Captive Exemption Under Notification 67/95-CE Not Denied Merely Because Final Products Are Partly Exempt: CESTAT Chennai
Pranav B Prem
The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the benefit of captive consumption exemption under Notification No. 67/95-CE cannot be denied merely because the final products are cleared partly on payment of duty and partly under an exemption notification. The Tribunal clarified that the exemption remains available so long as the manufacturer satisfies the conditions prescribed under the notification, including compliance with Rule 6 of the CENVAT Credit Rules, 2004.
The Bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) was examining whether relays captively consumed in the manufacture of control panels would be eligible for exemption under Notification No. 67/95-CE, when the control panels were cleared partly on payment of duty, partly under Notification No. 12/2012-CE, and partly for export under Letter of Undertaking.
The appellant, M/s. GE T&D India Ltd., was engaged in the manufacture of relays falling under Chapter 85, which were captively used in the manufacture of control panels classifiable under Chapter 8537. The control panels were cleared for home consumption on payment of duty, supplied under exemption Notification No. 12/2012-CE, and also exported without payment of duty. The appellant claimed captive exemption on relays under Notification No. 67/95-CE.
The Department denied the benefit of captive exemption on the ground that the final product, namely control panels, was also cleared under an exemption notification. Relying on the proviso to Notification No. 67/95-CE, the Department took the view that where final products are exempt, captive exemption on inputs is barred. A show cause notice was issued proposing demand of duty on the relays captively consumed, along with interest and penalty. The demand was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals), leading to the present appeal before the Tribunal.
The Tribunal examined the scope of Notification No. 67/95-CE and its proviso (vi), which carves out an exception where a manufacturer produces both dutiable and exempted goods and discharges the obligation prescribed under Rule 6 of the CENVAT Credit Rules, 2004. On a harmonious reading of the main notification and the proviso, the Bench observed that the bar under the proviso is not absolute and that captive exemption is expressly saved in cases where Rule 6 obligations are met.
The Tribunal noted that the relays were manufactured and consumed within the same factory and squarely fell within the main body of Notification No. 67/95-CE. It observed that the captive exemption is intended to prevent cascading of duty on intermediate goods and cannot be denied merely because the final product enjoys a separate exemption under another notification.
On the issue of compliance with Rule 6 of the CENVAT Credit Rules, the Tribunal disagreed with the finding of the lower authorities that the appellant had failed to discharge its obligations. The Bench noted that Rule 6(6) itself provides exceptions in respect of certain exempt clearances, including supplies made under specific exemption notifications. It further observed that in the appellant’s own case for earlier periods, the Tribunal had already held that the appellant was operating within the framework of Rule 6 and was entitled to captive exemption under Notification No. 67/95-CE. Those decisions had been accepted by the Department and had attained finality.
Applying the principle of consistency and judicial discipline, the Tribunal held that the appellant had satisfied the conditions under proviso (vi) to Notification No. 67/95-CE. Consequently, it held that the relays captively consumed in the manufacture of control panels were eligible for exemption, even though the final products were partly cleared under exemption and partly on payment of duty or for export.
The Tribunal observed that once the eligibility to captive exemption is upheld, the very foundation of the duty demand collapses. Accordingly, the demand of ₹10,39,545, along with interest and penalty, was held to be unsustainable. The Bench further noted that the issue involved was one of interpretation of exemption notifications and Rule 6 of the CENVAT Credit Rules, and there was no element of fraud, suppression or wilful misstatement to justify imposition of penalty. In view of the above findings, the Tribunal allowed the appeal, set aside the impugned orders, and granted consequential relief to the appellant in accordance with law.
Appearance
Counsel for Appellant/ Assessee: Joseph Prabhakar
Counsel for Respondent/ Department: M. Selvakumar
Cause Title: M/s. GE T&D India Ltd. v. Commissioner of GST and Central Excise
Case No: Excise Appeal No. 40763 of 2018
Coram: P. Dinesha (Judicial Member), Vasa Seshagiri Rao (Technical Member)
