2018 (7) TMI 1999 - HC - Central Excise

Area Based Exemption - N/N. 32/99-C.E. and 33/99-C.E., both dated 8-7-1999 - Exemption of Manufacture of Pan Masala - pre and post escrow situation - capital investments - The IAC had rejected the investment claimed by the petitioner in respect of social project by giving an interpretation that the investment in social project would have to be capital investment for the benefit of the society - HELD THAT - Capital investment would have to be understood to be an investment to meet the acquisition price of a capital asset, where the word capital means accumulated goods, possessions and assets used for the production of profits and wealth. When the aforesaid meaning of the expression capital investment is taken into consideration, the reasoning of the IAC that the social project has to be interpreted to mean a capital investment appears to be self-contradictory. On one hand we have the concept of social project, which would mean some activity which would lead to the benefit of the society and on the other hand in order to be qualified to be a social project, it must also be a capital investment which ultimately would lead to the concept of production of profit and wealth. It would be difficult to find a purpose where if invested, the same would also lead to the benefit of the society as well as create profit and wealth. In the absence of the procedure being followed by the IAC as indicated above, the minutes of the meeting held on 25-6-2014 of the IAC, rejecting the investments claimed by the petitioner, is hereby set aside. Consequent upon the minutes of 25-6-2014 being set aside, the demand notice dated 15-9-2014 is also accordingly set aside - Petition allowed.

Issues Involved:
1. Applicability and interpretation of various notifications regarding excise duty exemptions.
2. Role and jurisdiction of the jurisdictional Commissioner and the Investment Appraisal Committee (IAC) in approving and verifying investments.
3. Compliance with principles of natural justice in the rejection of investment claims.
4. Interpretation of the term "investment" in the context of excise duty exemptions.
5. Validity of the IAC's rejection of specific investments and the subsequent demand notice.

Detailed Analysis:

1. Applicability and Interpretation of Notifications:
The case revolves around the interpretation of multiple notifications issued by the Government of India, which provided excise duty exemptions to manufacturing units in the North Eastern Region (NER). The petitioner, engaged in the manufacture of chewing tobacco, availed benefits under these notifications. The key notifications involved are No. 32/99-C.E. and 33/99-C.E. (both dated 8-7-1999), which were later amended and partially withdrawn by subsequent notifications. Notification No. 69/2003-C.E. (dated 25-8-2003) provided a 50% duty exemption, subject to specific conditions, including investment in plant and machinery. Notifications No. 8/2000/4-C.E. (dated 21-1-2004) and No. 28/2004-C.E. (dated 9-7-2004) introduced further conditions and procedures for availing exemptions, such as depositing amounts in an escrow account and obtaining approvals from the jurisdictional Commissioner and the IAC.

2. Role and Jurisdiction of the Jurisdictional Commissioner and the IAC:
The court analyzed the distinct roles of the jurisdictional Commissioner and the IAC. The jurisdictional Commissioner is vested with the power to approve or disallow withdrawals from the escrow account, ensuring that investments meet the requirements of condition B of the notification dated 21-1-2004. Once the jurisdictional Commissioner grants approval, the IAC's role is limited to verifying that the investments were made as approved and actually executed. The court emphasized that the IAC cannot re-examine the conformity of investments to condition B if the jurisdictional Commissioner has already approved them.

3. Compliance with Principles of Natural Justice:
The petitioner challenged the IAC's rejection of investments on the grounds of lack of reasons and denial of an opportunity for a hearing. The court upheld the principles of natural justice, stating that the scheme inherently requires giving the petitioner an opportunity to substantiate their investment claims. The court referred to previous judgments, including Dharampal Satyapal Ltd. v. Union of India, which established that the jurisdictional Commissioner’s approval should be binding unless proven fraudulent or collusive.

4. Interpretation of the Term "Investment":
The court provided a detailed interpretation of the term "investment" in the context of excise duty exemptions. It referred to the Supreme Court's definition, which includes placing money in business or income-producing property. The court held that expenses related to consultancy services, TDS, Service Tax, and ESI payments should be considered part of the investment if they are necessary for setting up plant and machinery.

5. Validity of the IAC's Rejection and Demand Notice:
The court found the IAC's rejection of specific investments and the subsequent demand notice to be arbitrary and without proper basis. The IAC's conclusions regarding investments made in different states, uninstalled machinery, and consultancy services were deemed irrational. The court set aside the IAC's minutes of the meeting held on 25-6-2014 and the demand notice dated 15-9-2014. However, it allowed the respondent authorities to further pursue the matter with the petitioner regarding their entitlement to exemptions.

Conclusion:
The writ petition was allowed to the extent that the IAC's rejection of investments and the demand notice were set aside. The court emphasized the need for a rational and just approach in verifying investments and upheld the jurisdictional Commissioner’s role in approving withdrawals from the escrow account. The principles of natural justice and the proper interpretation of investment-related expenses were reinforced.

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