for excluding the value of the rails supplied free of cost by Indian Railways.

Before the tribunal, the manufacturer relied on a retrospective amendment introduced through the Finance Act, 2015. The amendment granted exemption in respect of rails supplied free of cost by Indian Railways for the manufacture of glued joints.

The manufacturer argued that the exemption applied retrospectively from March 17, 2012 to February 3, 2014. That was the same period covered by the dispute. It contended that the basis of the demand no longer survived after the legislative change.

The tribunal noted that the demand had been confirmed solely on the ground that no exemption existed during the relevant period.

"The legal effect of retrospective exemption is well settled. Once the legislature grants exemption with retrospective effect, the amended provision is deemed to have existed from the date specified therein. Consequently, all pending proceedings are required to be decided in accordance with amended law," the tribunal held.

The tribunal observed that the adjudicating authority had proceeded on the premise that no exemption was available. That position stood altered after the retrospective amendment.

At the same time, the adjudicating authority had no opportunity to examine the manufacturer's eligibility for the exemption because the amendment was not in existence when the original order was passed.

Holding that the order required reconsideration in light of the subsequent statutory amendment, the tribunal set aside the order and remanded the matter for fresh adjudication.

For Appellant: R. Raghavendra Rao, Consultant

For Respondent: B. Sangameshwar Rao, Authorized Representative