2009 (5) TMI 745 - AT - Central Excise

Excisability - Taxable event is manufacture of goods in India - Additional Customs duty - Silk fabrics - Woven silk fabrics - Exemption - Cenvat/Modvat

Summary

Issues Involved:
1. Eligibility for exemption from Countervailing Duty (CVD) under Notification 30/04-CX for imported woven silk fabrics.
2. Interpretation of the proviso to Notification 30/04-CX regarding the non-availment of Cenvat credit on inputs or capital goods.
3. Applicability of the Tribunal's decision in Prashray Overseas Pvt. Ltd. v. C.C., Chennai.
4. Interpretation principles for exemption notifications and levy under Section 3(1) of the Customs Tariff Act.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption from CVD under Notification 30/04-CX:
The appellant imported woven silk fabrics and claimed exemption from CVD under Notification 30/04-CX. The authorities initially extended the benefit, but a subsequent show cause notice demanded Rs. 20,85,309/- in CVD, arguing that the appellant did not meet the conditions of the exemption. The Commissioner confirmed this demand, stating that the exemption applied only to goods manufactured in India where Cenvat credit on inputs or capital goods had not been availed, which was not applicable to imported goods.

2. Interpretation of the Proviso to Notification 30/04-CX:
The proviso to Notification 30/04-CX states that the exemption does not apply to goods where Cenvat credit on inputs or capital goods has been taken. The appellant argued that this condition was irrelevant for imported goods since neither raw silk nor silk yarn (inputs for silk fabrics) were subject to excise duty, and thus no Cenvat credit could be availed. The Commissioner, however, held that it was impossible for imported goods to either fulfill or not fulfill this criterion.

3. Applicability of the Tribunal's Decision in Prashray Overseas Pvt. Ltd. v. C.C., Chennai:
The appellant relied on the Tribunal's decision in Prashray Overseas Pvt. Ltd., where it was held that the condition of non-availment of Cenvat credit was unworkable for imported silk yarn and fabric since the inputs (raw silk and silk yarn) were not subject to excise duty. Thus, there was no question of availing Cenvat credit, making the demand for CVD unsustainable.

4. Interpretation Principles for Exemption Notifications and Levy under Section 3(1) of the Customs Tariff Act:
The appellant cited several judgments emphasizing that exemption notifications should be interpreted to achieve their objective and that a liberal interpretation should be given as long as it does not distort the notification's language. The Supreme Court's rulings in cases like Hyderabad Industries Ltd. and Malwa Industries Ltd. were referenced to argue that for determining CVD under Section 3(1) of the Customs Tariff Act, it should be imagined that the imported goods were manufactured in India, and the excise duty applicable in such a scenario should be considered.

Conclusion:
The Tribunal concluded that the proviso to Notification 30/04-CX was not applicable to the imported woven silk fabrics since the inputs (raw silk and silk yarn) did not suffer excise duty, and thus no Cenvat credit could be availed. The Commissioner's finding that it was impossible to determine the fulfillment of the condition was incorrect. The Tribunal set aside the Commissioner's order and allowed the appeal with consequential relief, confirming that the demand for CVD was unsustainable in law.