Jayant Agro-organics Limited Vs. Commissioner of Central Excise and - Court Judgment

Excerpt:
1. the application is for waiver of deposit of duty of rs.38.88 lakhs and equivalent penalty under section 11ac of the act.2.the applicant is a 100% export oriented unit (eou), which was engaged in the manufacture and export of refined and hydrogenated castor oil and other products. the applicant uses furnace oil in its factory for generation of steam to be used in the production of exported goods. it sought for and was granted from 1993 onwards, exemption under notification 1/95 in respect of furnace oil purchased from a local manufacturer of the product. this notification inter alia exempts from duty `consumable goods' when brought into a 100% export oriented unit in connection with the manufacture and packaging of articles intended for export.3. notice was issued to it on 30.5.2000 alleging that furnace oil was not consumable goods and that therefore exemption had been wrongly given. the notice also invoked the extended period contained in the proviso under sub-section (1) for section 11a of the act since it demanded duty on quantities of oil received from 1995 onwards. it is on this basis that the duty has been demanded and penalty imposed.4. on merits, issue is highly debatable. the notification itself has been amended, and, as it stands now, contains a specific entry for furnace oil used to generate steam and another for fuel, while the exemption to `consumable goods' continues. whether, in these circumstances, the term `consumable goods' include the furnace oil before the notification was amended is prima facie questionable.5. limitation is also argued on the ground that the department was aware for many years before issue of the notice that the applicant received and used the furnace oil. although he agrees that the specific use for which the furnace oil was brought in has not been disclosed to the department, counsel for the applicant contends that in view of the visit of the officers to the factory, and their audit of its records, the fact of the furnace oil being used for generation of steam could not have escaped the department's notice.6. the department representative relies upon the commissioner's finding that the extended period could be invoked because the purpose of which the furnace oil had been brought it had not been declared. this again in arguable. the notification does not require the purpose to be declared but requires that the procedure contained in chapter x of the rules must be followed. rule 192 in chapter x itself indicate that the manner and purpose for which the item is brought in should be declared while seeking permission for bringing in the item. whether the provisions of this rule would apply, and whether i any event, the extended period of limitation would be available would have to be decided after hearing arguments.7. we have note that imposition of penalty under section 11ac of the act prior to the enactment of the section has been held to be illegal by various decisions of the tribunal.8. having regard to these facts and also the fact that for a long period the department had been permitting the exemption and it is only when the notification was amended, subsequently incorporating fuel and furnace oil in separate entries, that the notice was issued, we accept the offer made by the counsel for the applicant to deposit rs. 15 lakhs. on such deposit being made within two months from today, we waive deposit of the remaining duty and of penalty, and waive their deposits.

Judgment:
1. The application is for waiver of deposit of duty of Rs.38.88 lakhs and equivalent penalty under Section 11AC of the Act.

2.The applicant is a 100% export oriented unit (EOU), which was engaged in the manufacture and export of refined and hydrogenated castor oil and other products. The applicant uses furnace oil in its factory for generation of steam to be used in the production of exported goods. It sought for and was granted from 1993 onwards, exemption under notification 1/95 in respect of furnace oil purchased from a local manufacturer of the product. This notification inter alia exempts from duty `consumable goods' when brought into a 100% export oriented unit in connection with the manufacture and packaging of articles intended for export.

3. Notice was issued to it on 30.5.2000 alleging that furnace oil was not consumable goods and that therefore exemption had been wrongly given. The notice also invoked the extended period contained in the proviso under sub-section (1) for Section 11A of the Act since it demanded duty on quantities of oil received from 1995 onwards. It is on this basis that the duty has been demanded and penalty imposed.

4. On merits, issue is highly debatable. The notification itself has been amended, and, as it stands now, contains a specific entry for furnace oil used to generate steam and another for fuel, while the exemption to `consumable goods' continues. Whether, in these circumstances, the term `consumable goods' include the furnace oil before the notification was amended is prima facie questionable.

5. Limitation is also argued on the ground that the department was aware for many years before issue of the notice that the applicant received and used the furnace oil. Although he agrees that the specific use for which the furnace oil was brought in has not been disclosed to the department, counsel for the applicant contends that in view of the visit of the officers to the factory, and their audit of its records, the fact of the furnace oil being used for generation of steam could not have escaped the department's notice.

6. The department representative relies upon the Commissioner's finding that the extended period could be invoked because the purpose of which the furnace oil had been brought it had not been declared. This again in arguable. The notification does not require the purpose to be declared but requires that the procedure contained in Chapter X of the Rules must be followed. Rule 192 in Chapter X itself indicate that the manner and purpose for which the item is brought in should be declared while seeking permission for bringing in the item. Whether the provisions of this rule would apply, and whether i any event, the extended period of limitation would be available would have to be decided after hearing arguments.

7. We have note that imposition of penalty under Section 11AC of the Act prior to the enactment of the section has been held to be illegal by various decisions of the Tribunal.

8. Having regard to these facts and also the fact that for a long period the department had been permitting the exemption and it is only when the notification was amended, subsequently incorporating fuel and furnace oil in separate entries, that the notice was issued, we accept the offer made by the counsel for the applicant to deposit Rs. 15 lakhs. On such deposit being made within two months from today, we waive deposit of the remaining duty and of penalty, and waive their deposits.