By TIOL News Service

CHENNAI, JUNE 16, 2016: THE respondent imported fabrics of silk classifiable under Central Excise Tariff Heading 5007 20 90, and claimed Nil duty benefit of additional duty in terms of the Central Excise Notification No.30/04 dated 9.7.2004. The claim was rejected by the original adjudicating authority on the ground that the Notification dated 9.7.2004 was a conditional one and that therefore the same cannot be applied if the goods are manufactured or imported from abroad. The appellant filed appeal against the order of Commissioner (Appeals) and the Tribunal allowed the benefit of the exemption vide 2008-TIOL-1704-CESTAT-MAD. Aggrieved by the same, revenue is now in appeal before the High Court.

It is the contention of the revenue that a domestic manufacturer of the goods specified in the table under the exemption notification dated 9.7.2004 will be eligible to claim exemption only if the goods that are used as inputs in the product manufactured by him had already suffered duty of Excise and yet he had not claimed credit of such duty on those inputs under the provisions of CENVAT Credit Rules 2002. Such a condition imposed upon the domestic manufacturer, to be eligible for the benefit of the exemption notification, can never be satisfied by an importer. This is due to the fact that the imported goods cannot contain inputs on which a duty of Excise could have already been paid in India.

After hearing both sides and referring to the various precedent judgements on the issue, the High Court held:

+ Wherever the Notifications prescribed conditions, which were merely procedural in nature, but did not involve the payment of any duty of excise on the inputs, the Court interpreted the Notifications in favour of the assessee, in view of the fact that an importer could not comply with those procedural formalities. But, wherever the Notifications imposed either (i) a condition that the input used for the manufacture of the exempted goods, should have suffered a duty or (ii) a condition that duty ought to have been paid and CENVAT credit not claimed, the Court interpreted such Notifications in favour of the Revenue (except perhaps in the case of AIDEK and SRF).

+ A stipulation that CENVAT credit ought not to have been claimed, has inbuilt within itself, the stipulation that the inputs had suffered some duty. If the inputs had not suffered any duty, then the question of claiming CENVAT credit would not arise. As a consequence, an importer will not be entitled to the benefit of the exemption Notification, as he would not be in a position to satisfy the condition that is inbuilt into the proviso under the Notification dated 9.7.2004.

+ The respondents contended that the raw materials from out of which the silk fabrics are manufactured, even if they are manufactured in India are not liable to Central Excise duty. When the inputs are not exigible to duty, the Proviso to the exemption Notification has no application. However, the process of manufacture of silk fabric involves several stages and in the absence of any material to show that the processes would involve inputs, none of which would attract duty of excise, it is not possible to conclude that the respondent would satisfy both conditions namely (a) payment of duty on the inputs and (b) the non availing of CENVAT credit on the same. Though the Notification bearing No.030/2004 dated 9.7.2004 does not stipulate the first condition, it is held that the first condition is inbuilt into the second condition. Therefore, the first respondent cannot be taken to have fulfilled the condition stipulated in the proviso to the Notification No.030/2004 dated 9.7.2004, unless he had shown that in the entire process of manufacture of woven silk fabrics falling under Tariff Item No.5007, there are no inputs (used directly or indirectly and whether found in the final product or not), which attract any levy of duty under tariff items relevant to those inputs.

Accordingly, the High Court allowed the revenue appeals.

(See 2016-TIOL-1157-HC-MAD-CUS)