1. ISSUES PRESENTED and CONSIDERED

• Whether the service tax credit availed on 'Management or Business Consultant's Service' and 'Business Support Service' qualifies as input service under Rule 2(l) of the CENVAT Credit Rules, 2004 (CCR 2004) and is therefore admissible.
• Whether the impugned denial of CENVAT credit on these services and consequent demand of service tax along with interest and penalty under Rule 14 and Rule 15(1) of CCR 2004 is justified.
• Interpretation and scope of the term 'input service' under Rule 2(l) of CCR 2004, especially post its amendment effective from 01.04.2011.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility of CENVAT Credit on 'Management or Business Consultant's Service' and 'Business Support Service'

Legal Framework and Precedents: Rule 2(l) of CCR 2004 defines 'input service' as any service used by a manufacturer, directly or indirectly, in or in relation to the manufacture of final products and their clearance up to the place of removal. The rule includes an illustrative list of services such as advertisement, sales promotion, market research, accounting, financing, recruitment, coaching, security, etc. The definition was amended effective 01.04.2011 to clarify the scope.

Relevant judicial precedents include:

• Bombay High Court's decision in Coca Cola India Pvt. Ltd. v. CCE, which held that the term 'business' is an integrated, continuous activity and not confined to mere manufacture. The phrase 'activities relating to business' is broad and includes all activities related to the functioning of a business.
• Ultratech Cement Ltd. ruling, which recognized that input service credit includes services used in relation to the business of manufacture, whether availed prior to or after manufacture.
• Madras High Court's ruling in M/s. Rane TRW Steering System Ltd., which after extensive analysis, held that the definition of input services cannot be restricted only to manufacture but includes services used in relation to the business of manufacture and clearance.
• Supreme Court decision in Ramala Sahkari Chini Mills Ltd., reinforcing the broad interpretation of input services.

Court's Interpretation and Reasoning: The Court emphasized the wide scope of 'input service' under Rule 2(l), which includes services used indirectly or in relation to manufacture and clearance of final products. The definition explicitly includes services such as management consultancy, business support, and others that support the business operations integral to manufacturing.

The Court rejected the narrow interpretation urged by Revenue that input service credit should be confined strictly to services directly linked to manufacturing processes. It relied on authoritative judicial pronouncements to affirm that services supporting the overall business operations of the manufacturer qualify as input services.

Key Evidence and Findings: The appellant had availed credit on various input services including 'Management or Business Consultant's Service' and 'Business Support Service' based on ISD invoices from their Head Office. The adjudicating authority confirmed disallowance only on these two services, while other services were accepted.

The Revenue's contention was that these services were not used directly or indirectly in or in relation to manufacture and clearance of final products, and thus not eligible for credit.

Application of Law to Facts: Applying the broad interpretation of Rule 2(l) and judicial precedents, the Court found that the impugned services fall within the ambit of input services. The services in question support the business activities related to manufacture and clearance, thereby qualifying for credit.

Treatment of Competing Arguments: The Revenue's argument for restricting input service credit to only those services directly linked to manufacture was rejected. The Court held that the definition and judicial precedents clearly support a wider interpretation encompassing services that relate to the business of manufacture.

Conclusions: The service tax credit availed on 'Management or Business Consultant's Service' and 'Business Support Service' is admissible input service credit under Rule 2(l) of CCR 2004. The disallowance of credit on these services by the adjudicating authority is set aside.

Issue 2: Validity of Demand for Service Tax, Interest and Penalty on Disallowed Credit

Legal Framework: Rule 14 of CCR 2004 read with Section 11A(1) and Section 11AB of the Central Excise Act, 1944 provides for recovery of service tax along with interest where credit is wrongly availed. Rule 15(1) of CCR 2004 provides for imposition of penalty for contravention of the rules.

Court's Reasoning: Since the Court held that the credit on the disputed services was rightly availed, the demand for service tax recovery, interest, and penalties based on disallowance cannot be sustained. The penalty is contingent upon the existence of wrongful availment of credit, which is negated by the Court's findings.

Application of Law to Facts: The adjudicating authority imposed proportionate penalties along with demand of service tax and interest on disallowed credit for the two services. Given the Court's acceptance of credit eligibility, these demands and penalties fail.

Conclusions: The demand of service tax, interest, and penalties on the disallowed credits are set aside as unsustainable.

Issue 3: Interpretation and Scope of Rule 2(l) of CCR 2004

Legal Framework: Rule 2(l) defines 'input service' with an inclusive list and explanation, emphasizing usage in relation to manufacture and clearance of final products. The amendment effective 01.04.2011 clarified and expanded the scope.

Court's Interpretation: The Court interpreted Rule 2(l) in a purposive and expansive manner, consistent with legislative intent and judicial precedents, to include services used indirectly or in relation to business activities associated with manufacture and clearance.

Key Findings: The Court noted that the definition includes services such as advertisement, sales promotion, accounting, recruitment, coaching, security, and others that are integral to business operations supporting manufacture.

Conclusions: The scope of 'input service' under Rule 2(l) is broad and not confined to direct inputs into manufacture. Services supporting the business of manufacture qualify for CENVAT credit.

1. ISSUES PRESENTED and CONSIDERED

• Whether the activities undertaken on aluminium coils/sheets by the respondent amount to "manufacture" under Section 2(f) of the Central Excise Act, 1944.
• Whether the laminated aluminium sheets fall under Central Excise Tariff Heading (CETH) 7606 or 7607, based on thickness and classification criteria.
• Applicability of Chapter Note 3 to Chapter 76 of the Central Excise Tariff Act regarding deeming certain processes on aluminium foils as manufacture.
• Whether the process of coating/lamination with polycraft or polysurlyne changes the nature, use, or identity of the aluminium sheets sufficiently to constitute manufacture.
• Whether the department's demand for excise duty and penalty based on classification and manufacture findings is sustainable.
• Whether estoppel applies due to respondent's prior classification of goods under CETH 7607.
• Evaluation of evidentiary weight of documents (challans, letters) relating to thickness of aluminium sheets and their impact on classification and manufacture determination.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the activities undertaken on aluminium coils/sheets amount to "manufacture" under Section 2(f) of the Central Excise Act, 1944

Legal Framework and Precedents: Manufacture is defined under Section 2(f) to include any process incidental or ancillary to the completion of a manufactured product, or processes specified in Section or Chapter Notes of the Central Excise Tariff Act as amounting to manufacture. The test involves two components: (i) whether the process is incidental or ancillary to manufacture, and (ii) whether the product is a new, distinct, marketable article with different characteristics or use.

Key precedents include:

• Commissioner of Central Excise Hyderabad-II vs. Aldec Corporation: Emphasizes that manufacture depends on facts and circumstances, and includes processes incidental or ancillary to manufacture; painting furniture post-sale does not amount to manufacture.
• M/s. Shree Jee Laminators vs. CCE Delhi: Lamination of HDPE fabrics did not change the basic character or description; hence no manufacture.
• M/s. Central Excise, Jaipur vs. Pitamber Coated Paper Ltd: Coating paper produced an article with a different commercial name but not a distinct article with different character or use; no manufacture.

Court's Interpretation and Reasoning: The process of cutting, slitting, and coating aluminium sheets with a thin layer of polycraft or polysurlyne does not change the essential character or use of the aluminium sheets. The product remains aluminium sheets, not a new distinct article. The coating is neither incidental nor ancillary to the manufacture of aluminium coils but a subsequent process. The process does not satisfy the test of manufacture under Section 2(f).

Key Evidence and Findings: The respondent's activities involved job work on aluminium coils supplied free of cost, involving cutting, slitting, and lamination. The lamination layer is very thin and serves as a protective coat without altering the nature or use of the sheets.

Application of Law to Facts: Applying the twin tests of manufacture, the process does not amount to manufacture as it neither results in a new product nor is incidental/ancillary to manufacture of aluminium coils.

Treatment of Competing Arguments: The Revenue argued that lamination created a new marketable product "Aluminium Laminate" with different characteristics, relying on case laws where coating or processing was held to be manufacture. The Court distinguished these cases based on facts, noting that the coating here does not alter the essential character or use.

Conclusion: The activities undertaken do not amount to manufacture under Section 2(f) of the Central Excise Act.

Issue 2: Classification of laminated aluminium sheets under CETH 7606 or 7607

Legal Framework and Precedents: CETH 7606 covers aluminium plates, sheets, and strips exceeding 0.2 mm thickness; CETH 7607 covers aluminium foil of thickness not exceeding 0.2 mm. Chapter Note 3 to Chapter 76 applies only to products under heading 7607.

Court's Interpretation and Reasoning: The thickness of the aluminium sheets supplied was more than 0.2 mm, placing them under CETH 7606. The department failed to produce cogent evidence to rebut the documents (challans, letters) submitted by the respondent supporting this thickness. The Commissioner (Appeals) rightly held that Chapter Note 3, which deems cutting, slitting, and printing of aluminium foils as manufacture, is not applicable to sheets exceeding 0.2 mm thickness.

Key Evidence and Findings: Documents including a letter dated 07.08.2015 and delivery challans showed thickness exceeding 0.2 mm. The department did not conduct further investigation to verify thickness despite requests.

Application of Law to Facts: Since the product is classified under 7606, the deeming provision of manufacture under Chapter Note 3 (applicable only to 7607) does not apply, negating the department's basis for demand.

Treatment of Competing Arguments: The Revenue contested the authenticity and timing of the documents produced by the respondent but failed to provide contrary evidence. The Court rejected the Revenue's contention that the documents were afterthoughts.

Conclusion: The laminated aluminium sheets fall under CETH 7606, not 7607, and Chapter Note 3's deeming provisions do not apply.

Issue 3: Applicability of Chapter Note 3 to Chapter 76 and its impact on manufacture determination

Legal Framework: Chapter Note 3 states that for products under heading 7607, cutting, slitting, and printing amount to manufacture. This note is limited in scope to aluminium foils (<=0.2 mm thickness).

Court's Interpretation and Reasoning: Since the product here is classified under 7606 (thickness >0.2 mm), Chapter Note 3 is inapplicable. Therefore, the processes of cutting, slitting, and printing cannot be deemed manufacture under this provision.

Application to Facts: The department's reliance on Chapter Note 3 to justify manufacture and duty demand is misplaced given the classification of goods.

Conclusion: Chapter Note 3 is not applicable; thus, the processes do not amount to manufacture under this provision.

Issue 4: Whether coating/lamination changes the nature, use, or identity of aluminium sheets to constitute manufacture

Legal Framework and Precedents: Manufacture requires emergence of a new product with distinct identity, character, or use. Mere coating or lamination that does not alter these aspects does not constitute manufacture.

Court's Reasoning: The lamination with polycraft or polysurlyne serves as a protective barrier and does not change the fundamental nature or use of the aluminium sheets. The product remains aluminium sheets used for cladding, jacketing, or partitioning.

Supporting Precedents: Cases such as Aldec Corporation and Shree Jee Laminators support that lamination/coating without change in identity/use is not manufacture.

Conclusion: Coating/lamination does not amount to manufacture as it does not create a new distinct product.

Issue 5: Sustainability of excise duty demand and penalty imposed by Original Adjudicating Authority

Legal Framework: Demand and penalty under Section 11AC(1)(c) of the Central Excise Act require proof of duty liability based on manufacture and classification.

Court's Reasoning: Since the processes do not amount to manufacture and classification is under 7606 (not attracting Chapter Note 3 deeming provisions), the demand for duty and penalty is unsustainable.

Conclusion: The original demand and penalty are set aside; the impugned order allowing the respondent's appeal is upheld.

Issue 6: Applicability of estoppel based on respondent's prior classification under CETH 7607

Legal Framework: Erroneous classification and duty payment on job charges alone do not create estoppel against the respondent if there is no chargeability under Section 3.

Precedent: The Supreme Court in Dunlop India vs. UOI held that absence of chargeability negates promissory estoppel arising from erroneous classification.

Court's Reasoning: The respondent's prior use of CETH 7607 in invoices does not estop them from asserting correct classification and non-chargeability.

Conclusion: No estoppel arises from prior classification errors.

Issue 7: Evaluation of evidentiary weight of documents relating to thickness and classification

Findings: The Commissioner (Appeals) examined letters and challans submitted by the respondent indicating thickness exceeding 0.2 mm. The department did not produce contrary evidence or conduct further investigation despite requests.

Court's Reasoning: Absence of cogent contrary evidence and failure to investigate undermines Revenue's challenge to thickness claims.

Conclusion: Thickness of aluminium sheets is conclusively more than 0.2 mm for classification purposes.

1. Whether the appellant is entitled to refund of Customs Duty (including CVD, Education Cess, S&H Education Cess, and Additional Customs Duty) paid due to non-fulfillment of export obligation under the EPCG Scheme after having initially imported capital goods duty-free under the said scheme.

2. Whether the appellant was eligible to claim Cenvat credit on the Customs duties paid post non-fulfillment of export obligation under the erstwhile Cenvat Credit Rules, 2004, and whether such credit can be refunded in cash under Section 142(3) of the CGST Act, 2017.

3. Whether failure to produce installation certificate and other prescribed documentation under the EPCG scheme disentitles the appellant from claiming Cenvat credit or refund.

4. Interpretation and applicability of Section 142(3) of the CGST Act, 2017 read with Sections 140, 174, and relevant provisions of the Central Excise Act, 1944 and Cenvat Credit Rules, 2004, in relation to refund claims arising from duties paid under the erstwhile regime.

5. Whether the appellant's conduct, including delayed payment of Customs duties and failure to fulfill export obligations, precludes refund or credit claims under principles of equity and legal maxims.

6. Whether the claim for refund under Section 142(3) of CGST Act can be allowed where transitional credit was not availed in terms of Section 140 of the CGST Act.

7. Whether the appellant's reliance on precedents from other Benches and High Courts supports entitlement to refund or credit.

Issue 1: Entitlement to Refund of Customs Duty Paid Due to Non-Fulfillment of Export Obligation under EPCG Scheme

- Relevant Legal Framework and Precedents:

The EPCG Scheme permits import of capital goods at concessional customs duty subject to fulfillment of export obligations. Notification No. 64/2008-Cus exempts customs duty subject to export obligation. Failure to fulfill export obligation triggers liability to pay the forgone customs duty with interest as per Foreign Trade Policy (FTP) and Handbook of Procedures (HBP), paragraph 4.50.

Precedents include Tribunal decisions holding that non-fulfillment of export obligation results in loss of duty exemption and no refund is admissible upon payment of duty subsequently.

- Court's Interpretation and Reasoning:

The Tribunal noted that the appellant imported capital goods duty-free under EPCG subject to export obligation but failed to fulfill the same. The appellant paid the customs duties years later and claimed refund on the ground of inability to avail Cenvat credit post GST implementation.

The Tribunal emphasized that the EPCG scheme is conditional, and the benefit of duty exemption is contingent upon fulfilling export obligations. Non-fulfillment results in loss of benefit and payment of duty is mandatory.

The appellant's failure to produce installation certificate and other statutory documents further undermined the claim.

- Key Evidence and Findings:

No installation certificate was produced as required under EPCG scheme. The appellant admitted non-fulfillment of export obligation and delayed payment of customs duty.

- Application of Law to Facts:

Since the export obligation was not fulfilled and the capital goods were not evidenced to be installed and used in manufacturing, the appellant was not entitled to retain the benefit of duty exemption or claim refund.

- Treatment of Competing Arguments:

The appellant argued that no demand was raised by Customs for 10 years and that payment of duty was voluntary, hence refund should be allowed. The Tribunal rejected this, holding that voluntary payment after breach of conditions does not confer right to refund.

- Conclusion:

The appellant is not entitled to refund of customs duty paid due to non-fulfillment of export obligation under EPCG scheme.

Issue 2: Eligibility to Claim Cenvat Credit on Customs Duties Paid Post Non-Fulfillment and Refund under Section 142(3) of CGST Act

- Relevant Legal Framework and Precedents:

Cenvat Credit Rules, 2004 permit credit of duties paid on inputs and capital goods used in manufacture. Rule 3(1)(xi)(i) requires capital goods to be received in factory for credit. Section 142(3) of CGST Act provides transitional provisions for refund of amounts paid under existing law but requires disposal as per existing law.

Precedents include Tribunal decisions in M/s Servo Packaging Ltd. (2020) and M/s ITCO Industries Ltd. (2023), and High Court decisions including M/s Rungta Mines Ltd. (2022), interpreting the scope of refund under Section 142(3).

- Court's Interpretation and Reasoning:

The Tribunal examined whether the appellant was eligible to claim Cenvat credit under the old regime. It found that due to non-production of installation certificate, the appellant failed to satisfy Rule 3(1)(xi)(i) conditions, thus not entitled to credit.

Further, Section 142(3) mandates disposal of refund claims as per existing law. Since existing law did not permit refund where credit was not availed as per rules, refund was not admissible.

The Tribunal also rejected appellant's reliance on decisions allowing refund under Section 142(3) where transitional credit was not availed, holding that Section 142(3) does not create new rights but preserves existing rights.

- Key Evidence and Findings:

Absence of installation certificate and statutory compliance; payment of duties post-GST implementation; failure to claim credit within prescribed time.

- Application of Law to Facts:

Since the appellant failed to comply with conditions for claiming credit and did not avail transitional credit under Section 140, refund under Section 142(3) was not permissible.

- Treatment of Competing Arguments:

Appellant argued entitlement to refund citing favorable precedents and that non-availment of credit due to GST implementation should not preclude refund. Tribunal distinguished these precedents based on facts and emphasized that credit/refund rights must have existed under old law at appointed day.

- Conclusion:

The appellant is not entitled to claim Cenvat credit or refund under Section 142(3) of the CGST Act for customs duties paid after non-fulfillment of export obligation.

Issue 3: Effect of Failure to Produce Installation Certificate and Other Documentation under EPCG Scheme

- Relevant Legal Framework:

Notification No. 64/2008-Cus and EPCG Scheme require production of installation certificate from jurisdictional Central Excise officer within six months of import completion to validate use of capital goods in factory.

- Court's Interpretation and Reasoning:

Tribunal found that appellant did not produce installation certificate or original EPCG license despite repeated opportunities. This non-compliance prevented verification of receipt and use of capital goods in manufacture of excisable goods.

Without such evidence, credit under Rule 3(1)(xi)(i) cannot be allowed.

- Key Evidence and Findings:

Non-production of installation certificate or EPCG license; no evidence of capital goods being installed or used in factory.

- Application of Law to Facts:

Non-compliance with statutory procedural requirements disentitled appellant from claiming credit or refund.

- Treatment of Competing Arguments:

Appellant did not produce any satisfactory explanation or evidence to overcome statutory requirements.

- Conclusion:

Failure to produce installation certificate and required documentation precludes entitlement to Cenvat credit or refund under EPCG scheme.

Issue 4: Interpretation and Applicability of Section 142(3) of CGST Act and Related Provisions

- Relevant Legal Framework and Precedents:

Section 142(3) CGST Act provides for disposal of refund claims relating to amounts paid under existing law in accordance with existing law, with refund payable in cash. Section 140 provides for transitional credit. Section 174 saves accrued rights. Relevant case law includes decisions of Hon'ble Jharkhand High Court and various Tribunal benches interpreting these provisions.

- Court's Interpretation and Reasoning:

The Tribunal held that Section 142(3) does not create new rights but preserves existing rights accrued under old law. Refund claims under Section 142(3) must be adjudicated under the existing law applicable at the appointed day.

Failure to claim credit under Section 140 or non-compliance with procedural requirements under old law extinguishes rights to refund under Section 142(3).

Section 174 read with General Clauses Act preserves accrued rights but does not create new rights.

- Key Evidence and Findings:

Appellant failed to claim transitional credit under Section 140; did not comply with procedural requirements; claimed refund under Section 142(3) which was not supported by existing law.

- Application of Law to Facts:

Since appellant had no accrued right to credit or refund under old law at appointed day, Section 142(3) could not confer such right.

- Treatment of Competing Arguments:

Appellant contended that refund should be allowed as a matter of equity and reliance on certain judgments. Tribunal distinguished these on facts and emphasized strict interpretation of taxing statutes and that equitable considerations do not override statutory provisions.

- Conclusion:

Section 142(3) does not entitle appellant to refund where no right existed under old law or where procedural requirements for credit/refund were not complied with.

Issue 5: Effect of Appellant's Conduct and Principles of Equity

- Relevant Legal Principles:

Legal maxim "nullus commodum capere potest de injuria sua propria" (no one can take advantage of his own wrong) applies to prevent a party from benefiting from its own wrongdoing.

- Court's Interpretation and Reasoning:

Appellant was aware of non-fulfillment of export obligation and failed to produce installation certificate. Capital goods were allegedly diverted elsewhere. Payment of duty was made belatedly after 10 years without justification.

Tribunal held appellant cannot claim refund or credit benefit when conditions of EPCG scheme were violated and statutory requirements ignored.

- Key Evidence and Findings:

Admission of non-fulfillment of export obligation, failure to produce installation certificate, delayed payment of duty, and diversion of capital goods.

- Application of Law to Facts:

Appellant's own wrongful acts disentitle it from claiming refund or credit benefits.

- Treatment of Competing Arguments:

Appellant's plea of hardship or delay was rejected as no equitable relief is available in taxation without statutory mandate.

- Conclusion:

Appellant's claim is barred by principle of equity and legal maxim against profiting from own wrong.

Issue 6: Applicability of Precedents and Distinguishing Conflicting Decisions

- Relevant Legal Framework and Precedents:

Tribunal considered precedents including M/s Servo Packaging Ltd., M/s ITCO Industries Ltd., and High Court decisions such as M/s Rungta Mines Ltd.

- Court's Interpretation and Reasoning:

Tribunal distinguished precedents allowing refund under Section 142(3) where transitional credit was properly claimed or procedural compliance was met. It emphasized that such precedents are not applicable where conditions of scheme or procedural requirements are not fulfilled.

- Key Evidence and Findings:

Appellant failed to comply with procedural requirements and statutory conditions, unlike in favorable precedents.

- Application of Law to Facts:

Precedents relied upon by appellant were not binding or applicable due to factual distinctions.

- Treatment of Competing Arguments:

Appellant's reliance on favorable decisions was rejected on the ground of non-compliance and absence of accrued rights.

- Conclusion:

Precedents allowing refund under Section 142(3) are distinguishable and do not support appellant's claim.

1. ISSUES PRESENTED and CONSIDERED

• Whether the appellant is entitled to avail CENVAT credit of sugar cess paid on imported raw sugar under the Sugar Cess Act, 1982 and the Cenvat Credit Rules, 2004.
• Whether sugar cess paid under the Sugar Cess Act, 1982 qualifies as a duty of excise for the purpose of availing CENVAT credit.
• Whether interest and penalty imposed under the Cenvat Credit Rules, 2004 and the Central Excise Act, 1944 are sustainable when the demand of duty itself is disputed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to CENVAT credit of sugar cess paid on imported raw sugar

Relevant legal framework and precedents:

• Sugar Cess Act, 1982 - Section 3(1) levies sugar cess as a duty of excise.
• Cenvat Credit Rules, 2004 - Rule 3(1)(vii) allows CENVAT credit of additional customs duty (CVD) paid on imported inputs, where such duty is equivalent to excise duty.
• Central Excise Act, 1944 - Provides the general framework for levy and collection of excise duties.
• Judicial precedents:
  • Tribunal decision holding sugar cess as duty of excise and eligible for CENVAT credit.
  • High Court judgment affirming Tribunal decision that sugar cess is a duty of excise and credit is admissible.
  • Supreme Court decision recognizing cess levied under certain enactments as duty of excise.

Court's interpretation and reasoning:

• The sugar cess, though termed a cess, is levied and collected as a duty of excise under Section 3(1) of the Sugar Cess Act, 1982, applicable to sugar production.
• The Cenvat Credit Rules, 2004 apply to the sugar cess, permitting credit for duties of excise paid on inputs used in manufacture.
• The appellant paid sugar cess on imported raw sugar under ex-bond bill of entry and availed credit in bona fide belief of its admissibility.
• The High Court's ruling clarifies that sugar cess is a duty of excise, not a mere fee, and thus credit under Cenvat Credit Rules is allowable.
• The additional duty (CVD) paid on import of raw sugar is equivalent to excise duty and eligible for credit under Rule 3(1)(vii) of the Cenvat Credit Rules.

Key evidence and findings:

• Payment of sugar cess on imported raw sugar at Rs. 24 per quintal.
• Notification and circular exempting sugar cess, but appellant paid it unaware of exemption.
• Show cause notice and demand confirmed by Commissioner denying credit on ground that sugar cess is not a duty of excise.
• Judicial precedents supporting appellant's claim.

Application of law to facts:

• The appellant's payment of sugar cess qualifies as payment of duty of excise under Sugar Cess Act, 1982.
• The Cenvat Credit Rules allow credit of such duty paid on inputs used in manufacture.
• The appellant's claim for credit is consistent with statutory provisions and judicial pronouncements.

Treatment of competing arguments:

• Revenue argued that sugar cess is not a duty of excise and hence credit is inadmissible.
• Revenue's appeal against High Court decision is pending before Supreme Court but not stayed, hence binding precedent applies.
• Appellant relied on binding High Court decision and Supreme Court precedent recognizing cess as duty of excise.

Conclusions:

• The appellant is entitled to avail CENVAT credit of sugar cess paid on imported raw sugar.
• The impugned order denying credit is unsustainable in law and set aside.

Issue 2: Nature of sugar cess as duty of excise

Relevant legal framework and precedents:

• Sugar Cess Act, 1982 - defines sugar cess as a duty of excise.
• Central Excise Act, 1944 - governs levy and collection of duty of excise.
• Customs Tariff Act, 1975 - Section 3 levies additional customs duty (CVD) equivalent to excise duty on imported goods.
• Judicial precedents:
  • High Court ruling holding sugar cess as duty of excise, not a fee.
  • Supreme Court decision recognizing cess levied under statute as duty of excise.

Court's interpretation and reasoning:

• Section 3 of Sugar Cess Act provides for levy and collection of cess as duty of excise for Sugar Development Fund.
• Since the cess is levied on production of sugar, it is a tax on production and hence a duty of excise.
• At the time of import, the sugar cess is collected as additional customs duty (CVD) under Customs Tariff Act, 1975.
• This additional duty is equivalent to excise duty and eligible for credit under Cenvat Credit Rules.

Key evidence and findings:

• Legislative provisions explicitly describe sugar cess as duty of excise.
• High Court observations clarifying the nature of sugar cess and additional duty paid on import.

Application of law to facts:

• The sugar cess paid by appellant on imported raw sugar is a duty of excise under the Sugar Cess Act, 1982.
• It is also paid as additional customs duty (CVD) under Customs Tariff Act, 1975.

Treatment of competing arguments:

• Revenue's contention that sugar cess is not a duty of excise rejected based on statutory language and judicial pronouncements.

Conclusions:

• Sugar cess is a duty of excise and not a mere fee or tax.
• Therefore, it qualifies for credit under Cenvat Credit Rules.

Issue 3: Sustainability of interest and penalty when duty demand is disputed

Relevant legal framework:

• Rule 14 and Rule 15 of Cenvat Credit Rules, 2004 - provisions for interest and penalty on wrongful availment of credit.
• Section 11A, 11AB, and 11AC of Central Excise Act, 1944 - provisions for demand, interest, and penalty on duty and cess.

Court's interpretation and reasoning:

• If the demand of duty itself is not sustainable in law, then imposition of interest and penalty cannot be sustained.
• The appellant's entitlement to credit negates the basis for demand of sugar cess and corresponding interest and penalty.

Application of law to facts:

• The demand of sugar cess and CENVAT credit disallowance is set aside.
• Consequently, interest and penalty based on such demand cannot be maintained.

Conclusions:

• Interest and penalty imposed under the impugned order are not sustainable and are set aside along with the demand.

1. ISSUES PRESENTED and CONSIDERED

1) Whether the refund claims were barred by limitation under Section 11B, in view of the payer's assertion that the differential duties were paid "under protest".

2) Whether the refund was hit by the doctrine of unjust enrichment under Section 11B(2), having regard to the accounting treatment and the evidentiary record concerning passing on of duty incidence, and the consequent credit to the Consumer Welfare Fund.

3) Ancillary to Issue 1: Whether non-compliance with the procedural steps in the Supplementary Instructions for payment "under protest" defeats the substantive claim that the payments were in fact made "under protest".

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation under Section 11B in light of "payment under protest" (read with Issue 3)

- Relevant legal framework and principles:

• Section 11B prescribes a limitation period for refund claims; however, amounts paid "under protest" are not subject to the limitation bar in the same manner.

• Supplementary Instructions (concerning "under protest") generally require contemporaneous written intimation to the jurisdictional officer, appropriate endorsements in returns/accounts, and linkage to the impugned payments; under the erstwhile regime, the rule on protest did not mandate a rigid form.

• Established jurisprudence recognizes that the concept of "under protest" should not be construed narrowly or pedantically; procedural lapses do not extinguish substantive rights where the protest is otherwise clearly conveyed and acknowledged.

- Court's interpretation and reasoning:

• The Tribunal found no dispute on merits that the duty ought not to have been paid on MRP for the clearances; the differential amounts were paid pursuant to an audit objection later found untenable.

• The payer addressed contemporaneous letters stating that the differential duty was being paid "under protest," which were acknowledged by the Department. One letter accompanied payment; another followed shortly after payment. The Tribunal treated a delay of a day or two as immaterial.

• Although the payer did not strictly follow all procedural steps (e.g., endorsements in ER-2 returns/Profit & Loss or ledger annotations), the intent to pay under protest was clearly conveyed and officially acknowledged. The Department neither disputed receipt nor rebutted the basis for protest at the relevant time.

• The Tribunal emphasized that procedural prescriptions are directory in this context; a mere letter can constitute a valid protest where it unambiguously communicates the payer's objection and links to the payments.

- Key evidence and findings:

• Acknowledged letters contemporaneous with the payments indicating "under protest."

• Background that the payments were prompted by audit objection; subsequently, the Department accepted that MRP-based valuation was not required.

- Application of law to facts:

• Given acknowledged written protests tied to the specific payments, and the broader legal principle that no rigid form is prescribed for protest, the amounts paid were held to be "under protest."

- Treatment of competing arguments:

• Revenue pressed for strict adherence to procedural formalities in the Supplementary Instructions. The Tribunal held that failure to strictly comply does not negate a valid protest where intent and acknowledgment are present; substantive rights prevail over procedural lapses.

- Conclusion:

• The limitation bar under Section 11B does not apply to the refund claim sums paid under protest. The finding that any portion of the refund was time-barred was set aside. See Issue 2 for the ultimate disposition on unjust enrichment, which independently controls the outcome.

Issue 2: Unjust enrichment under Section 11B(2) and credit to Consumer Welfare Fund

- Relevant legal framework and principles:

• Under Section 11B(2), refund amounts found due on merits are, by default, to be credited to the Consumer Welfare Fund unless the claimant proves that the incidence of duty has not been passed on to any other person (or falls within statutory exclusions).

• The satisfaction of the Refund Sanctioning Authority regarding non-passing of incidence is paramount; the burden lies on the claimant.

- Court's interpretation and reasoning:

• The Tribunal agreed that the claimant did not furnish persuasive documentary evidence to demonstrate that the incidence was not passed on, either directly or indirectly.

• The duty amounts were booked as expenses in the books of account/Balance Sheet. This accounting treatment is a strong indicator of passing on of incidence unless convincingly rebutted.

• Sample invoices and an affidavit from a company officer were held insufficient to discharge the burden. There was no evidence negating recovery from consignment agents/customers, nor proof of the absence of supplementary invoicing or any one-to-one correlation ruling out pass-through.

• The Sanctioning Authority's dissatisfaction was justified on the record; hence, the statutory presumption under Section 11B(2) remained unrebutted.

- Key evidence and findings:

• Books of account reflecting the differential duty as an expense.

• Absence of comprehensive documentary evidence showing non-recovery from downstream buyers or intermediaries; lack of one-to-one correlation; inability to produce further proof.

- Application of law to facts:

• In the absence of compelling rebuttal evidence, the doctrine of unjust enrichment applies. Therefore, although the refund is otherwise admissible on merits (and not time-barred per Issue 1), the amount must be credited to the Consumer Welfare Fund.

- Treatment of competing arguments:

• The claimant contended that incidence was not passed on; however, the Tribunal upheld the authorities' view that the evidence was inadequate and that the accounting treatment undermined the claim.

- Conclusion:

• The refund cannot be paid to the claimant due to unjust enrichment; any sanctioned amount is to be credited to the Consumer Welfare Fund. Interest is not payable to the claimant.

Inter-issue cross-references and overall disposition

• Issue 1 resolves limitation in favor of the claimant by recognizing valid "under protest" payments; however, Issue 2 independently bars payment of refund to the claimant due to unjust enrichment.

• Resultantly, despite the absence of time bar and the admitted merits on valuation, the entire refundable amount, if any, stands credited to the Consumer Welfare Fund. Appeals dismissed.

1. ISSUES PRESENTED and CONSIDERED

- Whether Section 142(3) of the CGST Act, 2017 entitles a claimant to cash refund of Countervailing Duty (CVD) and Special Additional Duty (SAD) paid after 01.07.2017 in respect of import transactions where Bills of Entry were filed prior to 01.07.2017 and CENVAT credit cannot be availed post-GST?

- Whether refund under Section 142(3) can be granted where the existing (pre-GST) law did not expressly provide for cash refund of the particular credit/duty paid?

- Whether the requirement of "unjust enrichment" precludes cash refund under Section 142(3) where the duty/tax was paid out of the claimant's own funds after 01.07.2017?

- How to reconcile and apply divergent judicial decisions (including Larger Bench and coordinate Bench decisions of the Tribunal and certain High Court decisions) on the scope of Section 142(3) in granting cash refunds of amounts that previously could only be taken as CENVAT credit?

2. ISSUE-WISE DETAILED ANALYSIS

Issue A - Entitlement to cash refund under Section 142(3) of CGST Act in respect of CVD and SAD paid after 01.07.2017 when CENVAT credit cannot be availed

- Relevant legal framework and precedents: Section 142(3) of the CGST Act (transitional provision) permitting disposal of claims in accordance with existing law and providing for refund of "any amount of CENVAT Credit, duty, tax, interest or any other amount paid" under the existing law; Tribunal Larger Bench and several coordinate Bench decisions addressing whether such amounts paid post-01.07.2017 are refundable in cash under Section 142(3).

- Court's interpretation and reasoning: The Tribunal interprets Section 142(3) as wide enough to encompass not only claims for CENVAT credit but also refund in cash of amounts (CVD+SAD) paid after 01.07.2017 where CENVAT credit cannot be availed in the GST regime. The Tribunal relies on the Larger Bench and subsequent consistent decisions which held that a claimant is eligible for cash refund under Section 142(3) when the amount was paid post-GST and cannot be taken as credit.

- Key evidence and findings: Applicant imported iron ore/iron ore fines through 17 Bills of Entry filed prior to 01.07.2017; final assessments resulted in payment of CVD and SAD of Rs.9,80,040 between July 2018 and July 2019; CENVAT credit could not be availed in GST; refund claim under Section 142(3) was rejected by sanctioning authority and appellate authority.

- Application of law to facts: Applying the Larger Bench reasoning, the Tribunal finds that the amounts paid after 01.07.2017 are eligible for refund in cash under Section 142(3) because the transitional provision contemplates disposal in accordance with existing law and permits refund of "any other amount" paid under the existing law where credit cannot be availed in GST regime.

- Treatment of competing arguments: The Department argued that Section 142(3) does not create new substantive rights not available under existing law and relied on decisions holding that such credits may only be carried forward and not refunded in cash. The Tribunal distinguishes those decisions on facts and legal analysis, emphasizing the Larger Bench and coordinate Bench authorities that permit cash refund and finding them directly applicable.

- Conclusion: The Tribunal concludes that refund of CVD and SAD paid after 01.07.2017 is admissible in cash under Section 142(3) where CENVAT credit cannot be availed under GST; claimant entitled to refund of Rs.9,80,040 with applicable interest.

Issue B - Whether Section 142(3) requires existence of an express refund right under pre-GST law and the role of "existing law" in transitional claims

- Relevant legal framework and precedents: Text of Section 142(3) referencing disposal in accordance with provisions of existing law (Excise Act and related rules as applicable); prior decisions of the Tribunal and some High Courts that interpreted the scope of "existing law" and whether cash refund was allowable where pre-GST law did not expressly permit cash refund.

- Court's interpretation and reasoning: The Tribunal reads Section 142(3) as not being confined to claims for CENVAT credit alone but extending to "any other amount" paid under existing law; where an amount is found admissible under existing law as credit/refund, Section 142(3) empowers disposal and refund in cash notwithstanding absence of express provision for cash refund under pre-GST statute. The Tribunal relies on coordinated Tribunal precedents and the Larger Bench that adopt this expansive reading.

- Key evidence and findings: The sanctioning authority and appellate authority treated pre-GST law as not permitting cash refund for manufacturers who are not exporters, and concluded refund could not be granted; Tribunal examined precedents where similar statutory gaps were remedied under transitional provisions.

- Application of law to facts: Given that the existing law permitted recognition of the amounts as CENVAT credit (though not as cash refund), Section 142(3) is applied to permit cash refund in transition because the claimant cannot utilize CENVAT credit in GST regime; the Tribunal treats such relief as within the scope of the transitional provision.

- Treatment of competing arguments: The Department's submission that Section 142(3) cannot confer a right not available under existing law is addressed by the Tribunal through reliance on the Larger Bench and related authorities which held that transitional provisions can and do operate to allow cash refunds where appropriate; contrary High Court decisions were considered but distinguished on context and scope.

- Conclusion: The Tribunal holds that Section 142(3) permits disposal and grant of cash refund of amounts paid under the existing law, even where pre-GST statutes lacked an express provision for cash refund, when the claimant cannot take credit in the GST regime.

Issue C - Unjust enrichment principle and requirement for refund under Section 142(3)

- Relevant legal framework and precedents: Unjust enrichment doctrine as a limiting principle on refunds; Tribunal decisions considering whether unjust enrichment is attracted where tax/duty was paid out of claimant's funds post-01.07.2017.

- Court's interpretation and reasoning: The Tribunal adopts the view from coordinate decisions that unjust enrichment is not attracted where the claimant has admittedly paid the duty/tax from its own funds after 01.07.2017 and as such is entitled to refund under Section 142(3). The Tribunal points to prior Bench reasoning that where the payment was made post-GST and the claimant cannot take credit, refund does not result in unjust enrichment.

- Key evidence and findings: Admissions in the record that CVD and SAD were paid between July 2018 and July 2019 out of the claimant's funds; no evidence that the amount sought to be refunded was retained elsewhere or benefited any other party unjustly.

- Application of law to facts: On the facts, unjust enrichment is held not attracted; therefore the requirement of unjust enrichment does not operate to deny refund under Section 142(3).

- Treatment of competing arguments: Department did not establish any factual basis for unjust enrichment; reliance on general principle that refund must not cause unjust enrichment is acknowledged but found inapplicable on these facts.

- Conclusion: Unjust enrichment does not bar the cash refund in the present case; refund permissible with interest.

Issue D - Reconciliation of divergent judicial decisions and precedential weight

- Relevant legal framework and precedents: Larger Bench decision(s) of the Tribunal and multiple coordinate Bench decisions finding in favour of cash refunds; some High Court decisions and earlier Bench decisions taking a contrary view.

- Court's interpretation and reasoning: The Tribunal gives precedence to the Larger Bench and consistent recent coordinate Bench decisions that interpret Section 142(3) broadly to allow cash refund of amounts paid post-01.07.2017 where credit is not available. The Tribunal notes that some contrary High Court or Bench decisions were decided in different contexts or without consideration of the later Larger Bench rulings; accordingly, those decisions do not displace the applicable Tribunal precedent relied upon.

- Key evidence and findings: Review of multiple authorities and the Larger Bench holding that refund claims under Section 142(3) are to be disposed of in accordance with existing law and that cash refund may be granted where appropriate; recognition that some judgments reached different conclusions but were distinguishable.

- Application of law to facts: Tribunal applies the Larger Bench/coordinate Bench line to the facts, finding them squarely covered and thus allowing the refund despite contrary authorities.

- Treatment of competing arguments: The Department's reliance on contrary High Court decisions is acknowledged and considered; Tribunal explains the distinctions and the superior/relevant weight of the Larger Bench and consistent coordinate Bench decisions for the present statutory provision.

- Conclusion: Divergent decisions do not prevent grant of refund in the present case; Tribunal follows the Larger Bench and consistent Bench authorities permitting cash refund under Section 142(3).

Issue E - Relief granted and incidental directions

- Court's interpretation and reasoning: Having found entitlement, the Tribunal sets aside the impugned appellate order and directs refund with applicable interest.

- Application of law to facts: Refund of Rs.9,80,040 allowed with applicable interest; respondent directed to pay within two months.

- Conclusion: Appeal allowed; direction to sanctioning authority/department to pay refund with interest within stipulated time.

1. ISSUES PRESENTED and CONSIDERED

• Whether the appellant is required to pay an amount equivalent to 6% of the sale price of bagasse and press mud, arising in the manufacture of sugar, under Rule 6(3) of the CENVAT Credit Rules, 2004.
• Whether bagasse and press mud qualify as manufactured goods or exempted goods for the purpose of Rule 6 of the CENVAT Credit Rules, 2004, especially after the insertion of Explanation 1 and 2 to Rule 6(1) w.e.f. 01.03.2015.
• The applicability and interpretation of Rule 6 of the CENVAT Credit Rules, 2004 in relation to by-products or waste such as bagasse and press mud.
• Validity and effect of Circular dated 25-04-2016 interpreting Explanation 1 to Rule 6 regarding treatment of bagasse as non-excisable goods requiring reversal of input credit.
• Whether the obligation to reverse CENVAT credit under Rule 6(1) arises in absence of bagasse being a manufactured final product.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Obligation to pay 6% of sale price of bagasse and press mud under Rule 6(3) of CENVAT Credit Rules, 2004

Legal Framework and Precedents: Rule 6 of the CENVAT Credit Rules, 2004, imposes an obligation on manufacturers or service providers who manufacture both dutiable and exempted goods or services. Rule 6(3) provides that if separate accounts are not maintained, the manufacturer must pay an amount equivalent to 5% of the value of exempted goods (6% for exempted services) as reversal of credit. Explanation 1 and 2 were inserted w.e.f. 01.03.2015 to include non-excisable goods cleared for consideration within the ambit of exempted goods.

Court's Interpretation and Reasoning: The Court examined whether bagasse and press mud are "manufactured goods" or "exempted goods" under Rule 6. It was held that bagasse and press mud are by-products or waste arising during sugar manufacture and are not "manufactured goods" as per the definition of manufacture under Section 2(f) of the Excise Act. The Supreme Court in a precedent held that bagasse is agricultural waste and residue, not the result of any manufacturing process, and thus not excisable goods.

Key Evidence and Findings: The Court referred to the amendment by Explanation 1 to Rule 6(1), which includes non-excisable goods cleared for consideration as exempted goods for the purpose of Rule 6. However, the Court found that this explanation does not convert bagasse into a manufactured product. The nature of bagasse as agricultural waste remains unchanged.

Application of Law to Facts: Since bagasse and press mud are not manufactured goods, the obligation to reverse CENVAT credit under Rule 6(3) does not arise. The appellant's liability to pay 6% of the sale price under Rule 6(3) is not triggered.

Treatment of Competing Arguments: The Revenue relied on Explanation 1 and 2 to Rule 6(1) and Circular dated 25-04-2016 to argue that bagasse is to be treated as exempted goods requiring reversal of credit. The Court rejected this view, holding the Circular as erroneous and quashed it to the extent it treats bagasse as non-excisable goods for reversal purposes.

Conclusion: The appellant is not required to pay an amount equal to 6% of the sale price of bagasse and press mud under Rule 6(3) of the CENVAT Credit Rules, 2004.

Issue 2: Whether bagasse and press mud are "manufactured goods" or "exempted goods" under Rule 6 of CENVAT Credit Rules, 2004

Legal Framework and Precedents: Section 2(f) of the Excise Act defines "manufacture." The Supreme Court has held bagasse is agricultural waste and not manufactured goods. Rule 6(1) Explanation 1 includes non-excisable goods cleared for consideration as exempted goods, but does not redefine manufacture.

Court's Interpretation and Reasoning: The Court emphasized that bagasse and press mud are by-products or residues from sugar manufacture and do not result from any manufacturing process themselves. The insertion of Explanation 1 to Rule 6(1) does not change the fundamental nature of bagasse as non-manufactured agricultural waste.

Key Evidence and Findings: Bagasse has been classified under Central Excise Tariff Heading 2303 20 000 and was subject to NIL rate of duty, thus qualifying as exempted goods under Rule 2(d) of CENVAT Credit Rules, 2004. The Circular treating bagasse as non-excisable goods was found to be inconsistent with this classification.

Application of Law to Facts: Since bagasse is exempted goods but not manufactured goods, Rule 6 applies only if there is manufacture of exempted goods alongside dutiable goods. Here, bagasse is a by-product and not a manufactured exempted good, so Rule 6's reversal provisions do not apply.

Treatment of Competing Arguments: The Revenue's reliance on Explanation 1 and Circular to treat bagasse as non-excisable goods for reversal was rejected. The Court held that the amendment cannot alter the inherent character of bagasse as agricultural waste and not a manufactured product.

Conclusion: Bagasse and press mud are exempted goods but not manufactured goods under Rule 6; thus, the reversal provisions of Rule 6 are not applicable.

Issue 3: Validity and effect of Circular dated 25-04-2016 interpreting Explanation 1 to Rule 6

Legal Framework and Precedents: Circulars are interpretative aids but cannot override statutory provisions or settled judicial pronouncements. Explanation 1 to Rule 6(1) includes non-excisable goods cleared for consideration within exempted goods for reversal purposes.

Court's Interpretation and Reasoning: The Circular dated 25-04-2016 treated bagasse as non-excisable goods requiring reversal of input credit under Rule 6. The Court found this interpretation erroneous because bagasse is classified as exempted goods and not non-excisable goods. Further, the Circular's interpretation conflicted with the Supreme Court's ruling that bagasse is not manufactured goods and thus Rule 6 does not apply.

Key Evidence and Findings: The Court noted that bagasse's tariff classification and duty status contradict the Circular's premise. The Circular's attempt to treat bagasse as non-excisable goods for reversal is inconsistent with statutory and judicial position.

Application of Law to Facts: The Circular's interpretation was quashed to the extent it includes bagasse under reversal of credit provisions in Rule 6.

Treatment of Competing Arguments: The Revenue's reliance on the Circular was rejected as it cannot override the statutory framework and judicial findings.

Conclusion: The Circular dated 25-04-2016 is quashed insofar as it applies to bagasse for reversal of input credit under Rule 6.

Issue 4: Applicability of Rule 6 reversal provisions in absence of bagasse being a manufactured final product

Legal Framework and Precedents: Rule 6 applies only where a manufacturer produces both dutiable and exempted goods or services. The Supreme Court held that without manufacture, excise duty and related provisions do not apply.

Court's Interpretation and Reasoning: The Court reiterated that bagasse is not a manufactured final product but an agricultural residue. Since Rule 6's reversal obligation is triggered only when there is manufacture of exempted goods alongside dutiable goods, it does not apply here.

Key Evidence and Findings: The Supreme Court's ruling and the statutory definition of manufacture were relied upon to conclude that bagasse does not attract Rule 6 reversal provisions.

Application of Law to Facts: The appellant's obligation to reverse CENVAT credit under Rule 6(1) does not arise in respect of bagasse and press mud.

Treatment of Competing Arguments: The Revenue's contention based on Explanation 1 was found insufficient to impose reversal obligations.

Conclusion: Rule 6 reversal provisions do not apply in absence of bagasse being a manufactured final product.

1. ISSUES:

1. Whether the buyer and seller are "related" for valuation purposes under Section 4(3)(b) of the Central Excise Act where the entities are "inter-connected undertakings".

2. Whether valuation of goods cleared to such buyer must be determined under Rule 9 read with Rule 8 (i.e., "110% of the cost of production") or under Rule 10(b) in conjunction with Section 4(1)(a) ("transaction value").

3. Whether determination of "cost of production" for application of Rule 8 may be equated to the sale price to the related/inter-connected buyer in the absence of a CAS-4 certificate.

4. Whether the "cum-duty" / "cum-tax-price" principle under Section 4(4)(d)(ii) must be taken into account in valuation and computation of duty.

5. Whether the "extended period" of limitation and consequent "penalty under Section 11AC" are invocable where demand arises from audit and no allegation of suppression with intent to evade duty is made.

6. Whether penalty under Rule 26(1) can be imposed on persons in charge (e.g., managerial personnel) without evidence satisfying both ingredients of the Rule (knowledge that goods are liable for confiscation and dealing with goods in the specified manner) and where no confiscation is recorded.

7. Whether appropriation of amounts paid under protest and imposition of interest under Sections 11AA/11AB is sustainable where the foundational duty demand is held unsustainable.

8. The scope of officer's duty to scrutinize self-assessed returns and the effect of such duty on limitation and invocation of extended period.

2. RULINGS / HOLDINGS:

2.1 On relatedness: The entities, though "inter-connected undertakings", are not ipso facto "related" for the purposes of Section 4(3)(b) unless the relationship falls within sub-clauses (ii), (iii) or (iv) of Section 4(3)(b) or the buyer is a holding company or subsidiary; mere common managerial control does not make them "related".

2.2 On applicable valuation rule: Valuation of the goods cleared to the inter-connected undertaking must be determined under Rule 10(b) and Section 4(1)(a) (i.e., "transaction value") where the conditions of Rule 10(a)/Rule 9 are not satisfied; Rule 9/Rule 8 (and the "110% of the cost of production" method) apply only when the buyer is related as per clauses (ii), (iii) or (iv) or is a holding/subsidiary.

2.3 On Revenue's method of computation: The adoption of the sale value to the buyer as the "cost of production" without a CAS-4 certificate is legally invalid; valuation cannot be re-determined by equating present sale value to cost of production in the absence of the prescribed costing methodology.

2.4 On cum-duty / cum-tax-price: The "cum-tax-price" / "cum-duty" benefit under Section 4(4)(d)(ii) must be taken into account when assessing value; failure to do so renders the demand unsustainable.

2.5 On extended period and Section 11AC penalty: The "extended period" of limitation and consequential "penalty under Section 11AC" cannot be invoked where the show cause notice does not allege suppression with intent to evade payment of duty and the matter involves a bona fide question of interpretation discovered on audit.

2.6 On Rule 26(1) penalties: Penalty under Rule 26(1) requires satisfaction of both ingredients-knowledge that goods are liable for confiscation and that the person dealt with the goods in the manner specified-and is not sustainable where there is no evidence of such knowledge/dealing and no confiscation has been recorded.

2.7 On appropriation and interest: Appropriation of amounts paid under protest is not legally sustainable where the underlying demand is held invalid, and amounts paid under protest are liable to refund subject to applicable law on interest under Sections 11AA/11AB.

2.8 On officer scrutiny and limitation: The officer's duty to scrutinize self-assessed returns and to call for documents is operative; reliance on audit alone to trigger extended limitation is insufficient where statutory scrutiny opportunities existed and no intent to evade is alleged.

3. RATIONALE:

3.1 Statutory framework applied: The court applied Section 4(1)(a) and Section 4(3)(b) of the Central Excise Act, 1944 together with the definitions and Explanations (including the definition of "inter-connected undertakings"), and Rules 8, 9 and 10 of the Central Excise Valuation Rules, 2000; the distinction between sub-clauses (ii),(iii),(iv) of Section 4(3)(b) and the notion of "inter-connected undertakings" under the Explanation was central to the analysis.

3.2 Interpretation of Rules 8-10: Rule 9 applies only where sales are to or through persons related under sub-clauses (ii), (iii) or (iv) of Section 4(3)(b); where those conditions (or Rule 10(a)'s holding/subsidiary condition) are absent, Rule 10(b) requires valuation "as if they are not related persons" and Section 4(1)(a) transaction value governs.

3.3 Precedential and administrative support: The conclusion aligns with prior tribunal authority and administrative clarification that "inter-connected undertakings" are not automatically to be treated as "related" for the purpose of rejecting transaction value, and a Board clarification supports that where clauses (ii)/(iii)/(iv) do not exist and buyer is not holding/subsidiary, they "will not be considered related".

3.4 On costing procedure: The statutory scheme contemplates cost of production to be established by prescribed means (e.g., CAS-4 certificate) for application of Rule 8; re-characterising present sale price as cost of production without the prescribed certificate is "not provided" by the Rules and is legally impermissible.

3.5 On cum-tax principle: Section 4(4)(d)(ii)'s "price-cum-duty" concept requires recognition of cum-duty/cum-tax adjustments in valuation; failure to apply the "cum-duty benefit" distorts assessable value.

3.6 On limitation and penalties: Invocation of the "extended period" under Section 11A(4) and imposition of "penalty under Section 11AC" requires specific allegations and evidence of suppression with intent to evade; audit-discovered interpretational issues and revenue-neutral transactions do not justify extended limitation or penalty.

3.7 On Rule 26(1) mechanics: Application of Rule 26(1) is conditional on both requisite mental element (knowledge/reason to believe goods liable for confiscation) and physical dealing as specified; absent evidence of either (and absent confiscation), penalty cannot be sustained.

3.8 No dissent or concurring opinion recorded; outcome follows the statutory text, rule construction and consistent tribunal authority favoring valuation under Rule 10(b) where statutory preconditions for Rule 9 are unmet, and restricting extended limitation and punitive measures where no intent to evade is shown.

ISSUES:

Whether excess transit insurance charges collected from dealers are includible in the assessable value of excisable goods under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.Whether the valuation of excisable goods should be governed by Rule 5 and Rule 6 of the Central Excise Valuation Rules, 2000, in respect of excess transit insurance collected.Whether the place of removal and transfer of title at the factory gate excludes transit insurance charges from assessable value under Section 4(1)(a) of the Central Excise Act.Whether excess transit insurance collected constitutes a part of the consideration for sale or is merely a profit on which excise duty is not leviable.Whether invocation of the extended period of limitation is justified in the absence of suppression of facts by the assessee.Whether interest and penalty can be imposed when the underlying demand is not sustainable.

RULINGS / HOLDINGS:

The excess transit insurance charges collected from dealers are not includible in the assessable value of excisable goods as they are not connected with the sale of goods or manufacture activity.The valuation of excisable goods in respect of excess transit insurance is not governed by Rule 5 and Rule 6 of the Central Excise Valuation Rules, 2000, as the excess charges are independent of the transaction value.Since the sale and transfer of title occur at the factory gate, and the dealer bears transportation costs thereafter, the excess transit insurance does not form part of the transaction value under Section 4(1)(a) of the Central Excise Act.The excess transit insurance collected is merely a profit and no excise duty is leviable on such profit, consistent with binding judicial precedents.The extended period of limitation cannot be invoked as there is no suppression of facts by the assessee and the demand arose from data furnished by the assessee itself.When the demand is unsustainable, the imposition of interest and penalty is not justified.

RATIONALE:

The Court applied the statutory framework under Section 4(1)(a) of the Central Excise Act, which defines assessable value as the transaction value at the time and place of removal, and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.The Court relied extensively on the terms of the dealership agreement establishing that the place of removal and transfer of title is at the factory gate, thereby excluding post-removal charges like transit insurance from assessable value.Judicial precedents were cited to establish that excess charges collected post-sale which constitute profits are not subject to excise duty, reinforcing the interpretation of assessable value.The Court noted the absence of suppression or concealment by the assessee, precluding invocation of extended limitation period, consistent with established principles regarding limitation under excise law.The Court upheld the principle that interest and penalty cannot be imposed when the foundational demand is not sustainable, aligning with procedural fairness doctrines.

1. ISSUES PRESENTED and CONSIDERED

• Whether the valuation for Central Excise Duty (BED) and National Calamity Contingency Duty (NCCD) on tobacco products for the period 01.07.2017 to 03.03.2021 should be determined under Section 4 of the Central Excise Act, 1944 or under Section 4A read with Notification No.49/2008-CX(NT) dated 24.12.2008.
• Whether Notification No.49/2008-CX(NT), which provides for abatement based on MRP under Section 4A of the Central Excise Act, 1944, continued to have legal authority after the repeal of the Central Excise Tariff Act, 1985 w.e.f. 01.07.2017.
• Whether the omission to amend Notification No.49/2008-CX(NT) to replace references from the repealed Central Excise Tariff Act, 1985 to the Fourth Schedule of the Central Excise Act, 1944 affects its validity and applicability.
• Whether the extended period of limitation under proviso to sub-section 1 of Section 11A of the Central Excise Act, 1944 is invokable where duties were paid and returns filed on the basis of transaction value.
• Whether penalties and interest imposed on the appellant are justified in the circumstances of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Appropriate Valuation Method for BED and NCCD (Section 4 vs. Section 4A of Central Excise Act, 1944)

Legal Framework and Precedents: Section 4 of the Central Excise Act, 1944 provides for valuation of excisable goods based on transaction value. Section 4A, introduced to provide for valuation based on MRP with prescribed abatements, was operationalized through Notification No.49/2008-CX(NT) dated 24.12.2008. The Finance Act, 2001 and related provisions govern levy of NCCD. The GST Act, 2017 repealed the Central Excise Tariff Act, 1985 w.e.f. 01.07.2017.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant paid BED and NCCD at specified ad-valorem rates based on transaction value and filed returns accordingly. The Revenue contended that valuation should be based on Section 4A with abatement under Notification No.49/2008-CX(NT). The appellant argued that since the Central Excise Tariff Act, 1985 was repealed and Notification No.49/2008-CX(NT) was not amended to reflect this repeal, the notification lost legal authority, and valuation should be under Section 4.

Key Evidence and Findings: The Tribunal examined the statutory amendments, particularly the repeal of the Central Excise Tariff Act, 1985 by Section 174 of the CGST Act, 2017, and the failure to amend Notification No.49/2008-CX(NT) accordingly. It also considered the Department of Revenue's clarifications and the appellant's payment records.

Application of Law to Facts: The Tribunal held that since Notification No.49/2008-CX(NT) continued to reference the repealed Central Excise Tariff Act, 1985 without amendment, it lacked authority post 01.07.2017. Consequently, Section 4A and the associated abatement notification were inoperative during the relevant period. Therefore, valuation under Section 4 was appropriate.

Treatment of Competing Arguments: The Revenue's reliance on the continued applicability of Section 4A and the notification was rejected due to lack of legal basis after repeal. The appellant's argument on the non-amendment of the notification and consequent loss of authority was accepted.

Conclusions: Valuation for BED and NCCD during the disputed period must be determined under Section 4 of the Central Excise Act, 1944 based on transaction value, not under Section 4A with abatement.

Issue 2: Validity and Continuance of Notification No.49/2008-CX(NT) Post Repeal of Central Excise Tariff Act, 1985

Legal Framework and Precedents: Notification No.49/2008-CX(NT) was issued under Sections 1 and 2 of Section 4A of the Central Excise Act, 1944, with reference to the First Schedule of the Central Excise Tariff Act, 1985. The Taxation Laws (Amendment) Act, 2017 introduced the Fourth Schedule to the Central Excise Act, 1944 and repealed the Central Excise Tariff Act, 1985 w.e.f. 01.07.2017.

Court's Interpretation and Reasoning: The Tribunal observed that while the Government amended approximately ten notifications to replace references from the Central Excise Tariff Act, 1985 to the Fourth Schedule of the Central Excise Act, 1944, no such amendment was made to Notification No.49/2008-CX(NT). This omission rendered the notification without legal effect after the repeal.

Key Evidence and Findings: The Tribunal reviewed the statutory amendments, notifications issued by the Government, and the absence of any amendment to Notification No.49/2008-CX(NT) post repeal.

Application of Law to Facts: The failure to amend the notification to reflect the repeal of the Central Excise Tariff Act, 1985 meant the notification could not operate legally after 01.07.2017. The Tribunal found no evidence that the notification was operative or saved by any other provision.

Treatment of Competing Arguments: The Revenue's contention that Section 38B of the Central Excise Act, 1944 saved the notification was rejected because Section 38B applies only to notifications under the Central Excise Tariff Act, 1985, whereas Notification No.49/2008-CX(NT) was issued under Section 4A of the Central Excise Act, 1944.

Conclusions: Notification No.49/2008-CX(NT) ceased to have legal authority after 01.07.2017 due to non-amendment following repeal of the Central Excise Tariff Act, 1985.

Issue 3: Applicability of Extended Period of Limitation and Imposition of Penalties

Legal Framework and Precedents: Proviso to sub-section 1 of Section 11A of the Central Excise Act, 1944 allows extended period of limitation for demand recovery in cases of fraud, suppression, or willful misstatement. Penalties and interest are generally imposed where there is non-payment or short payment of duty.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant had paid both BED and NCCD at the applicable rates based on transaction value and had filed returns for the disputed period. The dispute was solely on the valuation method applied, not on non-payment.

Key Evidence and Findings: Payment records and returns filed by the appellant showed no default in payment of duty at the rates claimed. The demand was raised on valuation grounds.

Application of Law to Facts: Since duty was paid and returns filed, the extended period for limitation was not invokable. Consequently, imposition of penalties and interest was not justified.

Treatment of Competing Arguments: The Revenue's reliance on extended limitation and penalties was not supported by the facts of payment and filing of returns. The appellant's submissions on good faith payment were accepted.

Conclusions: Extended period of limitation and penalties are not applicable where duty was paid and returns filed, and dispute relates only to valuation method.

Issue 4: Interpretation of Department of Revenue Clarifications and Notifications Post GST Implementation

Legal Framework and Precedents: Department of Revenue's FAQs and clarifications, including F.No.332/2/2017-TRU dated December 2017, provide interpretative guidance on applicability of duties and valuation post GST implementation.

Court's Interpretation and Reasoning: The Tribunal considered the clarification that NCCD on tobacco products continued at pre-GST rates and valuation shall be as per Central Excise Law read with Valuation Rules. The appellant relied on this to argue that Section 4 valuation was applicable.

Key Evidence and Findings: The clarification referred to valuation rules under Section 4 of the Central Excise Act, 1944, supporting the appellant's position that valuation under Section 4 was appropriate.

Application of Law to Facts: The Tribunal found that the clarification supported the appellant's contention that valuation should be on transaction value under Section 4, not on MRP with abatement under Section 4A.

Treatment of Competing Arguments: The Revenue's reliance on the clarification to support valuation under Section 4A was not persuasive given the legal status of Notification No.49/2008-CX(NT).

Conclusions: Department of Revenue's clarifications support valuation under Section 4 of the Central Excise Act, 1944 for BED and NCCD post 01.07.2017.

ISSUES:

Whether refund of excise duty is permissible for a period of non-production of notified goods caused by seizure and sealing of manufacturing machines by departmental officers.Interpretation of the phrase "permanently ceases to work in respect of all the machines installed in the factory" under Rule 16 of the Pan-Masala Packaging Machines (PMPM) Rules, 2008.Applicability of Rule 10 and Rule 16 of the PMPM Rules, 2008 regarding duty abatement for temporary or permanent cessation of production.Whether abatement or refund is available for non-production periods less than 15 continuous days.Whether non-production caused by departmental intervention can be equated with manufacturer's voluntary closure or cessation under the PMPM Rules.

RULINGS / HOLDINGS:

Refund of excise duty is allowable for the period when notified goods were not produced due to seizure and sealing of all pouch packaging machines by DGCEI officers, as the non-production was not attributable to the manufacturer's volition.The phrase "permanently ceases to work in respect of all the machines installed in the factory" in Rule 16 of the PMPM Rules should be read with "broad and comprehensive meaning" and covers situations including temporary cessation caused by external factors, not strictly limited to permanent closure or surrender of registration.Rule 10 applies only where the manufacturer plans temporary closure with continuous non-production of 15 days or more; Rule 16 applies to permanent cessation; however, neither rule contemplates situations where production is halted due to departmental seizure.Duty abatement is not available if non-production is for less than 15 continuous days as per proviso to Section 3A of the Central Excise Act, 1944 and Rule 10 of the PMPM Rules; however, this limitation does not apply where non-production results from departmental actions beyond manufacturer's control.Demanding excise duty for periods of non-production caused by seizure and sealing of machines by the department is "not legally tenable."

RATIONALE:

The Tribunal relied on statutory provisions under the Central Excise Act, 1944, specifically Section 3A and the Pan-Masala Packaging Machines (capacity determination and collection of duty) Rules, 2008 (Rules 10 and 16), which regulate duty calculation and abatement for non-production.Precedent was drawn from the Tribunal's earlier decision in a similar case involving factory closure due to a government notification banning plastic pouches, where refund was allowed despite reopening of the factory, emphasizing that reopening does not negate entitlement under Rule 16.The Tribunal distinguished cases cited by the Department, noting those involved manufacturer-initiated closures or proportionate duty calculations on commencement of production, unlike the present case where production stoppage was involuntary due to seizure.The Tribunal interpreted "permanently ceases to work" flexibly to include extraordinary circumstances causing cessation, rejecting a narrow interpretation requiring surrender of registration or absolute permanent closure.The decision reflects a doctrinal approach that duty liability should not be imposed where production interruption is caused by government enforcement actions, ensuring fairness and preventing unjust penalization of manufacturers.

ISSUES:

Whether clandestine removal of excisable goods without payment of duty is established on the basis of recovered documents and statements.Whether the demand of duty and interest under the Central Excise Act, 1944 and imposition of penalty under Section 11AC and Rule 29 of the Central Excise Rules, 2017 is sustainable.Whether documents and records maintained by third parties (transporters) can be relied upon to prove clandestine removal.Whether the supply of relied upon documents (RUDs) and statements to the noticee was adequate and compliant with principles of natural justice.Whether penalty under Rule 29 of the Central Excise Rules, 2017 can be imposed on managerial personnel and transporters without proof of physical dealing with excisable goods and mens rea.Whether the Department discharged the burden of proving clandestine manufacture and removal by investigating procurement of raw materials, use of electricity, manpower, and packaging materials.

RULINGS / HOLDINGS:

The allegation of clandestine removal is not established as it is based on "assumption and presumption only" and not supported by "clinching evidence" such as cash flow or interception by tax authorities.The demand of duty and NCCD based on "dispatch slips," "loading register," and "stock register" is not sustainable due to inconsistencies, mismatches, and lack of authenticity of these documents.Records maintained by third parties (transporters) cannot be relied upon solely to establish clandestine removal; such evidence requires corroboration and independent verification.Non-supply of copies of all relied upon documents (RUDs), including statements and registers, renders the adjudication order invalid and illegal as per the principles laid down in Supreme Court judgments.Penalty under Rule 29 cannot be imposed on persons who did not physically deal with excisable goods or have knowledge or belief that goods were liable to confiscation; managerial personnel and transporters without mens rea are not liable.The Department failed to investigate critical aspects such as procurement of raw materials, electricity consumption, manpower deployment, and packing material supply, which are essential to prove clandestine manufacture and removal.

RATIONALE:

The Court applied statutory provisions under the Central Excise Act, 1944 (Sections 11A(4), 11AA, 11AC) and Central Excise Rules, 2017 (Rule 29) along with established judicial precedents emphasizing the need for tangible and corroborative evidence to prove clandestine removal.Reliance was placed on Supreme Court decisions mandating supply of relied upon documents for fair adjudication and on Tribunal and High Court rulings holding that third-party records alone are insufficient to establish clandestine removal.The Court recognized the principle that penalty provisions require proof of physical dealing with excisable goods and mens rea; general supervisory roles without direct involvement do not attract penalty under Rule 29.Judicial precedents were cited to underscore that findings based on assumption, presumption, or uncorroborated statements violate principles of natural justice and are liable to be set aside.The Court noted the absence of investigation into raw material procurement, electricity usage, manpower, and packing material supply as a doctrinal requirement for proving clandestine manufacture and removal, following the criteria laid down in earlier decisions.No dissenting or concurring opinions were recorded.

ISSUES:

Whether the freight amount charged on a sale made on Freight on Road (FOR) destination basis is includible in the assessable value for the purpose of Central Excise duty under Section 4 of the Central Excise Act, 1944.Determination of the "place of removal" for excisable goods sold on FOR destination basis-whether it is the factory gate or the buyer's premises.Whether the demand of duty on the clearance of scrap/non-excisable goods without reversal under Rule 6(3) of the Cenvat Credit Rules, 2004 is justified.Applicability of extended period of limitation and penalty under Section 11AA and Section 11AC of the Central Excise Act for non-inclusion of freight in assessable value and suppression of facts.

RULINGS / HOLDINGS:

Freight amount charged on FOR destination basis sales is includible in the assessable value for Central Excise duty because the "place of removal" is the buyer's premises where ownership and risk transfer occurs, not the factory gate. The court relied on the "manifest" fact that "the sale of goods did not take place at the factory gate ... but took place at the place of the buyer on the delivery of the goods."The "place of removal" under Section 4(3)(c) of the Central Excise Act means premises referable to the manufacturer, but in cases of FOR destination contracts where ownership and risk remain with the seller until delivery at buyer's premises, the place of removal is the buyer's premises. This is supported by Supreme Court decisions in Roofit Industries and Ispat Industries, and Circular dated 08.06.2018 by CBIC.The demand of duty on clearance of scrap/non-excisable goods without reversal under Rule 6(3) of the Cenvat Credit Rules, 2004 was set aside because the scrap did not arise from manufacturing activity and was related to plastic packaging material, thus not liable for reversal.The extended period of limitation and penalty under Sections 11AA and 11AC were rightly invoked and upheld because the appellant "suppressed the facts with intent to evade the payment of central excise duty" by not including freight in the assessable value, which was detected during departmental audit.

RATIONALE:

The court applied the statutory definition of "place of removal" under Section 4(3)(c) of the Central Excise Act, 1944, and Rule 2(t) of the Cenvat Credit Rules, 2004, which incorporates definitions from the Excise Act.The court relied heavily on Supreme Court precedents, notably CCE v. Roofit Industries Ltd. and CCE v. Ispat Industries Ltd., which clarified that the place of removal is generally the manufacturer's premises, but an exception exists for FOR destination sales where ownership and risk remain with the seller until delivery at buyer's premises.The Circular dated 08.06.2018 issued by the Central Board of Indirect Taxes and Customs was used as authoritative guidance to reconcile conflicting principles and clarify that the place of removal for FOR contracts is the buyer's premises, thereby including freight in assessable value.The court distinguished earlier Tribunal decisions relying on Escorts JCB Ltd., noting that the Supreme Court had "distinguished the Escorts JCB's case on facts" in subsequent rulings.The court recognized a doctrinal shift reinforced by Larger Bench decisions of the Tribunal and recent Division Bench rulings that consistently hold freight charges on FOR sales must be included in assessable value for excise duty.Regarding scrap clearance, the court applied Rule 6(3) of the Cenvat Credit Rules, 2004, and found that scrap unrelated to manufacturing activity is not subject to reversal of credit, consistent with prior Tribunal rulings.Extended limitation and penalty were justified based on the principle that deliberate suppression of material facts to evade duty triggers extended limitation and penalty provisions under the Central Excise Act.

ISSUES:

Whether input services utilized in the construction of a factory qualify for CENVAT credit under the definition of "input service" as per Rule 2(l) of the CENVAT Credit Rules, 2004.Whether the amendment to the definition of "input service" effective from 01.04.2011 excluding construction services applies retrospectively to deny credit for services used in factory construction prior to that date.Whether penalties can be imposed for the availment of CENVAT credit on such input services when the issue involves interpretation of legal provisions.

RULINGS / HOLDINGS:

The Court held that the definition of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004 "squarely covers the activity" of utilizing input services in the construction of a factory, as these services are used "directly and in any event indirectly in or in relation to the manufacture of the final product." The activity falls within both the "means part" and the "inclusive part" of the definition.The amendment to Rule 2(l) introduced in 2011, which excludes construction services from the definition of input service, is not retrospective and therefore does not apply to services utilized before 01.04.2011. Consequently, CENVAT credit is admissible only up to 31.03.2011 and not thereafter.Since the issue pertains to interpretation of provisions of law, no case for imposition of penalties was made out, and all penalties imposed were set aside.

RATIONALE:

The Court relied on the statutory definition of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, which includes services "used for setting up of a factory and the premises of the provider of the output service," interpreting the language as inclusive and illustrative rather than exhaustive.Precedent from the Hon'ble Punjab & Haryana High Court and various Tribunals was applied, confirming that factory construction services qualify as input services prior to the 2011 amendment.The 2011 amendment to Rule 2(l), excluding construction services from input services, was recognized as prospective only, thus preserving the availability of credit for periods before its commencement.The Court emphasized the principle that amendments are not presumed retrospective unless expressly stated, and that the legislative intent was to clarify and limit credit going forward, not to disrupt settled claims.The decision reflects a doctrinal adherence to the plain language of the statute and established jurisprudence, with no noted dissent or doctrinal shift.

ISSUES:

Whether Cenvat Credit is admissible on Sugar Cess and the Education Cess and Secondary and Higher Education Cess levied thereon under the Sugar Cess Act, 1982 and related provisions'Whether wrongly availed Cenvat Credit on Sugar Cess can be recovered along with interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A and Section 11AA of the Central Excise Act, 1944'Whether penalty under Rule 15(1) of Cenvat Credit Rules, 2004 read with Section 11AC(1)(a) of the Central Excise Act, 1944 is imposable for wrongful availment of Cenvat Credit on Sugar Cess?

RULINGS / HOLDINGS:

The Cenvat Credit on Sugar Cess is admissible as Sugar Cess is characterized as a "duty of excise" under Section 3 of the Sugar Cess Act, 1982, which is levied and collected as a duty of excise under the Central Excise Act, 1944; therefore, the appellant is entitled to Cenvat Credit on Sugar Cess and the Education Cess and Secondary and Higher Education Cess thereon as per Rule 3 of Cenvat Credit Rules, 2004.The recovery of Cenvat Credit and interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A and Section 11AA of the Central Excise Act, 1944 is not sustainable where the credit was correctly availed in accordance with the law recognizing Sugar Cess as duty of excise.Penalty under Rule 15(1) of Cenvat Credit Rules, 2004 read with Section 11AC(1)(a) of the Central Excise Act, 1944 cannot be imposed absent any "fraud/collusion/willful mis-statement/suppression of facts/contravention of any of the provisions of this Act, Rules made there under with intent to evade payment of duty"; mere irregularity or erroneous availment without such intent does not attract penalty.

RATIONALE:

The Court applied the legal framework established under the Sugar Cess Act, 1982 and the Central Excise Act, 1944, interpreting Section 3 of the Sugar Cess Act as levying a duty of excise, which is integrated with the Central Excise Act and its rules, including the Cenvat Credit Rules, 2004.The Court relied extensively on the binding precedent set by the Hon'ble Karnataka High Court in Shree Renuka Sugars Limited (2014), which held that Sugar Cess is a duty of excise and that Cenvat Credit Rules apply accordingly; this was reinforced by the Division Bench of the Tribunal in the appellant's own case.The Court distinguished the nature of Education Cess and Secondary and Higher Education Cess, referencing the Supreme Court judgment in Unicorn Industries vs. Union of India, clarifying that Education Cess is not a duty of excise, but the Sugar Cess itself is a duty of excise, thus credit on the latter is admissible.The Court noted that penalty provisions under Section 11AC(1)(a) require an element of intent to evade duty, which was absent in the instant case, supported by Circular No. 883/3/2009-CX clarifying non-levy of Cess on sugar manufactured from raw sugar on which Cess was already paid.The Court rejected the Revenue's contention that Sugar Cess is not covered under Rule 3 of Cenvat Credit Rules, 2004, emphasizing the statutory integration of the Sugar Cess Act with Central Excise Act provisions and the consequential entitlement to credit.The Court recognized that payment of Sugar Cess through Cenvat Credit is a valid mode of discharge of liability, consistent with the self-contained scheme of Cenvat Credit Rules and Supreme Court precedent in Jayaswal Neco Limited.

1. ISSUES:

1.1 Whether Cenvat credit of central excise duty paid on inputs (bright bars) is admissible where the supplier's process did not amount to "manufacture".

1.2 Whether a demand denying such Cenvat credit, together with interest and equal penalty, is sustainable when the suppliers had paid central excise duty on the inputs.

1.3 Whether the issue is "no more res integra" insofar as prior decisions of the Tribunal and other courts on identical facts, unauthorisedly challenged by the department, control subsequent similar demands.

2. RULINGS / HOLDINGS:

2.1 On admissibility of Cenvat credit: The demand denying Cenvat credit on bright bars is not sustainable; "Cenvat credit availed need not be reversed even if the activity does not amount to manufacture." (Court set aside the impugned order and allowed the appeal.)

2.2 On demand with interest and penalty: The impugned demand, including interest and equal penalty, is unsustainable in law where suppliers had paid the Central Excise duty on the inputs; the order imposing the demand was set aside with consequential relief as per law.

2.3 On finality of precedent: The issue is "no more res integra" because different Benches of the Tribunal and higher fora have struck down identical demands, and those decisions control the present case where the department has not successfully challenged them.

3. RATIONALE:

3.1 The Tribunal applied precedent-based reasoning, following earlier decisions holding that where duty on goods cleared by suppliers has been accepted by the department, the recipient's Cenvat credit need not be reversed even if the supplier's activity is held not to amount to manufacture.

3.2 The Tribunal expressly relied on prior decisions of different Benches of the Tribunal and higher courts and reproduced the governing principle: "once the duty on final products has been accepted by the department, CENVAT credit availed need not be reversed even if the activity does not amount to manufacture."

3.3 The decision reflects no dissenting or concurring opinion and constitutes an application of established tribunal and judicial precedents rather than a departure from existing doctrine.

ISSUES:

Whether goods manufactured as woven fabrics, bags, sacks, and flexible intermediate bulk containers (FIBC) made from polypropylene (PP), high-density polyethylene (HDPE), and linear low-density polyethylene (LLDPE) granules are correctly classifiable under Chapter Headings 54, 60, and 63 of the Central Excise Tariff Act, 1985, or should be classified under Chapter Heading 39 as contended by the department.Whether the classification of such goods under Textile & Textile Articles (Section XI of CETA) by the respondents amounts to willful misclassification and evasion of Central Excise Duty.Whether the adjudicating authority erred in dropping the demand for duty, interest, and penalty proposed by the department under section 11A(1) of the Central Excise Act, 1944.Whether the orders of higher adjudicating authorities and appellate tribunals on the classification issue are binding on subordinate authorities and must be followed in the present appeals.

RULINGS / HOLDINGS:

Goods manufactured from plastic granules (PP, HDPE, LLDPE) including woven fabrics, bags, sacks, and FIBC are correctly classifiable under Chapter Headings 54, 60, and 63 of the Central Excise Tariff Act, 1985, and do not merit classification under Chapter Heading 39, as the manufacturing process does not involve textile fibre or yarn but plastic extrusion and weaving of plastic tapes.The respondents' classification of goods under Textile & Textile Articles was found to be a misclassification; however, the department's demand for duty was rightly dropped by the adjudicating authority based on binding precedents and judicial discipline.The adjudicating authority committed no error in dropping the demand and penalty, as it followed the Final Order of the Tribunal and earlier decisions which had attained finality, including affirmation by the Hon'ble Apex Court.Orders of higher adjudicating authorities and appellate tribunals are binding on subordinate authorities, and judicial discipline requires adherence to such orders, as supported by the Supreme Court ruling directing the department to give effect to binding appellate decisions.

RATIONALE:

The Tribunal applied the legal framework under the Central Excise Tariff Act, 1985, specifically the classification provisions, and relied on prior decisions including the Tribunal's Final Order dated 01.11.2022 and the Supreme Court's affirmation in 2023.Technical evidence from the Central Revenue Control Laboratory confirmed the plastic composition of the goods, distinguishing them from textile fibres, thus supporting classification under plastic goods headings rather than textile headings.The Tribunal emphasized the principle of judicial discipline, citing the Supreme Court decision in Union of India vs. Kamlakshi Finance Corporation Ltd., mandating subordinate authorities to follow binding appellate orders.No dissent or doctrinal shift was noted; the decision reaffirmed settled law and binding precedents on classification and adherence to judicial hierarchy.

ISSUES:

Whether Rule 6(b)(ii) of the Valuation Rules, 1975, permitting loading of "notional profit" on excisable goods not sold but used or consumed in manufacture, applies to raw materials supplied free of cost between sister units.Whether the activity carried out by the appellant unit qualifies as job-work under Central Excise law, thereby excluding the applicability of Rule 6(b)(ii).Whether imported raw materials supplied free of cost and used as inputs can be treated as "excisable goods" under Rule 6(b) for valuation purposes.

RULINGS / HOLDINGS:

The Court held that Rule 6(b)(ii) applies where excisable goods are not sold but used or consumed captive in manufacture; however, in the present case, the raw materials supplied free of cost were not excisable goods and thus Rule 6(b) is inapplicable.The appellant failed to establish that its unit was a job worker to the sister unit as per prescribed procedures, and therefore the claim of job work was rejected by the authorities and upheld by the Court.The Court found no evidence that imported raw materials underwent any process to become excisable goods before transfer; hence, such raw materials cannot be treated as excisable goods under Rule 6(b) for valuation, making the loading of notional profit unjustified.Consequently, the impugned order demanding differential duty by invoking Rule 6(b)(ii) and loading notional profit is "clearly unwarranted and hence, unsustainable."

RATIONALE:

The Court applied Section 4 of the Central Excise Act, 1944 read with Rule 6(b)(ii) of the Valuation Rules, 1975, which mandates valuation based on cost of production including profits where excisable goods are not sold but consumed captive.The Court emphasized the statutory requirement that excisable goods must be "used or consumed by the assessee or on his behalf" and that the goods must be excisable to invoke Rule 6(b).The Court relied on the absence of evidence that the raw materials supplied free of cost were excisable goods or that the appellant unit was a job worker under the statutory job work notification and procedures, rejecting the appellant's contention.The Court noted that the imported raw materials did not undergo any process to become excisable goods prior to transfer, and thus the valuation provisions for excisable goods under Rule 6(b) do not apply.No doctrinal shift or dissent was recorded; the decision reaffirms the strict interpretation of valuation rules and the necessity of compliance with job work procedures for exemption from profit loading.

1. ISSUES PRESENTED and CONSIDERED

• Whether the writ petition under Article 226 is maintainable against the order of dismissal of an application for restoration of an excise appeal by the CESTAT.
• Whether the Tribunal (CESTAT) has the power to waive or dispense with the mandatory pre-deposit under Section 35F of the Central Excise Act after the amendment by Finance Act 25 of 2014.
• Whether an appeal dismissed for non-compliance of pre-deposit can be restored by the CESTAT after a considerable lapse of time without any liberty granted by the High Court.
• Whether the petitioner is entitled to any relief or extension of time to deposit the pre-deposit amount for restoration of the appeal.
• Whether the High Court has jurisdiction to entertain a writ petition against the impugned order or the remedy lies exclusively under Section 35G of the Central Excise Act by way of appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Writ Petition under Article 226 against CESTAT's Order of Dismissal of Restoration Application

Legal Framework and Precedents: The Central Excise Act, 1944, provides a statutory remedy of appeal before the High Court under Section 35G against orders of the CESTAT. The general principle is that writ jurisdiction under Article 226 is not to be invoked where an alternative statutory remedy exists.

Court's Interpretation and Reasoning: The Court noted the submissions of the petitioner relying on judgments from other High Courts recognizing the maintainability of writ petitions in certain circumstances. However, the Court emphasized that the statutory scheme under the Central Excise Act envisages appeal under Section 35G as the appropriate remedy against CESTAT orders.

Key Findings: The Court found that the impugned order dismissing the restoration application is an interlocutory order in the appeal proceedings and that the petitioner had statutory remedy by way of appeal. The writ petition was therefore not maintainable.

Conclusion: The writ petition challenging the dismissal of the restoration application was not maintainable, as the petitioner had an alternative statutory remedy under Section 35G.

Issue 2: Power of CESTAT to Waive or Dispense with Pre-Deposit under Section 35F after Finance Act 25 of 2014 Amendment

Legal Framework: Section 35F of the Central Excise Act mandates pre-deposit of a specified percentage of the duty demanded before filing an appeal before the CESTAT. The Finance Act 25 of 2014 amended Section 35F to remove the Tribunal's discretion to waive or reduce the pre-deposit on grounds of undue hardship.

Court's Interpretation and Reasoning: The Court held that post-amendment, the CESTAT is bound by the mandatory provisions and cannot entertain applications for waiver or reduction of pre-deposit on grounds of hardship. The Tribunal's dismissal of the appeal for non-deposit of pre-deposit was therefore in accordance with law.

Application of Law to Facts: The petitioner failed to deposit the mandatory pre-deposit amount and sought waiver, which was rightly refused by the CESTAT. The Tribunal had no jurisdiction to entertain such waiver applications after the amendment.

Conclusion: The Tribunal correctly dismissed the appeal for non-compliance with the mandatory pre-deposit requirement, and no waiver could be granted.

Issue 3: Restoration of Appeal after Dismissal and Finality of Order

Legal Framework: Once an appeal is dismissed for non-compliance of mandatory conditions and the order attains finality, the Tribunal becomes functus officio and cannot restore the appeal unless the order of dismissal is set aside by a higher forum.

Court's Interpretation and Reasoning: The Court observed that the petitioner's appeal was dismissed in 2017, and multiple writ petitions and a review petition were dismissed without granting any liberty or direction to restore the appeal. The petitioner's belated application for restoration after seven years was rightly dismissed by the CESTAT as the order had attained finality.

Treatment of Competing Arguments: The petitioner argued for restoration on the basis of partial deposit and proposed timeline for remaining deposit. The Court rejected this, emphasizing the absence of any statutory provision or judicial liberty permitting restoration after such delay without setting aside the dismissal order.

Conclusion: The appeal could not be restored by the CESTAT after dismissal and finality of order, and the Tribunal's refusal to restore was valid.

Issue 4: Entitlement to Extension of Time for Deposit of Pre-Deposit Amount

Legal Framework: The mandatory pre-deposit under Section 35F must be complied with at the time of filing the appeal. No provision exists for extension of time or staggered payment after dismissal of appeal for non-deposit.

Court's Interpretation and Reasoning: The petitioner's request for four months' time to deposit the balance amount after partial deposit was not supported by any legal provision. The Court held that such request could not be entertained after dismissal of appeal and finality of order.

Conclusion: No extension of time or phased deposit of pre-deposit is permissible post-dismissal of appeal for non-compliance.

Issue 5: Jurisdictional Scope and Appropriate Forum for Challenge

Legal Framework: Section 35G of the Central Excise Act provides for second appeal before the High Court against orders of the CESTAT. The High Court's writ jurisdiction is generally excluded where statutory appeal exists.

Court's Interpretation and Reasoning: The Court reiterated that the petitioner's remedy lay in filing an appeal under Section 35G against the dismissal order rather than filing writ petitions. The repeated filing of writ petitions was contrary to the statutory scheme.

Conclusion: The High Court's writ jurisdiction cannot be invoked in place of the statutory appeal remedy under Section 35G.

ISSUES:

Whether elevators and conveyors used in rice mill machinery are classifiable under Chapter Heading 8437 or under Chapter Heading 8428 of the Central Excise Tariff Act, 1985.Whether parboiling and drying plants and their parts are classifiable under Chapter Heading 8437 or Chapter Heading 8419 of the Central Excise Tariff Act, 1985.Whether the departmental Circular No. 924/14/2010-CX dated 19.05.2010 is binding on the department and applicable for classification and duty liability during the relevant period.Whether the extended period of limitation under the Central Excise Act can be invoked in absence of fraud, willful mis-statement, or suppression of facts.Whether a combined show cause notice issued for both normal and extended period is sustainable if the extended period invocation is held unsustainable.

RULINGS / HOLDINGS:

The classification of elevators and conveyors falls under Chapter Heading 8437 of the Central Excise Tariff Act, 1985, which is chargeable to nil rate of duty during the relevant period, as the issue is "no more res integra" and has been upheld by the Hon'ble Apex Court.Parboiling and drying plants are classifiable under Chapter Heading 8437 of the Central Excise Tariff Act, 1985 for the period prior to 15.05.2014, as the departmental Circular dated 19.05.2010 was binding and the demand for duty cannot be confirmed for that period.The departmental Circular No. 924/14/2010-CX dated 19.05.2010 is binding on departmental officers and must be given effect irrespective of subsequent legal positions, particularly when it is beneficial to the assessee.The extended period of limitation under the Central Excise Act cannot be invoked in the absence of fraud, willful mis-statement, or suppression of facts, and the department failed to prove such elements in the present case.When a combined show cause notice is issued for both normal and extended periods and the extended period is held unsustainable, the entire show cause notice is liable to be quashed.

RATIONALE:

The Court applied the statutory provisions under the Central Excise Act, 1944, including Sections 11A(4), 11AA, 11AB, and 11AC, read with Rule 25 of the Central Excise Rules, 2002.Precedents from the Tribunal and the Hon'ble Supreme Court were extensively relied upon, confirming the classification of elevators and conveyors under Chapter Heading 8437 and rejecting classification under Chapter Heading 8428.The Tribunal's Division Bench decision in Jyoti Sales Corporation, supported by subsequent affirmations by the Supreme Court and other Benches, established that departmental circulars are binding on the department and must be followed during their operative period.The Court noted that the Larger Bench's decision on classification under Chapter Heading 8419 does not override the binding nature of the departmental Circular dated 19.05.2010 for the period it was in force.The invocation of extended limitation period requires proof of fraud, willful mis-statement, or suppression of facts, which was absent; conflicting judicial views necessitated a Larger Bench, negating the element of suppression.Binding precedents from various High Courts and the Supreme Court were cited to affirm that beneficial circulars apply retrospectively, while oppressive circulars apply prospectively.The Court followed the principle that the Revenue is precluded from challenging the correctness or binding nature of departmental circulars during their operative period, even if inconsistent with statutory provisions.