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2021 DIGILAW 514 (GUJ)

FIVE STAR AGRICO PVT. LTD. v. UNION OF INDIA

2021-07-01

BIREN VAISHNAV, VIKRAM NATH

body2021
ORDER : VIKRAM NATH, J. 1 These two petitions have been filed under Article 226 of the Constitution of India praying for a writ of certiorari for quashing the order passed by respondent No.2 – Principal Commissioner of Revisonary Authority & Ex-Officio Additional Secretary to the Government of India dated 15.01.2020 upholding the order in appeal dated 05.12.2013 confirming the recovery of rebate claims already sanctioned, in effect rejecting the rebate claims filed by the petitioners in the month of May, 2013 vide order dated 30.07.2013. Other ancillary reliefs have also been claimed. 2. The petitioner in Special Civil Application No.10461 of 2020 is a Partnership Firm, whereas in Special Civil Application No.10600 of 2020 the petitioner is the Private Limited Company incorporated under the Companies Act, 1956. Both the petitioners are engaged in manufacturing and export of various kinds of hand tools viz. spades, shovels, picks, hoes, etc. used in agriculture, horticulture and forestry. These goods manufactured by the petitioner are exempted from the Central Excise duty leviable thereon under Notification No.41/2001-CE (ET) dated 26.06.2001 [superseded vide Notification No.23/2004-CE dated 09.07.2004 and thereafter vide Notification No.05/2006-CE dated 01.03.2006 (superseded vide Notification No.12/2012-CE dated 17.03.2012) issued under sub-section (1) of Section 5A of the Central Excise Act, 1944. In both the petitions, there is no issue regarding the exemption of the whole of the Central Excise duty on the manufactured goods, which would be exported. The issue involved in the petitions relates to the scrap generated in the manufacture of the hand tools as stated above as to whether such scrap was liable to payment of duty on its clearance. 3. The facts are taken from Special Civil Application No.10461 of 2020 and the facts of the other case are also similar except for the change in the dates. The petitioner is said to have made a written request to the Department of Central Excise vide communication dated 03.05.2005 to clarify as to whether they are liable to pay duty on the clearance of scrap. The petitioner is said to have made a written request to the Department of Central Excise vide communication dated 03.05.2005 to clarify as to whether they are liable to pay duty on the clearance of scrap. The petitioner received response dated 17.06.2005 from the Department under the signature of respondent No.4 – Deputy / Assistant Commissioner of CGST, Division- Gandhinagar, Ahmedabad-III that not only the final product manufactured by the petitioner were fully exempted from payment of Central Excise duty, but also the waste and scrap arising as a result of the manufacture of the said final product was unconditionally fully exempted under the Notification No.89/95-CE dated 18.05.1998 issued under Section 5A of the Central Excise Act, 1944. 4. The petitioner accordingly filed 335 rebate claims in respect of the Central Excise duty paid on raw-materials used in the manufacture of goods exported during the period from 2008-09 up to 2012-13 under Rule 18 of the Central Excise Rules, 2002 (for short, 2002 Rules) read with Notification No.21/2004-CE(NT) dated 06.09.2004 and such rebate claims were sanctioned by the respondent No.4 by various orders in original passed from time to time. Although a show cause notice dated 10.05.2013 was issued proposing to cancel the sanction of the 335 rebate claims but the same was later resolved and sorted out. 5. In the meantime, the petitioner had exported the finished goods and had filed 57 rebate claims for the period from May, 2013 in respect of Central Excise duty paid on the raw-materials used in the manufacture of exported goods under the provisions of Rule 18 of the 2002 Rules read with notification dated 06.09.2004. These rebate claims were rejected vide order in original dated 30.07.2013 on the premise that the petitioner failed to fulfill the condition No.4(c) of the Notification No.21/2004-CE inasmuch as the waste / scrap had not been cleared on the payment of duty. The order in original dated 30.07.2013 and 21.08.2013 were challenged by way of appeals before the Commissioner (Appeals), which came to be dismissed vide order dated 04.12.2013. The revision referred against the appellate order was dismissed by respondent No.2 vide order dated 15.01.2020. Aggrieved by the same, the present petition has been filed. 6. The order in original dated 30.07.2013 and 21.08.2013 were challenged by way of appeals before the Commissioner (Appeals), which came to be dismissed vide order dated 04.12.2013. The revision referred against the appellate order was dismissed by respondent No.2 vide order dated 15.01.2020. Aggrieved by the same, the present petition has been filed. 6. A perusal of the order in original dated 30.07.2013 filed as Annexure-H relating to the 57 claims is based only on the ground that there was non-fulfillment of condition 4(c) of Notification No.21/2014-CE(NT) dated 06.09.2004. Other than the above ground, there is no other reason for rejection of the rebate claims. A perusal of the appellate order as also the revisional order have also held that on account of non-fulfillment of condition 4(c) of the notification dated 06.09.2004 the petitioner would not be entitled to the rebate claim and that the order in original passed by the adjudicating authority did not suffer from any infirmity. Therefore, the question to be considered in the present case would be as to whether there was any requirement of the fulfillment of the condition 4(c) of the notification dated 06.09.2004. If there was a requirement, then apparently no fault can be found with the orders under challenge, however, if clause 4(c) has no application or there was no requirement to fulfill that condition, then the petitioner may have a case. Pleadings have been exchanged. 7. We have heard Shri Hardik Modh, learned counsel for the petitioner and Shri Nikunt Raval, learned counsel for the respondent – Department. Pleadings have been exchanged. 7. We have heard Shri Hardik Modh, learned counsel for the petitioner and Shri Nikunt Raval, learned counsel for the respondent – Department. As the core and sole issue involved is of the applicability of paragraph 4(c) of the notification No.21/2004-CE(NT) dated 06.09.2004 we deem it appropriate to reproduce the same here: “Notification No.21/2004-Central Excise (N.T.) dated 06-Sep-2004 Rebate of duty on excisable goods used in manufacture /processing of export goods – Procedure – Notification No.41/2001-C.E.(N.T.) superseded In exercise of the powers conferred by of rule 18 of the Central Excise Rules, 2002 and in supersession of the Ministry of Finance, Department of Revenue, notification No.41/2001-Central Excise (N.T.), dated the 26th June, 2001 [G.S.R.470 (E) dated the 26th June, 2001], the Central Government hereby, directs that rebate of whole of the duty paid on excisable goods (hereinafter referred to as 'materials') used in the manufacture or processing of export goods shall, on their exportation out of India, to any country except Nepal and Bhutan, be paid subject to the conditions and the procedure specified hereinafter: - (1) Filing of declaration. - The manufacturer or processor shall file a declaration with the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise having jurisdiction over the factory of manufacture describing the finished goods proposed to be manufactured or processed along with their rate of duty leviable and manufacturing/processing formula with particular reference to quantity or proportion in which the materials are actually used as well as the quality. The declaration shall also contain the tariff classification, rate of duty paid or payable on the materials so used, both in words and figures, in relation to the finished goods to be exported. (2) Verification of Input-output ratio. - The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise shall verify the correctness of the ratio of input and output mentioned in the declaration filed before commencement of export of such goods, if necessary, by calling for samples of finished goods or by inspecting such goods in the factory of manufacture or process. If, after such verification, the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise is also satisfied that there is no likelihood of evasion of duty, he may grant permission to the applicant for manufacture or processing and export of finished goods. (3) Procurement of material. If, after such verification, the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise is also satisfied that there is no likelihood of evasion of duty, he may grant permission to the applicant for manufacture or processing and export of finished goods. (3) Procurement of material. - The manufacturer or processor shall obtain the materials to be utilised in the manufacture of the finished goods intended for export directly from the registered factory in which such goods are produced, accompanied by an invoice under rule 11 of the Central Excise Rules, 2002: Provided that the manufacturer or processor may procure materials from dealers registered for the purposes of the CENVAT Credit Rules, 2002 under invoices issued by such dealers. (4) Removal of materials or partially processed material for processing. - The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise may permit a manufacturer to remove the materials as such or after the said materials have been partially processed during the course of manufacture or processing of finished goods to a place outside the factory – (a) for the purposes of test, repairs, refining, reconditioning or carrying out any other operation necessary for the manufacture of the finished goods and return the same to his factory without payment of duty for further use in the manufacture of finished goods or remove the same without payment of duty in bond for export, provided that the waste, if any, arising in the course of such operation is also returned to the said factory of the manufacture or process; or (b) for the purpose of manufacture of intermediate products necessary for the manufacture or processing of finished goods and re- turn the said intermediate products to his factory for further use in the manufacture or process of finished goods without payment of duty or remove the same, without payment of duty for export, provided that the waste, if any, arising in the course of such operation is also returned to the factory of manufacturer or processor; (c) any waste arising from the processing of materials may be removed on payment of duty as if such waste is manufactured or processed in the factory of the manufacturer or processor. (5) Procedure for export. (5) Procedure for export. - The goods shall be exported on the application in Form A.R.E. 2 specified in the Annexure to this notification and the procedures specified in Ministry of Finance (Department of Revenue) notification No.19/2004-Central Excise (N.T.), dated the 6th September, 2004 or in notification No. 42/2001-Central Excise (N.T.), dated the 26th June, 2001 shall be followed. (6) Presentation of claim of rebate. - The claim for rebate of duty paid on materials used in the manufacture or processing of goods shall be lodged only with the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise having jurisdiction of the place approved for manufacture or processing of such export goods. Explanation: - "duty" means for the purposes of this notification, duties of excise collected under the following enactment, namely: - (a) the Central Excise Act, 1944 (1 of 1944); (b) the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957); (c) the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978); (d) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), as amended by Section 169 of the Finance Act, 2003 (32 of 2003) and further amended by Section 3 of the Finance Act, 2004 (13 of 2004); (e) special excise duty collected under a Finance Act; (f) additional duty of excise as levied under section 157 of the Finance Act, 2003 (32 of 2003); (g) Education Cess on excisable goods as levied under clause 81 read with clause 83 of the Finance (No.2) Bill, 2004.” 8. The forms, etc. are not reproduced as they are not relevant. The above notification refers to rebate of duty on excisable goods used in manufacture / processing of export goods – Procedure – Notification and it supersedes the earlier Notification No.41/2001-CE(NT) dated 26.06.2001. It is not in dispute that the final product manufactured by the petitioner is wholly exempted from Central Excise duty. The only issue is with regard to duty if any liable to be paid on the clearance of scrap. Paragraph 4 of the aforesaid notification dated 06.09.2004 refers to removal of materials or partially processed material for processing. It is not in dispute that the final product manufactured by the petitioner is wholly exempted from Central Excise duty. The only issue is with regard to duty if any liable to be paid on the clearance of scrap. Paragraph 4 of the aforesaid notification dated 06.09.2004 refers to removal of materials or partially processed material for processing. It gives power to the Assistant Commissioner or the Deputy Commissioner of Central Excise to permit a manufacturer to remove the materials as such or after the said materials have been partially processed during the course of manufacture or process of finished goods to a place outside the factory. Then there are three contingencies as described in sub-paragraphs (a), (b) and (c) of paragraph 4. Sub-paragraph (a) is for the purposes of tests, repairs, refining, reconditioning, etc., which is not applicable. Sub-paragraph (b) is for the purpose of manufacture of intermediate products necessary for the manufacture or processing of finished goods and its return to the factory, which is also not applicable here. Sub-paragraph (c) refers to any waste arising from the processing of materials may be removed on payment of duty as if such waste is manufactured or processed in the factory of the manufacturer or processor. Now the pre-requisite for applicability of paragraph 4 and its sub-paragraphs would come into play only and only when the raw materials or partially processed materials are moved to a place outside the factory in the course of manufacture or processing of finished goods. Thus, only and only if there is movement of raw-materials or partially processed material during the course of manufacture or processing outside the factory and again being brought in, then only paragraph 4 comes into play. 9. According to Shri Modh, learned counsel for the petitioner, at no stage of the manufacturing or the processing of the goods either the raw-materials in its original form or partially processed form has been moved outside the factory. Whatever processing is followed in the manufacture of finished goods is done within the factory itself. At no stage as the rawmaterials or the partially processed goods have been moved out, as such paragraph 4 will have no application at all. Whatever processing is followed in the manufacture of finished goods is done within the factory itself. At no stage as the rawmaterials or the partially processed goods have been moved out, as such paragraph 4 will have no application at all. It is also submitted that there is no finding recorded either by the adjudicating authority, appellate authority or the revisional authority that the material as such or after the said material had been partially processed had been moved out to a place outside the factory in the course of manufacturing of the finished goods. In the absence of any such finding and as the specific case of the petitioner is that the material as such or the partially processed material was ever removed from the factory premises, the impugned orders stand vitiated as they have applied a provision, which is not applicable at all. 10. It is also submitted by Shri Modh that as such there would be no question of payment of any duty on the waste arising from the processing of materials by applying paragraph 4(c) of the notification dated 06.09.2004 and as the same is not applicable, as submitted above, the rejection of the rebate claim on this ground is wholly unsustainable in law and on facts both. 11. It is further submitted by Shri Modh that respondent No.4 upon a specific query raised by the petitioner in 2005 itself had clarified that no excise duty would be payable on the clearance of scrap. He thus submitted that the respondents have wrongly placed reliance upon paragraph 4(c) of the Notification dated 06.09.2004. Thus, the reasoning that there was non-fulfillment of the condition provided in paragraph 4(c) of the notification dated 06.09.2004 for rejecting the rebate claims on the clearance of scrap, cannot be sustained and deserves to be quashed. 12. On the other hand, Shri Nikunt Raval, learned counsel for the respondent – Department has sought to argue that the Department has rightly rejected the rebate claims and that requirement of paragraph 4(c) of the notification dated 06.09.2004 being not fulfilled and being fully applicable in the case of the petitioner, the petitions deserve to be dismissed. Shri Raval, however, could not show us from either the order in original passed by the adjudicating authority or the appellate or the revisional authority that the material as such or partially processed was moved outside the factory. 13. Shri Raval, however, could not show us from either the order in original passed by the adjudicating authority or the appellate or the revisional authority that the material as such or partially processed was moved outside the factory. 13. Shri Raval, learned counsel for the respondent – Department further submitted that the petitioner was liable to pay excise duty on the clearance of the scrap and the only exemption granted was for the finished products. He, however, could not show from the order in original or from the appellate order or revisional order that apart from non-fulfillment of conditions of paragraph 4(c) of the notification dated 06.09.2004, any other reason was given for rejecting the claim regarding clearance of scrap by the petitioner. 14. Having considered the submissions and having perused the material on record, we find substance in the submissions advanced by Shri Modh, learned counsel for the petitioner. A clear reading of paragraph 4 to become applicable the conditions sine quo non was the material as such or at partially processed stage had to be moved outside the factory and only and only then paragraph 4 and its sub-paragraphs (a), (b) and (c) would become applicable. Once there is no finding that the material or partially processed goods were moved outside the factory, there will be no applicability of paragraph 4 or its sub-paragraphs of the notification dated 06.09.2004. Thus, we could not see any non-fulfillment of the condition prescribed in paragraph 4(c) of the notification dated 06.09.2004 and the respondents have wrongly applied paragraph 4(c) of the notification dated 06.09.2004. Therefore, the impugned orders are vitiated in law and cannot be sustained. We accordingly allow both the writ petitions and all the impugned orders are set aside and the petitioners would be entitled for rebate claims. Consequences to follow. We, however, leave it open to the Department to initiate independent proceedings, if permissible under law for recovery of any duty regarding clearance of scrap by the petitioners.