Change in Ownership Does Not Restore Excise SSI Exemption If Turnover Limit Was Crossed Earlier: CESTAT [Read Order]

TheAhmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that a change in ownership of a factory does not restore eligibility for excise SSI exemption if the turnover limit had already been crossed in the preceding financial year.

Pankil Textiles, the appellant, had taken over a manufacturing unit earlier operated by Pimtex Texturising Private Limited. The previous owner had two manufacturing units and, during the financial year 1995-96, the aggregate value of clearances from both units exceeded the prescribed limit under the SSI exemption notification. As a result, the factory was not eligible for SSI exemption in the following year.

During April and May 1996, the previous owner paid excise duty at a concessional rate of 40% instead of the applicable rate of 50%, but later paid differential duty. The previous owner surrendered its excise registration in October 1996. The appellant obtained excise registration in November 1996 and commenced manufacturing in the same premises, claiming SSI exemption on the ground that it was a new owner.

The department issued show cause notices demanding excise duty for the period from November 1996 to March 1997, along with interest and penalty, on the ground that the factory was not eligible for SSI exemption due to the turnover crossed by the previous owner in the earlier year. The adjudicating authority confirmed the demand and imposed penalty. The Commissioner (Appeals) upheld the order, leading the appellant to approach the Tribunal.

The appellant argued that the previous owner had not actually availed SSI exemption and had merely committed a calculation error by paying duty at a lower rate for two months, which was later corrected by payment of differential duty.

The counsel argued that since the full duty was ultimately paid, the bar under the SSI notification should not apply, and the appellant, as a new owner, was entitled to claim the exemption. The appellant’s counsel also argued that the show cause notices issued by the Superintendent were without jurisdiction and that penalty was wrongly imposed.

The revenue counsel argued that payment of duty at a concessional rate during April and May 1996 amounted to availing SSI benefit, regardless of later payment of differential duty. The revenue further argued that under the SSI notification, eligibility is linked to the aggregate clearances of the factory in the preceding year and not to the identity of the manufacturer.

They also argued that the Superintendent was competent to issue the show cause notices within the normal period of limitation and that the penalty was correctly imposed.

The two-member bench comprising Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member) observed that there was no dispute that the aggregate clearances of the factory exceeded the prescribed limit in the preceding financial year.

The tribunal explained that even though the previous owner later paid differential duty, the fact remained that concessional duty had been availed during part of the year, which attracted the bar under the SSI notification for the subsequent year. The tribunal observed that the notification links eligibility to the factory and its past clearances, and a mere change in ownership does not reset the eligibility conditions.

On the issue of jurisdiction, the Tribunal observed that the Superintendent was competent to issue the show cause notices at the relevant time. On penalty, the tribunal pointed out that an incorrect reference to the rule did not invalidate the penalty proceedings, as no prejudice was caused to the appellant.

The Tribunal upheld the demand of excise duty and interest. However, considering the overall facts, the Tribunal reduced the penalty from Rs. 6,00,000 to Rs. 4,00,000. With this modification, the appeal was partly allowed only to the extent of reduction of penalty.

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