By TIOL News Service

MUMBAI, JAN 09, 2019: APPELLANTS are 100% Export Oriented Unit manufacturing Cotton Yarn.

During the period 9.07.2004 to 07.02.2005, they cleared their final products in domestic tariff area, without payment of duty and availing the benefit under exemption notification No 30/2004-CE, dated 9.07.2004.

Alleging that the benefit of the said Notification was not admissible to them in view of proviso to sub-section 1 of Section 5A, duty demand was raised and confirmed by the original authority along with imposition of equivalent penalty and interest.

In appeal, the Commissioner(A) while maintaining the demand of duty and interest, set aside the penalty.

The appellant is before the CESTAT.

The Member (T) extracted the provisions of s.5A of the CEA, 1944 and observed -

"4.4 From the proviso to Section 5A(1), it is very clear that any exemption notification issued in terms of the said section 5A(1) shall not be applicable, in respect of the clearances made by the EOU unit to DTA, unless and until the notification specifically provides so."

Citing the decisions in Sarita Software & Industries - 2008-TIOL-2423-CESTAT-BANG, Sitara Exports Ltd. and Ratnagiri Textiles Ltd., the Member (T) concluded that the appellant had claimed full exemption and which is not justifiable on merits.

Insofar as the aspect of limitation is concerned, the appellant submitted that since the Commissioner(A) had dropped the mandatory penalty imposed u/s 11AC of the CEA, 1944, the proviso to section 11A(1) ought not to have been invoked.

Culling various paragraphs from the order of the lower appellate authority, the Member (T) observed that the appellant had chosen not to present the correct and complete facts inasmuch as they (appellant) had admitted the duty liability in the year 2006 and agreed to pay the same for which they had given an undertaking on stamp paper supported by bank guarantee. And, therefore, the demand could not be held as time barred.

In fine, the Member (T) upheld the impugned order and dismissed the appeal.

The Member (J) had a differing view.

It was observed that insofar as the merits of the case is concerned, both sides had relied upon precedent decisions of the Tribunal, some in favour of assessee and in case the Tribunal intended to follow the orders in favour of the Revenue, the matter should have been referred to the Larger Bench.

The Member (J), therefore, held that the issue on merits is required to be referred to the Larger Bench.

As regards limitation, the Member (J) observed that all the facts were declared to the department in the ER-2 returns including the fact of availment of exemption notification 30/2004-CE and hence no malafides can be attributed to the appellant; that there is no such condition available in any proviso to section 11A of the CEA, 1944 indicating that whenever assessee gives an undertaking to pay the differential duty, the same would lead to availability of larger period of limitation for the Revenue; that giving of an undertaking can be reasonably compared to deposits of amounts during investigation and cannot be held to be a criteria justifying invocation of longer period; that firstly the appellant's liability had to be adjudged in accordance with law without any role relatable to giving of undertaking or bank guarantee etc.; that the demand is barred by limitation.

The Member (T), therefore, concluded that the demand is time barred and, therefore, the appeal is required to be allowed on this point itself.

Accordingly, the matter is referred to the third Member on the following points of difference -

(i) Whether the appeal has to be rejected as held by Hon'ble Member (Technical) or the same has to be allowed on the point of limitation, as held by Hon'ble Member(Judicial)?

(ii) Whether the appeal has to be rejected on merits as held by Hon'ble Member(Technical) or the matter has to be referred to larger Bench as observed by Hon'ble Member(Judicial)?

(See 2019-TIOL-90-CESTAT-MUM)