M/S Smruti Agencies vs. Union Of INDIA

Held

The Court held that paragraph 4 of Notification No. 21/2004-CE(NT) dated 06.09.2004, including its sub-paragraphs (a), (b), and (c), is applicable only when raw materials or partially processed materials are moved outside the factory premises during the course of manufacturing or processing of finished goods. The Court found no evidence or finding in the orders passed by the adjudicating, appellate, or revisional authorities to suggest that the petitioner had moved any material, either in its original form or partially processed, outside the factory. Consequently, the condition precedent for the applicability of paragraph 4 and its sub-paragraphs was not met. Therefore, the rejection of the rebate claims based on the non-fulfillment of condition 4(c) was found to be erroneous and vitiated in law. The Court allowed both writ petitions, setting aside the impugned orders and holding the petitioners entitled to the rebate claims. The Court also left it open for the Department to initiate independent proceedings for recovery of any duty on scrap clearance, if permissible under law.

Facts

The petitioners, M/s Five Star Agrico Pvt. Ltd. (a company) and a partnership firm, engaged in manufacturing and exporting hand tools, filed rebate claims under Rule 18 of the Central Excise Rules, 2002, read with Notification No. 21/2004-CE(NT). These claims were for Central Excise duty paid on raw materials used in manufacturing exported goods. The rebate claims filed in May 2013 (57 claims) were rejected by an order dated 30.07.2013, on the grounds of non-fulfillment of condition 4(c) of Notification No. 21/2004-CE. This rejection was upheld by the Commissioner (Appeals) on 04.12.2013 and further by the Principal Commissioner of Revisionary Authority on 15.01.2020. The petitioners challenged these orders before the High Court, seeking to quash them. The dispute centers on whether the scrap generated during manufacturing should have been cleared on payment of duty.

Key Issues

1. Whether the condition 4(c) of Notification No. 21/2004-CE(NT) dated 06.09.2004 was applicable to the petitioners' case for the rejection of their rebate claims, and if so, whether it was fulfilled? Petitioner's arguments: The petitioner contended that paragraph 4 of Notification No. 21/2004-CE(NT) is only applicable when raw materials or partially processed materials are moved outside the factory during the manufacturing process. Since the entire manufacturing and processing of their goods, including the handling of scrap, occurred within the factory premises, paragraph 4 and its sub-paragraphs, including 4(c), have no application. They also relied on a departmental clarification from 2005 stating that no excise duty was payable on scrap clearance. The rejection of rebate claims based on non-fulfillment of condition 4(c) is therefore unsustainable. Revenue's arguments: The revenue argued that the rebate claims were rightly rejected as the requirement of paragraph 4(c) of Notification No. 21/2004-CE(NT) was not fulfilled and was applicable to the petitioner's case. However, the revenue could not demonstrate from the orders passed by the authorities that the material or partially processed goods were moved outside the factory, nor could they provide any reason for rejecting the scrap clearance claim other than the non-fulfillment of paragraph 4(c).