Excise Duty Exemption on Packing Materials procured from Domestic Market cannot be denied when Assessee Complied with Procedures under Exemption Notification: CESTAT [Read Order]

In a significant case, the Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) has held that excise duty exemption on packing materials procured from the domestic market cannot be denied when the assessee complied with procedures under exemption notification.

Silver Spark Apparel Limited, the appellants are engaged in the manufacture and export of excisable goods viz., readymade garments such as suits, jackets, trousers, waistcoats, etc., falling under Chapter 62 of the First Schedule to Central Excise Tariff Act, 1985. They are holder of Export-House status as per Foreign Trade Policy.

The appellant exported readymade garments availing the benefit of exemption Notification No.94/2004-Cus. dated 10.9.2004. For the manufacture of the said readymade garments, the appellant also procured duty-free packing materials by availing the benefit of Notification No.43/2001CE(NT) dated 26.6.2001 read with Rule 19(2) of Central Excise Rules, 2001.

It was alleged that the appellants had violated Condition No. 8 of Notification No.94/2004-Cus. dated 10.9.2004, a show-cause notice was issued to them on 16.12.2009, invoking an extended period of limitation for recovery of excise duty on the inputs procured by availing the benefit of Notification No.43/2001CE(NT) amounting to Rs.95,82,497/- with interest and penalty. On adjudication, the demand was confirmed with interest and penalty.

The Counsel for the appellant submitted that the appellant being an Export-House status holder is entitled to ‘Advance Licence/Authorisation for Annual Requirement’ in terms of para 4.1.10 of the Foreign Trade Policy 2004-2009.  He has further submitted that for manufacturing of readymade garments, they imported raw materials viz., fabrics, trims and embellishments; also, they procured packing materials like plastic covers, corrugated boxes, hangers, etc., indigenously by availing the benefit of Notification No.43/2001-CE(NT) dated 26.6.2001.

It was contended that since they have not violated Condition No.8 of Notification No.94/2004-Cus. dated 10.9.2004, therefore, denial of benefit of Notification No.43/2001-CE(NT) dated 26.6.2001 on the inputs packing material is incorrect in law. Assuming that even if they have violated Condition No.8 of Notification No.94/2004-Cus. dated 10.9.2004, the benefit of Notification No.43/2001-CE(NT) dated 26.6.2001 cannot be denied as no condition of the said Notification has been violated.

A two-member bench of Dr D M Misra, Member (Judicial) and Mrs R Bhagya Devi, Member (Technical) observed that the appellant had complied with the procedures laid down under Notification No.43/2001-CE(NT) dated 26.6.2001 in procuring the packing materials which are being used in the manufacture of readymade garments and the finished goods are ultimately exported under the scheme.

“Denying the benefit of Notification No.43/2001-CE(NT) dated 26.6.2001 in procuring the packing materials duty-free alleging violation of Condition 8 of the Notification No.94/2004-Cus. dated 10.9.2004, in our view cannot be sustained.”, the CESTAT viewed while setting aside the impugned order.

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