Delhi High Court
Commissioner Of Central Excise, ... vs Welspring Universal on 13 December, 2017
$~3
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CEAC 8/2017 & CM No.15296/2017
Date of decision: 13th December, 2017
COMMISSIONER OF CENTRAL EXCISE,
DELHI II ..... Petitioner
Through: Mr.Sanjeev Narula, Sr.Standing Counsel
(Customs, CBEC) with Mr.Abhishek Ghai
and Ms.Anumita Chandra, Advocates.
versus
WELSPRING UNIVERSAL ..... Respondent
Through: Dr.Prabhat Kumar and Mr.Arjun Malik,
Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MS. JUSTICE PRATHIBA M. SINGH
SANJIV KHANNA, J. (ORAL):
This appeal by the Commissioner of Central Excise under Section
35G of the Central Excise Act, 1944 impugns the order dated 19 th
September, 2016 passed by the Customs, Excise and Service Tax Appellate
Tribunal in Excise Appeal No.1773/2010 in the case of Wellspring
Universal.
2. The respondent-assessee is a 100% Export Oriented Unit (EOU)
engaged in the manufacture and exports of hand tools, welding machine and
CEAC No. 8 /2017 Page 1 of 6
safety products.
3. Two show cause notices dated 26th September 2008 and 6th January,
2009 were issued, inter-alia alleging that the respondent-assessee had
wrongly claimed CENVAT credit of Rs.33,70,340/- for the period 2006-07
and up to 30th June, 2008 and Rs.1,35,554/- from 1st July, 2008 to 10th
December, 2008 respectively, on goods purchased from their sister unit,
namely Wellspring India Pvt. Ltd., Bahadurgarh (Haryana).
4. Vide order in original dated 31st July, 2009, Additional
Commissioner, Central Excise (Delhi), rejecting submissions and contention
of the respondent-assessee, held that CENVAT credit of Rs.35,05,894/-
availed should be disallowed under Rule 14 of the CENVAT Credit Rules,
2004 (Rules for short). Extended period under Section 11A was invoked to
direct recovery of the said amount along with applicable interest under
Section 11A(b) of the Act. Penalty of Rs.5,00,000/- was imposed under
Rule 15 of the Rules.
5. The respondent-assessee filed appeals which were allowed vide order
dated 30th March, 2010 by the Commissioner Appeals.
6. Aggrieved, the Revenue preferred further appeal before the Tribunal
which, as recorded above, has been dismissed by the impugned order
affirming the findings recorded by the Commissioner Appeals and observing
that the respondent-assessee had asked for credit of duty actually paid and
not duty which was payable and available. This fact was undisputed as the
Revenue had not challenged the factum of payment of duty by the
respondent-assessee to the supplier. Further, the officer who had issued the
show cause notice did not have jurisdiction to re-open the assessment of the
supplier.
CEAC No. 8 /2017 Page 2 of 6
7. We have heard counsel for the appellant-revenue and the respondent-
assessee and do not find any reason to interfere. On being asked, counsel
for the Revenue has accepted that the respondent-assessee had paid the
aforesaid excise duty of Rs.35,05,894/-. This is not challenged and
questioned.
8. Having paid the aforesaid duty, there was nothing wrong and
incorrect in the respondent-assessee taking refund. Revenue has not been
out of pocket. Refund was of the amount paid.
9. Counsel for the Revenue had drawn our attention to Rule 3(1) and
submitted that manufacturer or producer of the final product would be
entitled to benefit of CENVAT credit only if duty was leviable under the
Act. The submission was that Wellspring India Pvt. Ltd., the supplier, was
also a 100% export unit and on the transaction, no duty was required to be
paid in terms of paragraph 6.13(a) of the Foreign Trade Policy 2004-09,
being a case of Inter Unit Transfer. CBEC Circular No.17/2006-Customs
dated 1st June, 2006 was relied upon. Reference was made to Section 5A
(1A) of the Act.
10. In order to consider the submission, we would like to refer to Section
5A (1) and (1A) which is reproduced below:-
"5A (1) If the Central Government is satisfied that it is
necessary in the public interest so to do, it may, by notification
in the Official Gazette exempt generally either absolutely or
subject to such conditions (to be fulfilled before or after
removal) as may be specified in the notification, excisable
goods of any specified description from the whole or any part
of the duty of excise leviable thereon:
Provided that, unless specifically provided in such
notification, no exemption therein shall apply to excisable
CEAC No. 8 /2017 Page 3 of 6
goods which are produced or manufactured -
(i) in a free trade zone or a special economic zone and
brought to any other place in India; or
(ii) by a hundred per cent export-oriented undertaking and
brought to any place in India.
Explanation. - In this proviso, "free trade zone", "special
economic zone" and "hundred per cent export-oriented
undertaking" shall have the same meanings as
in Explanation 2 to sub-section (1) of section 3.
5A (1A) For the removal of doubts, it is hereby declared
that where an exemption under sub-Section (1) in respect of
any excisable goods from the whole of the duty of excise
leviable thereon has been granted absolutely, the
manufacturer of such excisable goods shall not pay the duty of
excise on such goods."
5A(1) empowers the Central Government to issue a notification in the
official gazette and grant exemption generally, either absolutely or subject to
conditions to be fulfilled before or after removal, as specified in the
notification in respect of excisable goods. The proviso stipulates that unless
it is provided in such notification, no exemption shall apply to excisable
goods which are produced or manufactured in a free trade zone or special
economic zone or by a 100% export oriented undertaking. Sub-Section (1A)
of Section 5A is applicable in case of exemption granted under the
notification in respect of any excisable goods from whole of the duty of
excise leviable thereon absolutely. Sub-Section (1A) of Section 5A will not
apply in cases where exemption is not granted absolutely, but is subject to
the conditions which have to be fulfilled before or after removal, as
specified in the notification.
CEAC No. 8 /2017 Page 4 of 6
11. The exemption notification relied upon by the Revenue, i.e.,
paragraph 6.13 (a) to (c) of the Foreign Trade Policy reads as under:-
"6.13(a) Transfer of manufactured goods from one
EOU/EHTP/STP/BTP unit to another EOU/EHTP/STP/BTP
unit is allowed with prior intimation to concerned DC and
Customs authorities, following procedure of in-bound
movement of goods. Transfer of manufactured goods shall
also be allowed from EOU/EHTP/STP/BTP unit to a SEZ
developer or unit following procedure prescribed in SEZ
Rules, 2006.
(b) Capital goods may be transferred or given on loan to
other EOU/EHTP/STP/BTP/SEZ units, with prior intimation to
concerned DC and Customs authorities.
(c) Goods supplied by one unit of EOU/EHTP/STP/BTP to
another unit shall be treated as imported goods for second unit
for payment of duty, on DTA sale by second unit."
Aforesaid paragraphs postulate and state that the exemption granted is not
absolute, but is hedged with conditions which have to be satisfied. Prior
intimation to the custom authorities and DC has to be made. Procedure for
inbound movement of goods has to be followed. In the present case, it is not
the case of the Revenue that the said procedure was followed by the supplier
or by the respondent-assessee.
12. We were concerned whether the supplier being a sister concern had
taken undue advantage of the benefit by charging duty which was paid by
the respondent-assessee. The reason being this is not a case of an arm's
length transaction as the supplier and the respondent-assessee were related
to each other, but counsel for the Revenue has stated that they have not
examined the said aspect whatsoever and it is not the pleaded case of the
CEAC No. 8 /2017 Page 5 of 6
Revenue. The show cause notice and the order in original do not record that
the supplier has taken undue benefit by asking the respondent-assessee to
pay the duty. Even otherwise, the impugned order permits the Revenue to
proceed in case of any wrongdoing in the case of the supplier.
13. This being the position, we do not think the impugned order requires
any interference. Duty has been paid by the respondent-assessee to the
supplier, hence they are entitled to benefit and refund on export. Paragraph
6.13(a) imposes conditions and is not absolute. Conditions were not
satisfied. The respondent-assessee was liable to pay duty.
14. The appeal is accordingly dismissed without any order as to costs.
SANJIV KHANNA, J.
PRATHIBA M. SINGH, J.
DECEMBER 13, 2017
mamta
