Government goes all the way to Supreme Court - to deny exemption to Government!
NOTIFICATION No. 64/1995-CE dated 16.3.95 allows exemption to goods if supplied as Stores for consumption on board a vessel of the Indian Navy or Coast Guard.
The ever-vigilant Central Excise officers will never let go of an opportunity to deny an exemption granted by the Government with the approval of Parliament - for many of them strongly believe that they have to be more loyal than the Government and Parliament.
In many cases they sought to deny this exemption by hair splitting the definition of "goods", "stores", "consumption" etc,.
Take this case for example:
In 1996-97, ESSAR Steels supplied plates and sheets to Indian Navy and claimed exemption under the above notification. They produced an end use certificate from the Navy Authorities.
The Central Excise Authorities denied the exemption on the grounds that the goods are not stores and they are in fact raw materials not covered by the expression 'Stores'. The Adjudicating Authority further observed that the plates have been used for repairs of warships.
This issue was decided long ago in favour of the assessee by the Tribunal judgements and Board Circulars.
CBEC had in Circular No.89/88-CX.6, dt.30.12.88 observed:
Doubts have been raised by some collectors regarding the interpretation of the expression "stores for consumption on board a vessel". In one Collectorate Audit has taken the view that the expression 'stores' for consumption on board a vessel relates only to 'consumable stores' and not 'non-consumable items', which are used, on board the vessel. On this consideration, the Audit has raised objection in a case of clearance of I.C. Engines supplied without payment of duty to a vessel of the Indian Navy .
And the Board clarified:
It has all along been the intention of the Government to grant exemption from central excise duty not only to those excisable goods which are used for running or maintenance of the vessels of the Indian Navy but also to those excisable goods which are meant for consumption of the crew members. In view of this the supply of I.C. Engines without payment of duty to a ship of the Indian Navy, under the above notification was in order.
Apart from the above considerations, it is observed that the term "consumption", in Central Excise merely connotes "use". As for example, the expression "clearance for home consumption", merely means "clearance for use within the country". Thus stores for consumption, on board a vessel would cover stores, both consumable and non-consumable, meant for the use of a ship as well as the crew members. Reliance can also be placed on the definition of 'stores' appearing in section 2(38) of the Customs Act, 1962.
In this case, the Tribunal set aside the order of the Adjudicating Authority denying the exemption and allowed the appeal. - 2008-TIOL-2866-CESTAT-AHM.
Field officers do not like Tribunal orders and Board Circulars, especially if they allow exemption from duty, even to another wing of the Government. The facts that the other wing is the far more important Defence Ministry and the goods were used in a ship used for protection of all citizens including the all powerful Central excise officers, are not valid reasons for the valiant excise sleuths.
The goods were cleared in 2006 and the Tribunal gave its verdict in 2008. Duty demanded was about Rs.1.75 Crores and Revenue was not prepared to forego that kind of revenue, notwithstanding the Board Circular. So they took the matter to the Supreme Court and also issued some more Show Cause Notices which were mercifully kept in the Call Book.
In the Supreme Court, they took an argument that the end use certificate was not proper. The Supreme Court found no merit in the appeal and dismissed it. - 2014-TIOL-61-SC-CX.
The assessee had to pursue a legal battle for eight years all the way up to the Supreme Court for availing an exemption granted by the Government and clearly covered by a Tribunal judgement and Board Circular.
One welcome change the Finance Minister can think of is to strictly enforce judicial and departmental discipline among his adjudicators.