Pranav B Prem

In a significant ruling, the Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Judicial Member P.A. Augustian and Technical Member Pullela Nageswara Rao, has allowed the appeal filed by Kalyan Jewellers India Pvt Ltd and set aside the excise duty demands raised by the Department. The Tribunal held that there was no evidence to show that the non-studded silver articles manufactured by the appellant were liable for excise duty under Central Excise Tariff Heading (CETH) 7114. It concluded that the articles in question were classifiable under CETH 7113 and were exempt under the applicable notifications, subject to fulfillment of prescribed conditions.

Background and Issues

The proceedings originated from a show cause notice issued to Kalyan Jewellers following intelligence inputs regarding alleged evasion of excise duty. The adjudicating authority confirmed the duty demand, interest, and penalties, classifying the silver articles under CETH 7114 and disallowing the benefit of exemption under various notifications. Kalyan Jewellers contested this classification, maintaining that the goods were non-studded silver articles falling under CETH 7113 and hence eligible for exemption under Notification Nos. 12/2012-CE, 12/2016-CE, and 26/2016-CE.

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CESTAT's Analysis on Limitation

The Tribunal first addressed the issue of limitation. It noted that the demand pertained to the period from March 1, 2016 to June 30, 2017, while the show cause notice was issued only on January 3, 2021. CESTAT held that there was no justification for invoking the extended period of limitation as there was no willful suppression or misstatement on the part of the assessee. It emphasized that all transactions were recorded in audited books and ER-8 returns filed regularly.

The Tribunal relied on Supreme Court precedents in Continental Foundation Jt. Venture v. Commr. Of C. Ex., Chandigarh-I ,  2007 (216) E.L.T. 177 (S.C.) and Densons Pultretaknik v. Commissioner of Central Excise, 2003 (155) E.L.T. 211 (S.C.) to hold that the extended limitation cannot be invoked in the absence of wilful suppression or intent to evade duty.

Classification Dispute: CETH 7113 vs. CETH 7114

The key dispute revolved around the classification of the silver articles. The Department claimed that these articles fell under CETH 7114 and were liable to duty, whereas the assessee maintained that the goods were non-studded silver articles under CETH 7113 and were exempt.

The Tribunal noted that the show cause notice did not rely on any specific invoice to allege that the goods were studded with diamond, ruby, emerald or sapphire. It found the adjudicating authority’s conclusion that the assessee failed to produce valid documents to substantiate the nature of goods as “factually incorrect and unsustainable.”

The Tribunal held: “There is no evidence to show that such goods are studded with Diamond, Ruby, Emerald or Safire. Facts being so, we find that the goods manufactured by the appellant can be classifiable under CETH 7113 as declared by the appellant since there is no admissible evidence to prove that the impugned goods are studded with diamond, ruby, emerald or sapphire.” It also emphasized that when such goods are sold with stones, the presence of precious stones is clearly indicated in the invoices. Since such mention was absent, the Department could not presume that the goods were studded.

Applicability of Exemption Notifications

CESTAT acknowledged that as per Notification No. 26/2016-CE dated 26.07.2016, articles of silver jewellery other than those studded with diamond, ruby, emerald, or sapphire attracted nil rate of duty if the manufacturer did not avail CENVAT credit on inputs or capital goods (Condition No. 16).

The Tribunal accepted that Kalyan Jewellers satisfied these conditions and had reversed proportionate credit on exempted clearances. It ruled that: “Appellant complied with condition No. 52A also since they have not availed cenvat credit of inputs or capital goods used in the manufacture of these goods and by reversing cenvat credit availed against service tax on input services used in the manufacture of these goods.” Thus, the Tribunal held that Kalyan Jewellers was entitled to the benefit of exemption.

Hedging Activities Not 'Trading' Under Rule 6(3)

Another allegation was that the appellant had undertaken 'trading' activities via hedging and thus attracted liability under Rule 6(3) of the CENVAT Credit Rules, 2004. The Tribunal rejected this argument, observing that hedging was a legitimate risk management strategy and not trading per se.

It held: “There is no sale of gold with the bank based on forward selling contract as part of Hedging, thus there is no trading involved in Hedging.”  It concluded that the Department erred in computing reversals under Rule 6(3) by treating hedging as an exempted activity and directed that no such demand was sustainable.

Export Demands and Revenue Neutrality

On the issue of export clearances, the Department had rejected the appellant’s claim for exemption on the ground that no documents were produced. The Tribunal found this finding unsustainable, noting that shipping bills, invoices, and bank realization certificates were placed on record and verified by the investigating authorities. It emphasized that even assuming duty was payable on such exports, the assessee would have been entitled to refund—making the issue revenue neutral.

Ineligible Credit on Motor Vehicles

The Tribunal also quashed the demand related to credit on renting of motor vehicles. It observed that the issue had already been considered and dropped by the Commissioner (Appeals) in separate proceedings, rendering the demand unsustainable.

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Verdict

In view of the above findings, CESTAT allowed the appeal and set aside the impugned order in its entirety. It ruled: “Considering the above findings, demand confirmed by impugned order is unsustainable, hence the impugned order is set aside. In view of the above discussion the Appeal is allowed with consequential relief, if any, in accordance with law.”

Appearance

Mr. Ravi Raghavan, Mr. Karthik Nair and Mr. Akhil Verghese, Advocates for the Appellant.

Mr. M. A. Jithendra, Authorised Representative for the Respondent. 

Cause Title: Kalyan Jewellers India Pvt Ltd V. Commissioner of Central Tax, Cochin

Case No: Excise Appeal No. 20695 of 2023

Coram: Hon'ble Mr. P.A. Augustian [Member (Judicial)], Hon'ble Mr. Pullela Nageswara Rao [Member (Technical)] 

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