The Bangalore bench of the Customs, Excise & Service Tax Appellate Tribunal(CESTAT) has held that duty exemption is allowable under section 5(1A) of the Excise Act, 1944 for the First Clearance of 3500 MTs.
M/s. Cella Space Limited, the appellants are engaged in the manufacture and clearance of paper and paper boards falling under Chapter Subheading 4804 of the Central Excise Tariff Act, 1985. The appellant had availed exemption under Notification No.4/2006-CE dated 1.3.2006 as amended by Notification No.4/2008-CE dated 1.3.2008 with effect from 1.4.2008 in respect of clearances made for home consumption during the period from 1.4.2008 to 7.8.2008.
Based on scrutiny of ER1 returns, a show-cause notice dated 26.03.2009 was issued alleging that the appellant had since availed the benefit of exemption Notification No.4/2006-CE dated 1.3.2006 during the said period, and also cleared the same goods on payment of duty, hence, not eligible to the benefit of said exemption Notification accordingly, it is proposed to recover duty of Rs.47,76,725/- with interest and penalty; also proposed to appropriate Rs.7,12,642/- paid by them. On adjudication, the demand was confirmed with interest and a penalty of Rs.5,00,000/- imposed under Rule 25 of Central Excise Rules, 2002.
The appellant submitted that during the period under dispute, they have cleared paper and paper boards for home consumption as well as for exports. It is submitted that 3499.971 MTs were cleared for home consumption and 3464.222 MTs cleared for exports. The appellant was eligible for the benefit of the exemption on the clearances for home consumption up to the limit of 3500 MTs as prescribed under the said Notification No.4/2006-CE dated 1.3.2006 as amended.
It was stated that the maximum quantity allowed in a financial year, for the first clearance is 3500 MTs. In the appellant’s case, including the clearances on payment of duty, during the said period, they have not exceeded the maximum permissible limit of 3500 MTs. Further, he has submitted that as of the date of opting for the exemption with effect from 1.4.2008, the balance CENVAT credit available on books of accounts has been reversed by the appellant.
It was viewed that Rule 11(2) of the CENVAT Credit Rules, 2004 prescribed reversal of CENVAT credit on inputs lying in stock as on the date of exercising option for value-based or quantity-based exemption. The said Rule does not include credit on input services.
The Revenue denied the benefit of the said Notification on the ground that even though the appellant’s total first clearances remained within the exemption limit of 3500 MTs they had paid duty on the clearance of 441.478 MTs, which is contrary to the provisions contained in Section 5A(1A) of the Central Excise Act, 1944.
The Commissioner concluded that since, it is an absolute exemption, therefore, payment of duty before completion of the stipulated quantity of 3500 MTs, is incorrect and thereby the condition of the Notification is violated, hence, the appellant would not be eligible for the benefit of the Notification.
A Single bench of Dr D M Misra, Member (Judicial) viewed that Section 5A(1A) is neither applicable to the present scenario since Notification No.4/2006-CE dated 1.3.2006 is a conditional, quantity-based exemption; and admissibility to ‘Nil’ rate of duty is only to the first clearances of 3500 MTs; there is no other condition stipulated in the said Notification.
The CESTAT held that the appellants are entitled to avail ‘Nil’ rate of duty for the first clearances of 3500 MTs in a financial year, irrespective of whether they discharged duty for 500 MTs in between the said clearance. For the computation of the aggregate value of first clearances, the said quantity cleared on payment of duty for home consumption, at best, be included in the total value of first clearances i.e., up to 3500 MTs.
The Tribunal further observed that since the benefit of Notification has been denied by demanding duty and no demand has been raised for availing credit irregularly, there is no reason to analyse the applicability of Rule 11(2) of the CENVAT Credit Rules, 2004. The bench set aside the impugned order and allowed the appeal.
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