Revenue Cannot Enforce Optional Exemption Notification Without Assessee's Consent: CESTAT

Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) opined that once an exemption is claimed, the assessee will not get CENVAT credit and may lose some other benefits. Therefore, it cannot be said that the optional exemption notification should be applied even if the assessee does not opt for it or for even for period before it opts for it.

In this case, during the relevant period, M/s. Today, Jobs, Dehradun and Maxima Solutions, Dehradun were job workers of M/s. Hindustan Unilever Ltd. in Dehradun and had undertaken certain jobs such as wrapping, pouching, packing, labelling, etc. of the goods manufactured by HUL.

One of the taxable services was 'business auxiliary service' which definition included 'processing of goods on behalf of a client' if that activity did not amount to manufacture.

Thus, if the processing undertaking by an assessee did not amount to manufacture, service tax was payable and if it amounted to manufacture, central excise duty was payable.

The department observed that as per the Chapter Note of the Central Excise Tariff applicable to the goods in question, the activities of labelling, packing and re-packing. undertaken by Today and Maxima amounted to manufacture. This legal position is not in dispute. Therefore, both Today and Maxima had to pay Central Excise duty and did not have to pay service tax.

However, a conditional, area-based central excise exemption notification no. 50/2003-CE dated 10.6.2003 was available to goods manufactured in some areas including the areas where Today and Maxima were located. To avail it, the assessee had to fulfil some conditions including the condition that it had to opt for it.

A show cause notice was issued to Maxima, Today and assessee demanding central excise duty. The demand against the assessee was dropped by the Commissioner, CGST, Dehradun.

The revenue submitted that this notification was a conditional notification available to an assessee located in the notified areas if the assessee opts for it by filing a declaration indicating therein the date from which it was opting for it. Thereafter, the assessee could not change this option for the rest of the financial year.

The assessee submitted that they had not opted for the exemption notification for the reason that they were under the impression that they had to pay service tax and were paying service tax.

The Tribunal opined that it is not for the officers to alter this choice or force any one option on the assessee or confer benefits of a notification when the assessee did not opt for it (which may have other consequences such as denial of CENVAT credit). If the assessee explicitly opts for the exemption from a particular date, it is not open to the officer or any adjudicating authority or appellate authority to apply the exemption retrospectively from some other date. This is especially so in this case because the declaration also requires the assessee to state the date from which it opted for the notification.

The bench stated that the impugned orders cannot be sustained to the extent they drop the demands even for the periods for which Maxima and Today had not opted for the exemption.

Neither can an optional exemption notification be forced upon an assessee nor can any benefits (such as CENVAT) be denied by the Revenue which inevitably follow the benefit of the exemption notification, added the Tribunal.

In view of the above, the Tribunal dismissed the appeal.

Case Title: Commissioner of Central Goods v. M/s Hindustan Unilever Limited

Case Number: EXCISE APPEAL NO. 52196 OF 2024

Counsel for Appellant/ Department: Rakesh Agarwal and R.K. Mishra

Counsel for Respondent/ Assessee: M.H. Patil, Sachin Chitnis, Viraj Reshamwala and J.M. Sharma

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