ORDER
P.G. Chacko, Member (J)
1. The appellants in Appeal Nos. E/714, 715, 969, 970, 1054 and 1055/2005 are engaged in the manufacture of disposable plastic cups/containers [Heading 39.23 / 39.24 of the CETA Schedule], which are manufactured from plastic granules (raw material). The plastic sheets arise as an intermediate product during the course of manufacture of cups/containers from granules and the same are classifiable under Heading 39.20. These plastic sheets [intermediate product] are captively consumed in the manufacture of the disposable plastic cups/containers. During the period from April to November 1997, the appellants did not pay duty of excise on the captive clearances of the plastic sheets as they were of the view that the product was exempt from payment of duty in terms of para 3(c) of SSI exemption Notification No. 16/97-CE dated 1/4/97. During the same period, they also did not pay duty of excise on plastic cups/containers [final products], claiming exemption under Notification No. 4/97-CE dated 1.3.97. This notification prescribed ‘nil’ rate of duty for excisable goods falling under Headings 39.23 and 39.24 subject to the condition that no credit of duty be availed under Rule 57A of the Central Excise Rules, 1944 in respect of the inputs used in the manufacture of the final products. The appellants did not avail such input duty credit and hence claimed to be eligible for exemption for their final products under Notification No. 4/97-CE ibid. Since the final products were cleared without payment of duty, the lower authorities held that, in terms of Notification No. 67/95-CE dated 16.3.95, the appellants should have paid duty on their intermediate product [plastic sheets] which was used captively in the manufacture of the final products. Accordingly, duty was demanded on plastic sheets for the period April – November 1997. During December 1997 – March 1998, the appellants cleared their final products [plastic cups/containers] at concessional rates of duty under SSI exemption Notification No. 38/97-CE dated 27.6.97. During this period also, they did not pay duty on their intermediate product [plastic sheets] for which they claimed the benefit of Notification No. 67/95-CE ibid. The lower authorities took the view that, for payment of duty on the final products in terms of Notification No. 38/97-CE ibid, the appellants should have taken into account the value of clearances [from the beginning of the financial year] of plastic sheets also in determining the aggregate value of clearances of ‘specified goods’ for the purpose of the Notification. Accordingly, after including the value of clearances of plastic sheets [from April 1997] in the ‘aggregate value of clearances of specified goods’ for the purpose of the Notification, the authorities found that duty was liable to be paid at tariff rate on the plastic cups/containers cleared by the appellants during the period December 1997 to March 1998. Consequently, differential demands of duty were raised on the appellants in respect of their final products cleared during December 1997 – March 1998. Penalties were also imposed on the parties under Rules 173Q and 209 of the Central Excise Rules, 1944. Hence the above appeals.
2. The appellants in the remaining appeals are engaged in the manufacture of plastic bags [Heading 39.23 of the CETA Schedule], for which also the raw material is plastic granules. During the course of manufacture of the plastic bags from the granules, an intermediate product viz. “layflat tubing” emerges, which is classifiable under Heading 39.17. During the periods of dispute, April 1997 – March 1998 in most cases and December 1997 – March 1998 in a few cases, the appellants cleared their final product without payment of duty in terms of Notification No. 4/97-CE ibid by fulfilling the relevant condition [that no credit of duty paid on inputs used in the manufacture of the final product be availed under Rule 57A of the Central Excise Rules, 1944]. They also did not pay duty of excise on their intermediate product [layflat tubings] which was captively used in the manufacture of the final product. In all cases, barring those of M/s. Uniplast Industries, M/s. Sujatha Polypack and M/s. Sakthi Plastics, both the authorities held that the appellants were liable to pay duty on the layflat tubings captively consumed in the manufacture of the final product as, according to the authorities, the benefit of exemption under Notification No. 67/95-CE ibid was not available to the intermediate product inasmuch as the final product was cleared without payment of duty. The contention raised by the assessees that the layflat tubings became dutiable only from 3.12.1997 by virtue of the amendment brought to para 3 (c) of Notification No. 16/97-CE ibid by Notification No. 69/97-CE was rejected. In the cases of M/s. Uniplast Industries, Sujatha Polypack and Sakthi Plastics, the original authorities had accepted the said contention of the assessees, but the Commissioner (Appeals) rejected the same. In the result, there are demands of duty on the appellants in respect of layflat tubings for the respective periods. There are also penalties on all of them except M/s. Sakthi Plastics. Hence the appeals of these parties before the Tribunal. In Appeal No. E/394/2006, the department is aggrieved by non-imposition of penalty on M/s. Sakthi Plastics under Section 11AC of the Central Excise Act by the lower appellate authority. In this appeal, there is a further grievance that the quantum of duty demanded in the appellate Commissioner’s order is short by an amount of Rs. 60,000/-. The Department’s appeal, which did not figure in the cause list, was called for by us for disposal along with the assessee’s appeal.
3. We have heard both sides and considered their submissions. Counsel for the assessees were led by learned Advocate Shri G. Shivadas and the case of the Department was presented by Smt. R. Bhagya Devi, learned SDR. Both argued extensively with reference to the provisions of Notifications 4/97-CE (General Exemption), No. 16/97-CE (SSI Exemption), No. 38/97-CE (SSI Exemption) and No. 67/95:CE (General Exemption for intermediate products captively consumed and filed Argument Notes also). In respect of plastic sheets, contentious arguments were advanced with reference to an amendment brought to Notification No. 16/97-CE by Notification No. 69/97-CE dated 3.12.1997 and, on this basis, the period of dispute [April 1997 – March 1998] was divided into pre-3.12.97 and post-3.12.97 segments. Learned Counsel argued that the demand of duty raised on the appellants in respect of plastic sheets [intermediate product] for the pre-3.12.97 period was unsustainable as these goods were deemed to be exempt from duty under para 3(c) of Notification No. 16/97-CE during such period. On the other hand, learned SDR contended that the provision of para 3 (c) relied on by the assessees for claiming exemption from payment of duty on the plastic sheets was retrospectively amended by Notification No. 69/97-CE and consequently during the pre-3.12.97 period also, the clearances of plastic sheets for captive use as inputs in the manufacture of final products were not to be deemed to be exempt from payment of duty under para 3(c) of Notification No. 16/97-CE as the final products were cleared at ‘nil’ rate of duty in terms of Notification No. 4/97-CE during such period. Under Notification No. 16/97-CE ibid, a SSI unit was entitled to exemption from payment of duty on their first clearances of specified goods [for home consumption] upto aggregate value of Rs. 30.00 lakhs. The concessional rate of 3% ad valorem was available for payment of duty on the next clearances of aggregate value of Rs. 20.00 lakhs and the subsequent clearances would attract duty @ 5% ad valorem. For the purpose of determining the aggregate value of clearances, the following clearances were not to be taken into account:
(a) any clearances, which are exempt from the whole of the excise duty leviable thereon (other than an exemption based on quantity or value of clearances) under any other notification or on which no excise duty is payable for any other reason;
(b) any clearances bearing the brand name or trade name of another person which are ineligible for the grant of this exemption in terms of paragraph 4 below;
(c) any clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory or production of the specified goods. Such clearances of specified goods used as inputs shall be deemed to be exempt from the whole of the duty of excise leviable thereon;
(d) any clearances of strips of plastics used within the factory of production for weaving of fabrics or for manufacture of sacks or bags made of polymers of ethylene or propylene.
(emphasis added)
Notification No. 38/97-CE also contained similar provisions. The amendment brought to Notification No. 16/97-CE by Notification No. 69/97-CE dated 3.12.97 was by way of insertion of the following clause to para 5 [Explanation]:
(f) where the specified goods are chargeable to nil rate of duty or are already exempt from the whole of the duty of excise leviable thereon under any other notification, the clearances of specified goods used as inputs, shall not be deemed to be exempt under Clause (c) of paragraph 3.
(emphasis added)
The Amending Notification added a similar clause to Explanation under Notification No. 38/97-CE also. It is not in dispute that ‘specified goods’ occurring in the first part of the above Clause (f) represent final products. The same expression occurring in the second part of the clause stands for intermediate products. According to learned SDR, the above clause, being part of Explanation to the Notification is clarificatory in nature and hence retrospective in effect. In this connection, reliance was placed on the Rajasthan High Court’s Judgment in Shree Cements v. Union of India 2003 (160) ELT 42 (Raj.). Accordingly, it has been argued that as the plastic cups/containers (final products) were cleared at ‘nil’ rate of duty under Notification No. 4/97-CE the clearances of plastic sheets [for captive consumption in the manufacture of final products] effected from April 1997 should be deemed not to be exempt under para 3(c) of Notification No. 16/97-CE. As against this, learned Counsel’s argument is that the amendment by way of insertion of the above clause in para 5 [Explanation] of Notification No. 16/97-CE is contrary to the intention behind para 3(c) of the Notification which is equivalent to Explanation III of Notification 175/86-CE interpreted by the Supreme Court and therefore it should not be given effect to. In any case, the amendment cannot be retrospective as the legal requirements for retrospective operation have not been satisfied. Therefore, according to learned Counsel, plastic sheets, being ‘specified goods’ like plastic cups/containers, would not be dutiable by virtue of SSI exemption. In this context, learned Counsel has drawn our attention to the provisions of SSI Notification No. 175/86-CE dated 1.3.1986 as also to the Hon’ble Supreme Court’s decision in Collector of Central Excise v. Universal Electrical Industries 2003 (153) ELT 266 (SC). We find that, while dealing with the question whether the value of clearances of inputs (specified goods under Notification No. 175/86-CE) used within the factory in the manufacture of finished goods (also specified goods) was to be taken into account for the purpose of calculating the aggregate value of clearances for the purpose of the Notification, the Hon’ble Supreme Court observed that such inputs also enjoyed the exemption under the Notification. On the substantive issue, their Lordships held that the value of clearances of such inputs were not to be included in the aggregate value of clearances for the purpose of the Notification.
4. Learned Counsel has also relied on the Supreme Court’s judgment in Commissioner v. Jalaram Wood Crafts (P) Ltd. 2003 (153.) ELT 251 (SC), wherein also it was held that the clearance value of inputs captively used in the manufacture of finished goods had to be excluded from the aggregate value of clearances under Notification No. 175/86-CE. M/s. Jalaram Wood Crafts (P) Ltd. were a SSI unit entitled, under Notification No. 175/86-CE, to exemption from payment of duty on final product upto a clearance value of Rs. 20.00 lakhs. The assessee who enjoyed that benefit was directed by the department to show cause as to why the benefit of Notification No. 217/86-CE [predecessor to Notification No. 67/95-CE ibid] should not be denied to them in respect of captively used inputs as their final products were cleared without payment of duty on account of exemption under Notification No. 175/86-CE. After considering the assessee’s reply, the Assistant Collector confirmed the demand of duty on such inputs. The appellate Collector affirmed the demand of duty. The assessee’s appeal was allowed by the Tribunal following its own decision in Universal Electrical Industries v. Collector , which later on came to be affirmed by the Supreme Court vide 2003 (153) ELT 266 (SC). Upholding the Tribunal’s decision (in Jalaram Wood Crafts), the Supreme Court held as under:
It is not in dispute that both the inputs as well as the final products are specified goods as they have been mentioned in the annexure to the notification. For the purposes of computing the aggregate value, both Explanation II and Explanation III have to be read together and the clearance value of the inputs will have to be excluded. This is what the assessee stated in its reply which was not appreciated either by the Assistant Collector or the Collector (Appeals). Even if the claim of exemption by the assessee in regard to the inputs is based on Notification No. 217/86 and it is not entitled to the same, it hardly makes any difference as the inputs falls within the meaning of ‘specified goods’ in Notification No. 175/86. Therefore, their clearance value ought to have been excluded while arriving at the aggregate value for the purposes of Notification No. 175/86.
(emphasis added)
For the purpose of the present case, substitute Notification No. 16/97 for Notification No. 175/86; substitute para 3(a) and 3(c) of Notification No. 16/97 respectively for Explanations II and III of Notification No. 175/86; and substitute Notification No. 67/95 for Notification No. 217/86. The apex Court’s decision would, then, provide a ratio applicable to the present case for the pre-3.12.97 period.
5. In the case of Vindhyashal Process Corporation v. CCE, Bhopal cited by learned Counsel, reinforced paper was intermediate product manufactured in the factory and consumed in the manufacture of the final product, envelopes. The envelopes were cleared at ‘nil’ rate of duty under the Tariff. SSI exemption was not availed though the product was one of the specified goods eligible for such benefit. In respect of the intermediate product, however, SSI benefit was claimed under Notification 1/93-CE (successor to Notification 175/86-CE and predecessor to Notification 16/97-CE), which was denied by the department on account of the final product being exempt under the Tariff. The Commissioner took the view that, since the final product was chargeable to ‘nil’ duty under the Tariff, the intermediate product which as input went into its manufacture could not come under the purview of Notification 1/93-CE. The Tribunal set aside the Commissioner’ order vide 2001 (136) ELT 1382. The Supreme Court upheld the Tribunal’s decision vide 2004 (167) ELT A98 (SC) following the decision in Universal Electrical Industries (supra), with the result that SSI exemption became available to the intermediate product captively consumed in the manufacture of the final product which was cleared at ‘nil’ rate of duty under the Tariff.
6. It appears to us from the apex Court’s decisions that, where the intermediate product (input) captively consumed in the manufacture of final product by SSI unit fell within the meaning of ‘specified goods’ under Notification No. 175/86-CE, it was also eligible for SSI exemption, whether or not the benefit of Notification No. 217/86 was claimed by the party and even if any claim made for such benefit was inadmissible on account of the final product being chargeable to ‘nil’ rate of duty or exempt from duty under a general exemption notification. Similarly, where the intermediate product captively consumed as input in the manufacture of final product by SSI unit prior to 3.12.97 came to be ‘specified goods’ under Notification No. 16/97-CE, it was also eligible for SSI exemption, whether or not the benefit of Notification No. 67/95-CE was claimed by the manufacturer and even if any claim made for such benefit was inadmissible on account of the final product being exempt from duty otherwise than under SSI notification.
7. The last sentence [Such clearances of specified goods used as inputs shall be deemed to be exempt from the whole of duty of excise leviable thereon] of para 3(c) of Notification No. 16/97-CE seems to indicate that the view taken on the point by the Tribunal in the case of Universal Electrical Industries, which was later on affirmed by the apex Court (vide supra), received legislative recognition. Through this deeming provision, Central Govt. was apparently granting exemption to SSI units from payment of duty of excise on ‘specified goods’ manufactured by them as intermediate product and used as input captively in the further manufacture of final product being also ‘specified goods’. However, the position changed on 3.12.97, on which date Clause (f) was added to para 5 (Explanation) of Notification 16/97-CE by Notification 69/97- CE. This Clause (f) is in the nature of a proviso to para 3(c) of Notification 16/97-CE. This is clearly discernible from the text of Clause (f) of para 5 read with that of Clause (c) of para 3 of Notification 16/97-CE. For better understanding, we shall reproduce these provisions once again:
3. For the purpose of determining the aggregate value of clearances, the following clearances shall not be taken into account, namely:
(c) any clearances of the specified goods which are used as inputs for further manufacture of any specified goods* within the factory of production of the specified goods. Such clearances of specified goods used as inputs shall be deemed to be exempt from the whole of the duty of excise leviable thereon;
5. Explanation – For the purposes of this notification
(f) where the specified goods* are chargeable to nil rate of duty or are already exempt from the whole of the duty of excise leviable thereon under any other notification, the clearances of specified goods used as inputs, shall not be deemed to be exempt under Clause (c) of paragraph 3.
“Specified goods” mentioned second in Clause (c) of para 3 and “specified goods” mentioned first in Clause (f) of para 5 represent the final products vide (*). In Clause (c), these goods are exempt from payment of duty under Notification 16/97-CE itself. These goods can also be exempt from payment of duty under any other notification (other than SSI) or chargeable to ‘nil’ rate of duty under the Tariff itself. The expression “such clearances of specified goods used as inputs” occurring in the second part of Clause (c) means clearances of specified goods used as inputs for further manufacture of the above final products (specified goods exempt under SSI notification or other notification or chargeable to ‘nil’ rate of duty) within the factory of production of such final products. Accordingly, clearances of specified goods captively used as inputs for further manufacture of specified goods (final products) which are cleared from the factory by availing exemption from payment of duty under the SSI notification or any other notification or by availing the benefit of ‘nil’ rate of duty under the Tariff itself shall be deemed to be exempt from the whole of the duty of excise leviable thereon. This is the position prior to 3.12.97. Clause (f) introduced on 3.12.97 says that, where the final products are chargeable to ‘nil’ rate of duty or are already exempt from the whole of the duty of excise leviable thereon under any other notification (other than SSI), the clearances of specified goods captively used as inputs in the manufacture of such final products shall not be deemed to be exempt under Clause (c) of para 3. In other words, from 3.12.97, the clearances of specified goods captively used as inputs in the manufacture of specified goods (final products) which are chargeable to ‘nil’ rate of duty or are already exempt from payment of duty under any other notification (other than SSI) shall suffer duty. Two categories of final products viz. specified goods chargeable to ‘nil’ rate of duty and specified goods exempt from payment of duty under any non-SSI notification were culled out from the larger group of final products (specified goods which are exempt from payment of duty under SSI notification, specified goods which are chargeable to ‘nil’ rate of duty and specified goods which are exempt from payment of duty under any non-SSI notification) covered by Clause (c) of para 3 and the same were placed in Clause (f) of para 5. With this amendment of notification 16/97, the scope of exemption of captively consumed intermediate products (inputs) from payment of duty stands reduced with effect from 3.12.1997. Accordingly, where such intermediate products (specified goods) are captively used as inputs in the manufacture of final products (specified goods) which are exempt from payment of duty under any non-SSI notification or are chargeable to ‘nil’ rate of duty, the clearances of such intermediate products (inputs) shall not be exempt from payment of duly. From 3.12.1997, only those intermediate products (specified goods) which are captively used as inputs in the manufacture of final products (specified goods) which are not exempt from payment of duty under any non-SSI notification and not chargeable to ‘nil’ rate of duty but only exempt under Notification 16/97 (SSI) can claim exemption from payment of duty of excise leviable thereon. Thus, insertion of Clause (f) in Notification 16/97 had the effect of reducing the scope of exemption of intermediate products (inputs) from payment of duty. In this view, Clause (f) has to be seen as a substantive provision rather than clarificatory of preexisting provisions of the notification. Had it been added as a proviso to para 3 of the Notification, it would have looked better. In other words, the text of Clause (f) of para 5 would have found itself in an eminent position as proviso to para 3 of the Notification. ‘Explanation’ is a misnomer for the said clause. Therefore, we are unable to accept learned SDR’s argument that the provision contained in Clause (f), being part of Explanation, should be held to be clarificatory and hence retrospective in effect. For the same reason, the ratio of the High Court’s decision in Shree Cements (supra) relied on by learned SDR is not applicable to Clause (1) of para 5 of the Notification. In the absence of any material in Notification. 16/97 or in the amending Notification (No. 69/97) to indicate that Clause (f) was introduced with retrospective effect, we hold that it has only prospective effect. Our findings in relation to Notification No. 16/97 will apply equally to the arguments made by the two sides with reference to SSI Notification No. 38/97 CE dated 27.6.97 also inasmuch as the provisions of the two Notifications are pari material and were amended in identical terms by Notn. 69/97 vide Clause (g) inserted on 3.12.97 in ‘Explanation’ under Notn. 38/97 which is identical to Clause (f) added on the same date to ‘Explanation’ under Notn. 16/97 ibid.
8. In view of our finding that the amendment of para 3 (c) of Notification 16/97, brought about by way of insertion of Clause (f) in para 5 of the Notification on 3.12.1997 has no retrospective effect, the demand of duty raised on the assessees represented by Shri G. Shivadas in respect of cups/containers (final products) for the period after the said date would not be sustainable. Such demand of differential duty was raised on the assessees in the impugned orders by adding the value of the plastic sheets (intermediate product) captively consumed in the manufacture of the cups/containers during the period April 97 to November 97, to value of clearances effected after that period. Such addition of value of clearances would not be permissible in view of our finding that the amendment brought to para 3(c) of Notification 16/97-CE dated 1.4.97 by Notification 69/97-CE dated 3.12.97 is only prospective in operation. This finding would be equally applicable to similar facts involving Notification No. 38/97-CE dated 27.6.97 also.
9. In all other appeals filed by the parties concerned, counsel/consultants adopted the arguments of learned Advocate Shri G. Shivadas. In Appeal No. E/295/2006, it was submitted on behalf of the assessee that the extended period of limitation was not to be invoked against them as penalty under Section 11 AC was dropped. In the Department’s Appeal No. E/394/2006, the challenge is against the dropping of the above penalty. In this appeal, it is also submitted that an amount of duty of Rs. 60,000/-was erroneously left out of the demand of duty sustained in the impugned order. As regards penalty, it is contended that, once it was found that the larger period of limitation was invocable against the assessee under the proviso-to-Section 11A(1) of the Central Excise Act, it was mandatory that a penalty under Section 11AC be imposed on them.
10. As we have found that the interpretation given to the amended provisions of Notification No. 16/97-CE by the lower authorities deviates from the view we have taken in this order, it is necessary that, in all these cases, the demands of duty be re-quantified by the adjudicating authorities in the light of this order. It would follow that the allied issues relating to time-bar and penalty will also have to be considered afresh by those authorities. In relation to the subject matter of the Revenue’s appeal, the adjudicating authority concerned will correct any such mistake of quantification of duty as pointed out by the appellant.
11. In the result, the impugned orders are set aside and all the appeals are allowed by way of remand. The adjudicating authorities shall pass fresh speaking orders in terms of the provisions of the various notifications as interpreted in this order, in accordance with law and the principles of natural justice.
(Pronounced in open court on 28.9 2006)