2021 (6) TMI 670 - AT - Central Excise

Empowerment to deny availment of exemption extended to indigenously manufactured goods by notification issued under Central Excise Act 1944 - non-compliance with conditions prescribed in parallel notification issued under Customs Act 1962 for procurement from abroad - HELD THAT - Tax liability under Customs Act 1962 arises upon import of goods with the importer responsible for compliance with all requirements for clearance; the liability under Central Excise Act 1944 is though collected on clearance a levy on manufacture that the manufacturer assumes responsibility for. With registered status under the statute a manufacturer supplying goods against an exemption notification poses lesser risk than an importer in recovery of duty foregone in the event of misuse. The procedural prescriptions stipulated for exemption from duties of customs are intended to neutralize that additional risk without causing undue inconvenience to the transaction. Imports are effected by the designated agency or their subcontractors for implementation of the project and to them prescribed certification is of easy access; the role of a manufacturer is limited to supply which precludes direct access to such certification. While the intended deployment and procurement through international competitive bidding is doubtlessly ascertainable at the premises of the importer the prescribing of certificate to be furnished eliminates such repeated verification of the threshold eligibility for each clearance of imports - The essence of optimal sourcing being the disregarding of customs frontiers the enumeration of goods entitled to exemption from duties of customs does not bear replication in the exemption notification under Central Excise Act 1944 and the condition prescribed therein should not have to be expanded beyond that limited purpose. It would be stating the obvious to point out that domestic procurement is not subject to the same risks or the verification of eligibility so burdensome as to warrant that the facilitative procedures of the notification issued under Customs Act 1962 be replicated in the notification issued under Central Excise Act 1944. The impugned order lacks legality for having ordered recovery of duty and imposed penalties despite the appellant having complied with conditions for availment of exemption - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Duty liability under section 11A of Central Excise Act, 1944
- Interest under section 11AB of Central Excise Act, 1944
- Penalty under section 11AC of Central Excise Act, 1944
- Denial of exemption to domestically manufactured goods
- Compliance with conditions for exemption
- Documentation requirements for availing exemption
- Eligibility for exemption under Customs Act, 1962
- Compliance with procedures for availing exemption
- Applicability of judgments in similar cases
- Role of domestic manufacturers in procurement process
- Comparison of procedural requirements under different statutes

Detailed Analysis:

1. The judgment concerns the dispute involving duty liability, interest, and penalty under sections 11A, 11AB, and 11AC of the Central Excise Act, 1944, imposed on M/s Kirloskar Brothers Ltd for 'power driven pumps' and 'parts of pumps'. The issue revolves around the denial of exemption to the appellant for not complying with conditions prescribed for availing exemption extended to indigenously manufactured goods by notification issued under the Central Excise Act, 1944, in parallel with a notification under the Customs Act, 1962 for procurement from abroad.

2. The core issue is whether domestic suppliers must comply with procedures peculiar to clearance of imported goods, in addition to qualifying circumstances for exemption, as prescribed for goods imported into India. The appellant cleared goods for petroleum exploration projects under 'international competitive bidding', seeking exemption under relevant notifications. The dispute centers on the documentation evidencing eligibility for exemption, which the appellant claims to have fulfilled based on compliance with conditions in the notifications issued under both Acts.

3. The appellant's argument rests on the contention that compliance with procedures for availing exemption on imported goods should not apply to domestic manufacturers. The High Court's decision in a similar case supports the appellant's position, emphasizing that conditions stipulated for importers do not bind domestic suppliers as long as the goods are exempt and supplied through international competitive bidding, thereby rejecting the Revenue's contention.

4. The Authorized Representative argues that the exemption from excise duties is contingent upon compliance with prescribed documentation, necessitating furnishing such documents at the time of availing exemption. The contention is that the decision in a previous case lacked the benefit of certain observations and is not a guiding precedent in the present controversy.

5. The judgment emphasizes the distinction between the liability under the Customs Act, 1962, arising upon import, and the levy under the Central Excise Act, 1944, a responsibility assumed by the manufacturer. The procedural requirements for exemption from duties of customs aim to mitigate risks associated with misuse, particularly in the case of imported goods, without unduly burdening domestic manufacturers.

6. The Court holds that the procedural stipulations for exemption under the Customs Act, 1962, should not be replicated in the notification under the Central Excise Act, 1944, for domestic procurement. Insisting on compliance beyond the intended purpose would create unnecessary barriers for domestic manufacturers, especially when there is no allegation of non-compliance with the essential conditions for exemption.

7. In conclusion, the judgment aligns with the High Court's decision, ruling that the impugned order lacked legality in ordering duty recovery and penalties despite the appellant's compliance with the conditions for exemption. The appeal is allowed with consequential relief, emphasizing the importance of distinguishing between procedural requirements for imported and domestically manufactured goods.

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