By TIOL News Service

MUMBAI, SEPT 11, 2014: THE respondents are having two units and are manufacturers of White Zinc Oxide. Till August 1998, Respondent No.2 used to do certain processes and clear the same to the Respondent No.1 on payment of Central Excise duty. Respondent No. 1 took the credit of the duty paid and carried out further processes and cleared the same on payment of duty.

Vide letter dated 20.7.1998, the CCE, Pune-II pointed out to the respondents that two units cannot be treated as separate identities for the purpose of Central Excise Law as well as the Cost Accountant's reports and, therefore, the transaction between two units are to be considered as two wings of the same factory. On this basis the Respondent No.2 filed two classification declarations and claimed the benefit of Notification No. 67/95-CE for clearances between two units and cleared the goods without payment of duty.

Reneging on its advise the department issued a SCN on 30.11.2000 & sought to deny the benefit of Notification No. 67/95-CE on the premise that the respondents are registered as two separate legal entities with Companies Act, Income Tax Department, Factory Act and Sales Tax. Duty was also demanded along with a proposal for imposition of penalty and interest.

The adjudicating authority held that the respondents are two separate units and are not entitled to avail the benefit of Notification No. 67/95-CE and confirmed the demand of duty along with interest but dropped the penalties. It was further held that the duty paid on the clearance would be entitled as CENVAT Credit to the other unit.

Unimpressed with this dole out, the Revenue challenged the order before the Commissioner (Appeals) on the ground that the adjudicating authority had no power to hold that on payment of duty by one unit the latter is entitled to take CENVAT Credit as it is not alleged in the show cause notice.

Since Commissioner (Appeals) concurred with the adjudication order, Revenue is before the CESTAT and submits that both the lower authorities have gone beyond the allegations leveled in the SCN and, therefore, the orders are required to be set aside . (Usually it is the other way around! )

The Bench observed -

++ On perusal of the record, we find that in defence of the allegation made in the show cause, the respondents have prayed that if it is held that the respondents are two separate units, in that case, if duty is paid by one unit the same is entitled as CENVAT Credit to the another unit.

++ As the respondent had made this defence in the replies to the show cause notice, the adjudicating authority agreed with this contention of the respondents and passed the order holding that they are entitled to take CENVAT Credit of duty paid by the another unit. The same view has been affirmed by the Ld. Commissioner (Appeals).

Affirming the view taken by the lower authorities & holding that there is no infirmity in the o-in-a, the Bench upheld the order and dismissed the Revenue appeals.

In passing : Was this a frivolous appeal? 

(See 2014-TIOL-1725-CESTAT-MUM)