By TIOL News Service

MUMBAI, FEB 24, 2016: THIS is a Revenue appeal.

The respondent are manufacturers of Air Conditioners, Pre-fabricated building consisting of insulated panels etc.. They were clearing one of their products namely ‘Blue Star Pre Fabricated Building consisting of insulated panels' from January, 1999 onwards. The said goods were exempted vide Notification No. 17/98 CE dated 18/9/1998 during the period from 18/9/1998 to February, 1999 and vide Notification No. 5/99 CE dated 28/2/1999 from March, 1999 to February, 2000. The tariff rate on the said goods was 8% during the period 18/9/1998 to February 2000 while w.e.f. 1/3/2000 onwards, it was NIL. The respondent, despite the aforesaid exemption, were paying 8% duty and such duty was recovered from their customers.

In the show cause notice, it was alleged that the appellant should have availed the exemption vide notification No. 17/98-CE and 5/99-CE and cleared the said goods under NIL rate of duty and paid an amount of 8% of the value of the said goods under Rule 57CC. It was further alleged that the amount of 8% of price of the exempted goods was not the Central Excise duty and, therefore, it was not recoverable from the customers. The amount so recovered has to be treated as payment in terms of Rule 57CC ibid. Since, March, 2000 onwards, when the tariff rate on the said goods was NIL they reversed the modvat credit at the rate of 8% of the value of the said goods under the Rule 57CC and the same was recovered from customers separately as cost. They were asked to submit the proof of debit of modvat under Rule 57CC recovered separately from the customers for the period March 2000 onward, but they did not furnish any proof.

In the show cause notice it was proposed to appropriate an amount of Rs.5,94,493/- paid by the respondent against demand of same amount for the period 18/9/1998 to February, 2000 and duty demand of Rs.6,47,313/- was also proposed for the period March, 2000 onwards under Section 11D ibid in respect of amount paid under Rule 57CC and alleged to have been collected from the customers.

The original authority confirmed the demand as proposed.

The Commissioner (Appeals) set aside the order-in-original and, therefore, Revenue is before the CESTAT.

The AR made the following crisp submission - during the period till February, 2000 the respondent were supposed to avail the exemption and accordingly instead of paying duty they should have reversed the 8% under Rule 57CC and the same should not have been recovered from the customers, therefore, the demand of amount under Rule 57CC and recovery of the same under Section 11D is correct; as regards the period March 2000 onward, though the respondent availed exemption and reversed 8% under Rule 57CC, the same is recoverable for the reason that the respondent have recovered the said amount from their customers.

Countering the submissions made by the AR in an equal measure, the respondent clarified that till February 2000 though the product was exempted there was no mandatory provision to avail exemption and assessee had an option either to avail exemption or to pay the duty as per tariff rate and, therefore, the whole basis of demand on this issue is not tenable. As regard the demand of Rs.6,47,313/- for the period from March, 2000 onward under Section 11D solely on the ground that the respondent have recovered this amount, the appellant submitted that the 8% amount under Rule 57CC was paid on the invoiced value and the same was not added in the invoice value, hence the amount so paid under Rule 57CC was not recovered from customers. Sample invoices were also shown to the Bench wherein it was explicit that the respondent had not recovered the amount of 8% reversed under Rule 57CC.

The Bench extracted section 5A(1A) of the CEA, 1944 and observed –

++ Prior to insertion of subsection (1A) w.e.f. 13/5/2005 it was not mandatory for an assessee to avail the exemption notification accordingly it was an option available to the assessee either to avail the exemption or to pay the duty as per rate specified in the Central Excise Tariff.

++ Therefore the revenue cannot insist the respondent that they should have compulsorily availed the exemption notifications nos. 17/98 CE dated 18/9/1998 and Notification No. 5/99 CE dated 28/2/1999, for this reason, in our view, whole proceedings for recovery of an amount of Rs.5,94,493/- and appropriation thereof was illegal.

++ As regard the demand of Rs.6,47,313/- paid under Rule 57CC by invoking Section 11D, we find that it is very clear from the invoices that respondent have not recovered the amount of 8% reversed by them under Rule 57CC.

++ The revenue, on the contrary, could not produce any evidence to support their allegation of recovery of the said amount by the respondent, therefore the demand under Section 11D is not correct.

Concluding that there is no merit in the Revenue appeal, the same was dismissed.

(See 2016-TIOL-504-CESTAT-MUM)