P.G. Chacko, Member (J)
1. The appellants are engaged in the manufacture of "printed cartons". During the period 2002-05, they cleared this product without payment of duty by availing themselves of the benefit of SSI exemption under Notification No. 8/2002-CE and its successor Notifications whereunder total exemption from payment of duty was available to clearances of specified excisable goods upto the aggregate value prescribed for the respective financial years. This limit was Rs. 1 crore for 2002-03 and Rs. 3 crores for each of the remaining years. During the above period, the appellants had also cleared 'printed cartons' to customers like M/s. A.V. Thomas Leather & Allied Products Pvt. Ltd. (M/s. A.V. Thomas Co., for short) against certificates in "Form-H" issued by the latter and these customers exported cartons as packing material for their own goods. The appellants did not include the value of the cartons cleared to these customers for export, in the aggregate value of clearances of excisable goods for the purpose of determining their eligibility for SSI exemption. In other words, by excluding the value of the said clearances covered by "Form-H" certificates, the appellants found their aggregate value of clearances to be below the limit (Rs. 1 crore or Rs. 3 crores) for each of the financial years. After scrutiny of records and allied enquiries, the department came to know the method adopted by the appellants, and, in a show-cause notice, raised a demand of duty on them by re-computing the aggregate value of clearances above the limit of Rs. 1 crore/Rs. 3 crores and denying them the benefit of SSI exemption for the aforesaid period. This demand was raised under the proviso to Section 11A(1) of the Central Excise Act and Rules 4 & 8 of the Central Excise Rules, 2002. The SCN also sought to charge interest on duty under Section 11AB of the Act as also to impose penalties on the appellants under Section 11AC of the Act and Rule 25 of the above Rules. The demand of duty and other proposals in the SCN were contested. In adjudication of the dispute, the Commissioner held as under:
i) I hold that the value of clearances of goods effected against Form H issued by the buyers of M/s. Vadapalani Press are includible in computing the aggregate value of clearances viz. Rs. 100 lakhs as well as Rs. 300 lakhs envisaged under Notification No. 8/2003 along with other clearances effected and therefore deny the exemption claimed by them for the financial years 2002-03, 2003-04 and 2004-05 inasmuch as they have exceeded the aggregate value of clearances during the respective year;
ii) I confirm and demand a duty of Rs. 1,15,01,708 (Rupees one crore fifteen lakhs one thousand seven hundred and eight only) under Section 11A(2) of Central Excise Act, 1944;
iii) I also hold them liable for paying interest on the duty confirmed above under Section 11AB ibid from the day the duty becomes due to the day it gets paid; and
iv) I impose a penalty of Rs. 1,15,01,708 (Rupees one crore fifteen lakhs one thousand seven hundred and eight only) under Section 11AC ibid.
The appeal is against the above order of the adjudicating authority.
2. After examining the records and hearing both sides, we find that the main issue arising for consideration in this case is whether the value of printed cartons cleared by the appellants to customers like M/s. A.V. Thomas Co. for export in a given financial year was liable to be included in the aggregate value of clearances in that financial year (2002-03/ 2003-04 / 2004-05) for the purpose of determining their eligibility for SSI exemption for the said financial year as also for the next year. Ld. Counsel for the appellants relied on the Board's circulars No. 212/46/96-CX. Dt. 20.5.1996 & No. 648/39/2002-CX. dt. 25.7.2002 and submitted that a certificate in "Form-H" issued by a merchant-exporter in respect of excisable goods purchased by him from a SSI unit and subsequently exported was to be accepted as proof of export for purposes of SSI Exemption Notification. He also relied on the Tribunal's decision in the case of CCE Kanpur v. International Corrugators 2005 (191) ELT 742 (Tri.-Del.), wherein a learned Single Member had held that corrugated boxes supplied by the SSI unit to their customer for packing shoes (for export) were not to be treated as a clearance for home consumption and hence not to be taken into account in the determination of aggregate value of clearances under Notification No. 8/2000-CE (SSI exemption). Counsel pointed out that the decision in International Corrugators case was followed by a Division Bench of the Tribunal in the case of CCE Kanpur v. Radhey Paper Udyog and Anr. Final Order No. 114-115/2005-B dt. 27.1.2005 in appeal Nos. E/2656 & 2526/2004]. Reliance was also placed on the Tribunal's decision in Kansal Knitwears v. CCE Chandigarh 2001 (136) ELT 467 (Tri.-Del.), wherein it had been held that the benefit of rebate of duty was not deniable in respect of inputs or intermediate products used in the manufacture of export goods, on the ground of non-compliance with any procedural requirement where proof of actual export was available. In the same context, ld. counsel also referred to the Supreme Court's judgment in Thermax Private Ltd. v. Collector of Customs . It was also pointed out that the appellants had established correlation between the cartons cleared by them for export and those actually exported by their customers and, therefore, it was not open to the Commissioner to reject the "Form-H" certificates produced by the appellants as proof of export.
3. On the other hand, learned SDR referred to para 4.1.2 of Chapter 7 of the Central Excise Manual of Supplementary instructions (2003-04) and submitted that the "Form-H" procedure envisaged therein was applicable only to unregistered SSI units. The appellants were a registered SSI unit during the period of dispute and, therefore, the "Form-H" certificates produced by them were not liable to be accepted as proof of exports. It was, further, submitted that the above procedure was applicable only where export was made through a merchant-exporter. M/s. A.V. Thomas Co. and similar customers of the appellants were manufacturer-exporters, who used "printed cartons" supplied by the appellants for packing their own products for the purpose of export. Ld. SDR submitted that as the appellants' customers were manufacturer-exporters, and not merchant-exporters, nothing contained in para 4.1.2 ibid or in the Board's circulars was applicable to the "Form-H" certificates produced by the appellants. On this basis, it was argued that the decision of the Commissioner to reject the "Form-H" certificates as proof of export and to treat the clearances of "printed cartons" by the appellants to M/s. A.V. Thomas Co. and similar customers, as clearances for home consumption required to be sustained.
4. Ld. counsel also submitted that a part of the demand of duty was time-barred in the absence of suppression of facts etc. This submission was also contested by SDR.
5. After giving careful consideration to the submissions, we have found substance in the claim of the appellants that CBEC themselves had accepted "Form-H" certificates as proof of export vide Circulars No. 212/46/96-CX dt. 20.5.96 and No. 648/39/2002-CX. dt. 25.7.2002 and para 4.1.2, Chapter 7 of the Central Excise Manual of Supplementary Instructions 2003-04. Para 4.1.2 ibid reads as under:
In the case of export through merchant-exporter the document prescribed by Sales Tax Department will be accepted as the proof of export. Sales made by manufacturer of the goods to the merchant-exporter which ultimately are exported are exempt from Central Sales Tax. The Sales Tax Department issues booklet to the merchant-exporters containing serially numbered H-Forms/ST-XXII form or equivalent Sales Tax form. After the goods have been exported by the merchant-exporters, the latter issues these forms to the manufacturers of the goods. The merchant-exporters in turn have to account all these serially numbered forms to the Sales Tax Department by furnishing a proof that the goods have been exported out. These proofs are in the form of presentation of the Shipping Bill duly completed by the customs, bill of landing, foreign exchange remittance certificates etc. The liability of the manufacturers to the Central Sales Tax gets discharged only when they submit these forms to the Sales Tax Department. It is, therefore, seen that indirectly exports get accounted for through the issue of H-form or ST-XXII Form. Thus, photocopy of H-form or ST-XXII Form or any other equivalent Sales Tax form duly attested and stamped by the manufacturer or his authorised agent will be accepted for purpose of proof of export. It is clarified that this facility is available only in respect of the exempted units which undertake exports themselves or through merchant exporters directly from the unit itself. The facility is not available for the supplies made to any other domestic manufacturer who may or may not export its finished products.
The clarification in the italicized sentences of para 4.1.2 were taken from the Board's circular dt. 25.7.02 ibid and ld. SDR has laid emphasis on the same and has argued that a Form-H certificate would not be accepted as proof of export unless the SSI unit did not undertake exports either directly or through merchant-exporter directly from the SSI unit itself. In this case, it was pointed out by SDR, the exports were made by the appellants' buyers from the latter's premises and not from the former's and, therefore, the appellants would not be entitled to employ the Form-H certificates as proof of export of the cartons supplied to their buyers. We are not inclined to accept this contention inasmuch as the Board's clarification as to the manner of exportation has to be understood conjointly with the relevant provisions of the Central Sales Tax (Registration and Turnover) Rules, 1957. Rule 10(a) of the CST (R&T) Rules, 1957 reads as under:
A dealer may, in support of his claim that he is not liable to pay tax under this Act in respect of any sale of goods on the ground that the sale of such goods is a sale in the course of export of these goods out of the Territory of India within the meaning of Sub-section (3) of Section 5, furnish to the prescribed authority a certificate in Form 'H' duly filled, and signed by the Exporter alongwith the evidence of export of such goods.
It is not in dispute that the appellants obtained certificates in "Form H" from M/s. A.V. Thomas Co. and other similar customers and used the same before the Sales Tax authorities for exemption from payment of sales tax on the cartons sold to such customers. The Revenue has no case that the appellants did not obtain such exemption from payment of sales tax. This would mean that the Revenue has accepted the fact that the sale of 'printed cartons' by the appellants to the said customers was a sale in the course of export of the goods out of India. The above rule contemplated export of the goods by the purchaser. By no stretch of imagination can it be said that the above rule contemplated retention of possession of the goods by the dealer (appellants in the present case) for its direct exportation from their own premises by the buyer (M/s. A.V. Thomas Co. or other similar customer in this case). If the very physical export of the goods sold by the appellants to their customers is required to be made from the appellants' premises, why should the appellants be required to gather proof of export (in the form of Form-H certificate) from their customer ? We have perused a specimen "Form-H" certificate issued by M/s. A.V. Thomas Co. to the appellants. This document (No. 107 dt. 3.1.05) certified as under:
Certified that the goods the Particulars whereof have been specified in items (1) and (2) of the Schedule below supplied in pursuance of my/our Purchase Order No. (ANNEXURE ENCLOSED) Purchased from you as per bill/cash memo/Challan NO. (ANNEXURE ENCLOSED) dated (ANNEXURE ENCLOSED) for Rs. 88,64,004/15 have been utilized by me/us in the packing of the goods exported by me/us outside the territory of India, as per the details given in item (3) to (6) of the said schedule.
The Schedule to the above certificate described the goods as "boxes/packing materials" and also provided export details including the particulars of the relevant Air Waybills in proof of export of goods across the Indian customs frontiers. It was submitted by learned Counsel that all the "Form-H" certificates produced by the appellants had indicated that the goods covered therein were used by the buyers in the packing of goods exported by them. The details regarding exports which were required to be mentioned in the Schedule to each certificate were furnished in a tabular statement annexed to the document. Such a document was liable to be accepted as proof of export by the appellants' customer, of the cartons supplied by the appellants. It would not cease to be proof of export by mere reason of the fact that the exportation was done by the customer from his own premises and not directly from the appellants' factory. Therefore, we are of the view that the interpretation given by learned SDR to the Board's Circular No. 648/39/2002 would not be consistent with the provisions of law governing issuance of "Form-H" certificate. It is not the case of the Revenue that the cartons supplied by the appellants to A.V. Thomas Co. and other similar customers were not exported. It is, however, pointed out that the cartons were not exported as such, but were only used as packing material for goods exported by the customers. We find that, in the case of M/s. Radhey Paper Udyog (supra), there was an identical factual situation. In that case, corrugated boxes supplied by the said party (SSI unit) were used by their buyer for packing shoes, which were exported. The Tribunal held that such clearances of corrugated boxes by the SSI unit were not to be included in the aggregate value of clearances by the unit for the purpose of claiming the benefit of SSI exemption. The Revenue has no case that the Tribunal's decision in Radhey Paper Udyog dt. 27.1.2005 was not accepted. Earlier decision to the same effect of the learned Single Member in the case of International Corrugators (supra) was also, apparently, accepted by the Revenue.
6. In Circular No. 212/96-CX dt. 20.5.96, the Board simplified the export procedure for SSI units. Where the export of goods cleared from SSI unit was effected through a merchant-exporter, the certificate in "Form-H" issued by the latter was accepted as proof of export and it was provided that, in case clearances from SSI unit for home consumption plus clearance for export, where proof of export was not furnished within 6 months, exceeded exemption limit, they should take Central Excise registration and follow the regular A.R.4/A.R.5 procedure. Where proof of export was furnished within 6 months, the clearances made for export were not to be added to clearances for home consumption. Circular No. 648/39/2002-CX. affirmed the position and further clarified that the above facility was available only in respect of exempted units which undertook exports themselves or through merchant-exporters. Ld. SDR argued that, for the above benefit, the SSI unit must be an "exempted unit", i.e. unregistered unit, and the export must be made either directly or through merchant-exporter. Neither of the Notifications speaks of registration of SSI unit. In the SSI scheme, a manufacturing unit is said to be 'exempted unit' for a given financial year if it has enjoyed SSI exemption in the previous year. If, by excluding the clearances made by such a unit for export from the computation of aggregate value of clearances in a given financial year, it is within exemption limits, it is an 'exempted unit'. In this sense, the appellants remained an "exempted unit", thereby satisfying the first condition proposed by SDR. Circular No. 648/39/2002-CX. specifically refers to goods manufactured and cleared by SSI unit for packing of other goods for export. This circular deals with "Form-H" procedure as applicable to SSI unit selling goods to a merchant-exporter. This would mean that it is open to the merchant-exporter to use packing materials supplied by the SSI unit for packing his own goods for export. By this activity, he does not turn "manufacturer-exporter". In other words, M/s. A.V. Thomas Co. and other customers of the appellants who used the "printed cartons" supplied by the appellants for packing their own goods for export cannot be called "manufacturer-exporters" insofar as the cartons are concerned. They can only be called "merchant-exporters" of the cartons. Thus both the conditions proposed by learned SDR were satisfied by the appellants. Hence by ld. SDR's yardstick also the appellants must be held to have established their case for acceptance of "Form-H" certificates as proof of export in respect of the "printed cartons" supplied by them to M/s. A.V. Thomas Co. and other similar customers during the period of dispute. It is ordered accordingly.
7. As we have already noted, each certificate in "Form-H" has a Schedule thereto, which contains details of exports, such as particulars of Air Waybills. These details are found elaborately in tabular statements annexed to the certificate. It is for the Commissioner to verify these particulars of exports to satisfy himself that every consignment of "printed cartons" removed from the appellants' factory under an invoice was exported by the buyer. For this purpose, the appellants shall be given an opportunity of adducing documentary evidence and of being personally heard. Ld. Commissioner shall examine such evidence along with other evidence already on record, consider the party's submissions and record fresh findings on the surviving issues.
8. In the result, the impugned order is set aside and the appeal is allowed by way of remand for the aforesaid purpose. The application for extension of stay is dismissed as infructuous.
(Operative part of the order was pronounced in open court on 31.1.07)