By TIOL News Service

MUMBAI, JULY 20, 2015: IN January 2015, the appellant applied for extension of permission to store finished goods outside the factory premises without payment of duty under Rule 4(4) of CER, 2002 for the warehouse situated at Shirur, Pune for the period from 1/4/2015 to 31/3/2016.

Nothing came out of this request so the appellant again submitted a letter in March 2015 to the Jurisdictional Asstt. Commissioner explaining therein the reason for treating their case as 'exceptional' in nature.

In response, the Revenue vide letter dated 27/3/2015 proposed rejection of application made and as a just measure granted a personal hearing before the Commissioner of Central Excise, Pune-IV.

The hearing was a cordial affair and an additional written submission was also made. After considering all the submissions on record, the CCE rejected the application for extension of permission beyond 31/3/2015. However, a three months grace period was allowed.

Against this rejection the assessee is before the CESTAT.

The appellant inter alia submitted that if they are not allowed to store the goods outside the factory premises then it will seriously hamper ongoing production, consequently it will affect overall business of the company. It will not only cause financial loss to the company but also to the Revenue, therefore, any effort/act which creates hindrance in production will alternatively tantamount to national loss. Moreover, the storage is allowed by the Commissioner only against execution of bond and bank guarantee by which the revenue is absolutely safeguarded. A couple of decisions of Tribunal viz. in the case of Balkrishna Industries & Laben Laboratories were also cited in support.

The AR reiterated the findings of the Commissioner and also submitted that since the appellant is seeking permission continuously for long periods, therefore, facility of storage of goods without payment of duty cannot be extended to the appellant;that 'exceptional circumstances' does not mean that facility is granted for unlimited period; that as per Rule 4(4), exceptional circumstances means, if any circumstances arises once in while then only the permission to store the goods outside the factory can be granted. Moreover, appellant has not brought on record that they have made any other effort to avoid storage of goods outside factory premises or to arrange storage facility in their factory premises or to extend the factory premises. The AR also relied on the decision of the Tribunal passed in the case of GKN Sinter Metal Pvt. Ltd. Vs. Commissioner of Central Excise, Pune-I [Order No. A/1227/15/EB dated 28/4/2015] - 2015-TIOL-990-CESTAT-MUM wherein the rejection of a similar request ordered by the CCE was upheld.

After considering the submissions, the Single Member (J) Bench reproduced rule 4 of the CER, 2002 &observed -

"From the undisputed facts of the case, it is clear that the goods manufactured by the Appellant is in the nature that during storage, it can not be stacked above a limit due to the reason that it is very heavy and packed in the wooden boxes. If the height of stacking of boxes is increased, it is obvious that due to heavy weight, the boxes as well as the goods packed therein will get broken and dmaged. Therefore the nature of the goods in the present case is such that it can not be stored above a limited height of the space. It is very important to note that in the above rule as regard nature of the goods, it is not specified what should be nature of the goods. Therefore the nature of the goods has to be seen on case to case basis. In the present case, in my view, since the nature of the goods is such that it can not be stored more than a particular quantity in the available space, this reason is sufficient to hold that the nature of goods in the present case is such that the same can not be stored more than a particular quantity of stock. The rule does not specify only the perishable nature of the goods, therefore the Ld. Commissioner's reasoning on this counts is misleading and without any basis. As regard the shortage of space, I find that the Appellant has demonstrated that the entire space available in their factory is being used either for manufacturing activity or for storage of the goods and no extra space left for the storage of increased manufactured goods. The Ld. Commissioner's contention that the Appellant could not show that they are making efforts to expand the space to avoid the storage of goods outside, is not found satisfactory for the reason that when the Appellant has made optimum use of space available in the factory and therefore due to shortage of space, they require to store the goods outside the factory premises, the department has no locus standi to insist the assessee for the expansion of the space. If this contention is accepted then it applies to each and every industry and the provision of Rule 4(4) will become redundant. Expansion of factory is not every time possible due to various factors like availability of finance to buy the extra land and building, availability of land and building for purchase etc. particularly adjacent to existing factory premises. Therefore the decision of expansion of the factory is the sole discretion of the assssee and department can not insist for that. For consideration of the Assessee's request for permission under Rule 4(4), the existing circumstances has to be seen. It is fact on record that when at earlier occasion while granting the permission, the Ld. Commissioner had found the circumstances are exceptional then how at present the same circumstances become unexceptional, particularly when at present no space is available and production and export of goods has increased multifold. In my considered view rather the circumstances at present time is more exceptional than the past because earlier some space was lying unused but now as shown by the Appellant entire space is being used…."

After noting that the appellant's case is squarely covered by the judgments cited, the same were liberally extracted, almost in its entirety, by the Bench.

As for the decision relied upon by the AR delivered by the Division Bench in the case of GKN Sinter Metals Pvt. Ltd., the Single Member distinguished the same by observing -

"In the case of M/s. GKN Sinter Metals Pvt. Ltd. tribunal has found that application did not mention the period for which permission is sought and in the present case the appellant sought permission for April, 2015 to March, 2016 and M/s. GKN Siner Metals Pvt. Ltd case the Tribunal also observed that the assesse can create additional space by re-organisation of stack in which finished goods has been stored. Whereas in the present case the appellant successfully demonstrated that over and above present quantity being stored, cannot create extra space for storage likewise there are more number of differences in the facts of the M/s. GKN Sinter Metals Pvt. Ltd case and facts of the present case therefore ratio of the M/s. GKN Sinter Metals Pvt. Ltd. case is not applicable…"

The Bench also emphasised -

"…I observed that in the previous period when the Ld. Commissioner granted permission it was found that the applicant has never misused the facility of outside storage. No instances in leakage of Revenue as regard to the facility of storage of goods outside factory was reported, moreover the appellant is prepared to comply the condition specified by the Commissioner such as execution of security bond alongwith bank guarantee. Therefore there is no chance of danger to the Revenue, for this reason also appellant deserve extension of permission."

Holding that the appellant has established that there are exceptional circumstances with regard to nature of goods and shortage of space &therefore they deserve extension of permission up to 31/3/2016, the appeal was allowed.

Cindered Luck: Almost similar issue, the GKN case was heard by a Division Bench, the present case by a Single Member Bench!- the Member (J) was also a Member of the Division Bench but that order was dictated by the Member (T).

(See 2015-TIOL-1472-CESTAT-MUM)