CX - Complete non-observance of procedure cannot be said to be a mere procedural lapse - stringency and mandatory nature of any notification is decided on basis of purpose it seeks to achieve: High Court
By TIOL News Service
CHENNAI, JULY 13, 2018: DURING the period December 2004 to February 2005, the appellant had supplied 70,840 pairs of leather shoe uppers to M/s. Metro & Metro, Agra who are engaged in the manufacture of shoes for export.
M/s. Metro & Metro had allegedly utilized the above quantity of upper for manufacture of shoes and they have exported the same.
The appellants were issued a SCN demanding CE duty of Rs.10,32,466/- on the above said 70,840 pairs of shoe uppers cleared by them after allowing the SSI exemption of Rs. One crore, on the ground that the same were cleared for home consumption and not for export.
After allowing cum-duty benefit, the duty demand of Rs.8,87,601/- was confirmed along with interest and equivalent penalty. The amount already paid 'under protest' of Rs.8,87,601/- was appropriated.
As the Commissioner (Appeals) upheld the order, the appellant filed an appeal before the CESTAT.
The CESTAT set aside the penalty but did not disturb the duty demand as well as interest imposition. We reported this order as - 2018-TIOL-217-CESTAT-MAD.
The appellant has, therefore, filed a Civil Miscellaneous Appeal before the Madras High Courton the following substantial questions of law:-
a) Whether the Tribunal is right in upholding the confirmation the demand of duty on the appellant merely on the ground of procedural lapse when substantive condition of export of goods has been complied with.
b) Whether the Tribunal is right in upholding the confirmation of demand of duty by invoking extended period under proviso to Section 11A of CEA in the absence of any intent to evade payment of duty on the part of the appellant.
The appellant contended that once the Tribunal had come to the conclusion that all the leather uppers sold to M/s Metro & Metro had been exported and there is no finding that these goods were sold in the local market, the appellant should not be made to pay duty on the goods; that failure to adhere to the procedures (under notification(s) 42/2001-CE(NT), 43/2001-CE(NT) issued under rule 19 of CER) is only a procedural lapse and that since the goods were exported, no excise duty is payable.
The High Court considered the submissions and observed -
++ Conditions have been laid in the Notification to ensure that only such goods are exempted from duty which are actually exported. The authorities have to satisfy themselves of the claim for exemption and it is only after such satisfaction by the authorities that the manufacturer or processor can remove the excisable goods to a place outside the factory in order to avail the benefit of exemption from paying excise duty.
++ In the present case, the appellant was not registered under Rule 9 of the Central Excise Rules, 2001. The appellant has also not informed the department about the clearance of the goods. Complete non-observance of procedure cannot be said to be a mere procedural lapse. The appellant has not fulfilled any of the conditions. Merely stating that they have not paid the Central Excise Duty as they felt that they would be used by M/s. Metro & Metro for export purposes would not be sufficient. The authorities have to get satisfied that the goods cleared were the ones, which were actually used for export.
++ It is well settled that the stringency and the mandatory nature of any notification is decided on the basis of the purpose it seeks to achieve. The purpose of Notification No.43 of 2001 dated 26.06.2001 is to ensure that excise duty should not be evaded under the garb of export sales. [Indian Aluminium Company Limited Vs. Thane Municipal Corporation reported in 1992 Supp (1) SCC 480, Kedarnath Jute Manufacturing Co. Vs. CTO reported in (1965) 3 SCR 626 relied upon]
The High Court also distinguished the reliance placed on the judgment dated 12.06.2017 passed by the Division Bench of this Court in C.M.A.No.3044 of 2011 by observing thus -
+ The purpose of Notification No.43 of 2001, dated 26th June, 2001, is to ensure prevention of evasion of duty under the garb of export sales. Keeping the purpose in mind, it is not sufficient for a manufacture to come up and say that all the goods manufactured by him have been exported and, therefore, he is entitled to the benefit of Rule 19 of Central Excise Rules. If such a view is taken that the conditions prescribed in Notification No.43 of 2001, is only procedural then the entire purpose of issuing the said Notification, would be defeated.
+ The appellant has removed the goods without informing the Department. The appellant has also not registered under Rule 9 of the Central Excise Rules. The contention, even if the appellant is not registered under Rule 9, still the appellant can avail exemption from paying excise duty cannot be accepted. The removal of goods came to light only after the visit of the officers to the factory and perusal of the documents. Complete non-adherence to the procedure, which has been prescribed to avail exemption from payment of excise duty leads to a presumption that this was done with intent to evade payment of duty and, therefore, the authorities were justified in invoking Section 11-A for recovery of excise duty.
Noting that none of the conditions prescribed in Notification No.43 of 2001 have been followed and, therefore, the appellants are not entitled to exemption from payment of duty u/r 19 of CER, the order of CESTAT confirming the levy of duty by invoking extended period of limitation was upheld and the Civil Miscellaneous appeal was dismissed.
(See 2018-TIOL-1328-HC-MAD-CX )