The subject seems to be quite obvious and readers may wonder why I am, at all, writing about it. But they will be wiser when they come to know that this matter went up to the Supreme Court and there is a recent judgment on the subject. Frankly speaking, on such simple and fundamental issues, the matter should have been settled at the stage of the junior officers. The fact that all of them have not understood the fundamental issue and it had to go up to the Supreme Court, is a sad commentary on the level of understanding, even up to the level of tribunal.
The Supreme Court has clarified that if certain goods are exempted under a notification and if the assessee has paid the duty, may be by mistake, and has not claimed refund, the goods do not become dutiable.
In the present case of Bonanzo Engg & Chemicals P Ltd vs Commissioner of Central Excise - 2012(277)ELT145(SC), the assessee was a small scale manufacturer who wanted to avail of the exemption under notification No.175/86-CE. This notification permits exemption, if the previous clearances do not exceed a certain amount. The manufacturer by mistake paid duty on certain goods cleared by him which were exempted. He also did not claim refund because of the same wrong impression. Now the adjudicating authority, the appellate commissioner and even the tribunal, all held the view that the duty having been paid on the goods, the value of the goods would have to be added to the value of the clearances. The tribunal did one better by holding that, "It is admitted fact that the appellants have not availed of the exemption provided under notification No. 111/88 while clearing the goods classifiable under Heading 84.37. It has not been brought on record that the Appellants have claimed any refund of the said duty. Accordingly it cannot be claimed by them that the goods were exempted from payment of duty. The value of the clearance of goods falling under heading 84.37 being cleared on payment of duty has to be taken into account by computing the value of clearances for the purpose of notification No. 175/86. In view of this the duty has been confirmed against them rightly."
Here, we particularly notice that the tribunal has said, "Accordingly it cannot be claimed by them that the goods were exempted from payment of duty". This statement of the tribunal is nothing less than a theoretical blunder.
The Supreme Court has clearly observed that this view is wrong. The exact language used by the Supreme Court is the following: "In our view merely because the assessee, may be by mistake, pays duty on the goods which are exempted from such payment, does not mean that the goods would become goods liable for duty. Secondly merely because the assessee has not claimed any refund on the duty paid by him would not come in the way of claiming benefit of the exemption notification 175/86 C E dated 1.3.1986". This shows the view of the tribunal is fundamentally wrong on both counts.
Although the Supreme Court has not mentioned this, I would like to point out here that at the level of the tribunal, a fundamental principle of interpretation should have been known that dutiability of a commodity does not come by analogy or inference. There are many judgments of high courts and the Supreme Court which have stoutly defended the citizen from such inroads into his legitimate rights to pay tax only when words in the statutes clearly provide for it. No taxation by implication is the rule of interpretation, held the Supreme Court in the case of CCE Pondicherry vs ACER India Ltd - 2004(172)ELT289(SC).
The conclusion is the following-
A. The CBEC should issue a circular incorporating the principle laid down by the Supreme Court in this case that just because the assessee pays duty on exempted goods, the goods do not become dutiable.
B. The small scale exemption notification No 175/86 C E has become a labyrinth. It has been amended at times without number. There are more than 1,015 reported cases on this subject according to one publication. This exemption should be simplified before the Budget is passed.