" IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL EASTERN ZONAL BENCH: KOLKATA REGIONAL BENCH – COURT NO. 1 Excise Appeal No. 77089 of 2019 (Arising out of Order-in-Original No. 03/COMMR/CGST & CX/KOL/NORTH/2019-20 dated 07.06.2019 passed by the Commissioner of C.G.S.T. & C.X., Kolkata North, G.S.T. Bhawan, 180, Shantipally, Rajdanga Main Road, Kolkata – 700 107) WITH Excise Appeal No. 77090 of 2019 (Arising out of Order-in-Original No. 03/COMMR/CGST & CX/KOL/NORTH/2019-20 dated 07.06.2019 passed by the Commissioner of C.G.S.T. & C.X., Kolkata North, G.S.T. Bhawan, 180, Shantipally, Rajdanga Main Road, Kolkata – 700 107) AND Excise Appeal No. 77156 of 2019 (Arising out of Order-in-Original No. 03/COMMR/CGST & CX/KOL/NORTH/2019-20 dated 07.06.2019 passed by the Commissioner of C.G.S.T. & C.X., Kolkata North, G.S.T. Bhawan, 180, Shantipally, Rajdanga Main Road, Kolkata – 700 107) M/s. Electrosteel Castings Limited 30, B.T. Road, Khardah, Kolkata – 700 115 (West Bengal) : Appellant VERSUS Commissioner of C.G.S.T. and Central Excise Kolkata North Commissionerate, G.S.T. Bhawan, 180, Shantipally, Rajdanga Main Road, Kolkata – 700 107 (West Bengal) : Respondent Shri Rajesh Daga, C/o. M/s. Electrosteel Castings Limited 30, B.T. Road, Khardah, Kolkata – 700 115 (West Bengal) : Appellant VERSUS Commissioner of C.G.S.T. and Central Excise Kolkata North Commissionerate, G.S.T. Bhawan, 180, Shantipally, Rajdanga Main Road, Kolkata – 700 107 (West Bengal) : Respondent Commissioner of C.G.S.T. and Central Excise Kolkata North Commissionerate, G.S.T. Bhawan, 180, Shantipally, Rajdanga Main Road, Kolkata – 700 107 (West Bengal)) : Appellant VERSUS M/s. Electrosteel Castings Limited 30, B.T. Road, Khardah, Kolkata – 700 115 (West Bengal) : Respondent Page 2 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB APPEARANCE: Shri Arvind Baheti, Chartered Accountant, for the Assessee/Co-noticee(s) Shri S. Dey, Authorized Representative, for the Revenue CORAM: HON’BLE SHRI ASHOK JINDAL, MEMBER (JUDICIAL) HON’BLE SHRI K. ANPAZHAKAN, MEMBER (TECHNICAL) FINAL ORDER NOs. 77186-77188 / 2025 DATE OF HEARING: 05.08.2025 DATE OF DECISION: 07.08.2025 ORDER: [PER SHRI ASHOK JINDAL] Both sides are in appeal against the impugned order. 2. The facts of the case are that M/s. Electrosteel Castings Limited (hereinafter referred to as the “appellant”) is engaged, inter-alia, in the manufacture and sale of ductile iron pipes (hereinafter referred to as the “final goods/Pipes”) classifiable under Chapter 73 of the Central Excise Tariff. The appellant-company was operating under the CENVAT scheme and duly registered with the excise authorities. They were also engaged in the execution of water supply projects on a turnkey basis for which it was also registered with the Services Tax authorities. 2.1. DI pipes are, inter alia, used for transportation of water. During the relevant period, apart from clearing goods on payment of excise duty, the Appellant had also supplied DI pipes to various Central and State Government Departments/Agencies executing drinking water projects for human/animal consumption in different parts of the country on the strength of certificates from competent public authorities (District Collector/District Magistrate/Deputy Commissioner), inter alia, claiming Page 3 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB the benefit of exemption Notification No. 6/2002 (substituted by 47/2002). The essentiality certificates from the competent public authorities were furnished to the jurisdictional authorities before effectuating exempted clearances thereunder. 2.2. The clearance of excisable goods under an exemption notification invariably results in a CENVAT loss on inputs and input services used in the manufacture of such goods in view of Rule 6 of the CENVAT Credit Rules (CCR). Prior to 16th May 2004, the appellant was not maintaining separate records and therefore, was required to pay 8% of the price of the exempted goods while operating under the exemption notification. With effect from 16 May 2004, albeit the appellant started maintaining separate records, 8% prescribed under Rule 6 was taken as a rough and ready measure to quantify the CENVAT foregone. Therefore, contracts/work orders entered into by the Appellant with Central/State Government Departments and Agencies provided for recovery of such CENVAT loss as a part of the price of pipe supply. Further, for the period prior to 16 May 2004, there was also practice of reflecting such 8% as CENVAT loss in the body of the excise invoice itself. 2.3. Based on the inducement by one of the competitors of the appellant, a massive pan-India investigation was carried out by the officers of Directorate General of Central Excise Intelligence (“DGCEI”). During the course of investigation, the books of accounts and records of the appellant for the relevant period were scrutinized and the statements of appellant’s key personnel and customers were recorded. The appellant made an under-protest Page 4 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB payment of Rs.2,00,00,000/- to the government exchequer. 3. Pursuant to the said investigation, a Show Cause Notice dated 06th October 2006 was issued. The demand under the said impugned notice can be broadly bifurcated into the following two headings: - Sl. No. Allegation against the Appellant in the SCN Proposed demand in the SCN 1. Alleged incorrect availment of the Exemption Notifications resulting in non-payment of the excise duty, thereby attracting Section 11A of the CEA on the following grounds: a. Exemption availed for pipes for usage beyond the first storage point b. Exemption availed for pipes for usage where Water Treatment Plant (WTP) does not exist c. Exemption availed for the pipes where the actual usage was different from the intended use Rs. 25,97,46,026/- 2. Alleged recovery of excise duty from the consumers while operating under the exemption notifications thereby attracting Section 11D of the CEA Rs. 23,51,02,747/- Total Rs. 49,48,48,773 Further, personal penalties under the relevant Central Excise Rules (“CER”) were also sought to be imposed on seven Key Managerial Personnel of the appellant- company / co-noticees. Page 5 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 4. Thereafter, the matter was adjudicated and the impugned order dated 07.06.2019 came to be passed, partially dropping the demand in favour of the appellant, while confirming the balance as follows: a. With respect Serial No. (1) of the Table A above, the Ld. Adjudicating Authority allowed the benefit of exemption to pipes used beyond the first storage facility, resulting in dropping of demand to the tune of Rs. 19,34,85,383/-. Balance demand of Rs. 6,62,60,643/- was confirmed. b. With respect to Serial No. (2) of the Table A above, the Ld. Adjudicating Authority dropped the demand of Rs. 7,55,30,006/- pertaining to the period when separate records were not maintained by the Appellant and Rs. 1,49,01,761/- based on a communication from IVRCL specifically admitting that they had received the goods totally exempted. Balance demand of Rs. 14,46,70,979/- was confirmed. c. Personal penalty was confirmed only with respect to the Co-Appellant to the tune of Rs. 1,00,00,000/-. 4.1. At this juncture, it has been pointed out by the Ld. Counsel for the appellant that the ld. adjudicating authority has specifically observed that the demand of Rs.6,62,60,643/- has been confirmed both under Sections 11A and 11D of the Act which, being alternative demands, could not have co-existed and could have been recovered only once, yet refrained from giving effect to the same in the final confirmation of demands. Page 6 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 5. Against the said order, the appellant-company has preferred the appeal bearing No. E/77089/2019 in so far as it seeks to confirm the impugned demands. The Co-appellant, namely, Shri Rajesh Daga, by way of appeal bearing No. E/77090/2019 has challenged the imposition of personal penalty on him under Rule 26 of the Central Excise Rules, 2002. 5.1. The Revenue has also filed an appeal (E/77156/2019) against the impugned order on the ground of non-imposition of penalties on the other co-noticees by the Ld. adjudicating authority. 6. The Ld. Counsel appearing on behalf of the appellant-company viz. M/s. Electrosteel Castings Limited, and Shri Rajesh Daga, the appellant no. 2, made various submissions in support of his contentions, which can be summarized as under: - A. Submissions with respect to Demand raised under Section 11A of the Central Excise Act, 1944: (i) Exemption has been claimed on the basis of Certificates issued by the prescribed/competent public authority and thus the revenue authority had no jurisdiction to question the wisdom of the prescribed/competent authority and/or interpret the scope of the exemption otherwise: (ii) The exemption in the instant case is a conditional one as the same requires the issuance of a certificate by the competent public authority of the district in which the Plant is located to the effect that the goods are required for the purpose specified therein. It is Page 7 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB undisputed that the Appellant had produced the requisite Certificates issued by the competent authorities before the lower authorities prior to effectuating clearances under the exemption notification. It is also undisputed that the Certificates are not fake/forged or obtained fraudulently having been sourced by the Government Departments executing such water supply project for provision of drinking water for human consumption. (iii) Once such eligibility Certificate has been issued by the prescribed public authority in accordance with law, requirement under the notification stood satisfied and the revenue cannot question the wisdom of the prescribed public authority or go behind such Certificate in denying the benefit of exemption basis its own interpretation of the purport and scope of the exemption as categorically held by the Courts/Tribunal in the following cases: • Indian Hume Pipe Co. Ltd. Vs. CCE, Tiruchirappalli [2017 (358) E.L.T. 732 (Tri. – Chennai) • The Indian Hume Pipe Vs. Commr. of C. Ex., Tirunelveli [2017 (9) TMI 695 (Tri. Chennai)]. • Jain Irrigation Systems Ltd. Vs. Commr. of C. Ex. & Cus., Nashik [2017 (358) E.L.T. 677 (Tri. – Mum.)] • Commr. of Cus. (Imports), Mumbai Vs. Tullow India Operations Limited [2005 (189) E.L.T. 401 (SC)] • P & C Constructions P. Ltd. Vs. Commr. of Cus. & C. Ex., Salem [2018 (18) G.S.T.L. 462 (Tri. – Chennai)] Page 8 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB (iv) The ld. adjudicating authority has negated the acceptance of such certificates on the ground that the order of the Tribunal in the case of Indian Hume Pipes (supra) has been challenged by the Department before the Hon’ble Supreme Court and the same has been stayed by the Apex Forum. In this regard, it is being submitted that the departmental petition has since been withdrawn, and the stay has been vacated. Therefore, the judgement of the Tribunal is fully operational and continues to hold field and is squarely applicable to the facts of the current case. (v) Water Treatment Plant is defined in an inclusive manner and the same need not be an elaborate establishment of machinery and the test for qualifying a set-up as “Plant” must be based on durability and functionality of treating water for making it fit for human consumption: (vi) In terms of the explanation to the Exemption Notification, a WTP includes a plant to carry out any process of purification/treatment of water to make it fit for human/animal consumption. The process of treatment of water cannot be uniform in a country like India which has significant diverse topography, source of water and soil conditions. Therefore, water can be treated in various ways including desalination, demineralization, chlorination, sedimentation, filtration among others. The same is also evident from some of the prominent scientific dictionaries and water treatment manual issued Page 9 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB by the Central Public Health and Environmental Engineering Organization (CPHEEO). (vii) “Plant” has not been strictly defined under the said exemption notification or under the relevant statute. In terms of the judgement of the Hon’ble Supreme Court in the case of Scientific Engineering (P) House Vs. Commissioner of Income Tax [1986 (1) SCC 11] any machinery, apparatus, instrument etc. that satisfies the tests of functionality and durability shall qualify as a plant. Therefore, a set-up which meets the function of treating the water to make it fit for human/animal consumption and has durability shall also qualify as a plant. Various process of treatment of water can be carried out in Clear Water Reservoirs (CWRs), sedimentation tanks and tubewells. The same is evident from the various tender documents and circulars of technical committees issued by the departments of the respective states. Such set- ups, which meet the tests of functionality and durability in terms of the judgement of the Hon’ble Supreme Court supra, shall also qualify as plant for the purpose of the aforesaid notification. (viii) The ld. adjudicating authority has misinterpreted the communications of the executive/project engineers and/or the schematic diagrams submitted by them to render an erroneous conclusion in Paragraph 14 of the impugned order that the water treatment set-up in those drinking water projects does not qualify as a WTP, without even summoning the competent public authorities, which issued the Page 10 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB essentiality certificates, to enquire into the process and machinery employed in the water supply projects. The said observation is also contradictory to the judgement of the Tribunal in the case of the Indian Hume Pipe (supra) whereby it was held that water can be treated even through simple processes and does not require an elaborate establishment of machinery. Moreover, the appellant has controverted the observations of the ld. adjudicating authority with respect to each of the work order as contained in Paragraph 14 of the impugned order on a sample basis in the convenience compilation. (ix) Notification does not contemplate actual use but intended use and therefore the benefit cannot be denied based on eventual actual use: (x) The Exemption Notifications do not stipulate any end use requirement. The only condition prescribed under the said notifications is to furnish certificate from the competent authorities certifying the intended use of the final goods. The Appellant cannot be expected to do a policing on the end use of such final goods. Once such certificates have been submitted by the Appellant, specifying the intended use of the final goods and the same have not been disputed/challenged by the Revenue, the benefit of the exemption cannot be denied even if some of the said final goods could not have been used for the actual intended purpose. Reliance in this regard is being placed on the following judgements: Page 11 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB • Electrosteel Castings Limited Vs. Commissioner of Central Excise, Kolkata – III [2023 (9) TMI 284 (Tri. Kol.)] • B. State of Haryana Vs. Dalmia Dadri Cement Limited [2004 (178) E.L.T. 13 (SC)]. (xi) In any event, the Ld. adjudicating authority has rendered a specific finding in Paragraph 14 of the impugned order that on several occasions the pipes cleared with the purpose of providing potable water have been used for other purposes viz., sewerage and industrial purpose. It is submitted that pipes used for industrial purposes were in any case exempt under Notification No. 3. Mere mentioning/quoting of a wrong exemption notification in the certificate shall not disentitle the Appellant from the benefit of the exemption. Reliance in this regard is placed on the judgement of the Tribunal, Bangalore in the case of Ms. Kirloskar Electric Co. Ltd. Vs. Commissioner of Central Excise, Customs and Service Tax, Belgaum [2019 (4) TMI 581 (Tri. – Bang.)]. B. Submissions with respect to Demand raised under Section 11D of the Central Excise Act, 1944: (i) Provisions of Section 11D not attracted unless any amount collected as representing duty of excise in the assessment document i.e. the excise invoice; and no presumption/inference can be drawn merely because contract price is stated to be inclusive of duty when the supplies are otherwise under an exemption notification: Page 12 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB (ii) The excise invoices raised with respect to the exempted clearances made during the relevant period does not reflect any excise duty having been charged by the appellant-company and the same stands duly certified by a Chartered Accountant. No amount “representing duty of excise” can be said to have been collected when the same has not been reflected/shown in the excise invoices, which are assessment documents in terms of Section 12A of the CEA. Tribunals have consistently taken a view that even if the contracts indicate the prevailing excise duty rates, in absence of specific indication of the same in the excise invoices, it cannot be said that any excise duty was charged from the customers. Hence, demand cannot be sustained under Section 11D of the CEA. Reliance in this regard is placed on the following judgements: • Electrosteel Castings Limited Vs. Commissioner of Central Excise, Kolkata – III [2018 (11) TMI 907 (Tri. – Kol.)] • Mayfair Polymers P. Ltd. vs. Commr. of Central Excise, Ahmedabad [2009 (234) ELT 663 (Tri. – Ahmd.)] • Shree Shyam Pulp and Board Mills Ltd. Versus Commr. of C.Ex., Meerut-II [2018 (364) ELT 205 (Tri. – All.)] • Poddar Industrial Corporation Versus Commissioner of C.Ex., Patna [2003 (158) ELT 473 (Tri – Kolkata)] • Todi Rubber Pvt. Ltd. Versus Commissioner of Central Excise, Nagpur [2018 (361) ELT 737 (Tri. – Mumbai)] Page 13 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB • Commissioner of Central Excise, Aurangabad Versus Tapi R.C.C. [2005 (186) ELT 107 (Tri. – Bom.)] [Affirmed by Bombay High Court in 2015 (318) ELT A47 and 2016 (342) ELT 16] (iii) Periodical demands were also raised under Section 11D on some of the work orders which are also covered in the instant proceedings but was subsequently dropped by the Ld. Adjudicating Authority vide Order No. 27 dated 29.11.2011. The said order has also been accepted by the Department. Balance demand in the said proceedings was also dropped by the Tribunal vide its order dated 12.11.2018 [2018 (11) TMI 907 (Tri. – Kol.)]. The Departmental Appeal before the Hon’ble Calcutta High Court against the said order is currently pending and no stay has been granted by the Hon’ble Court. (iv) Section 11D was not applicable to clearances of exempted goods prior to the insertion of sub-section (1A) with effect from 10 May 2008: (v) Section 11D prior to its amendment with effect from 10.05.2008 was applicable only to situation where the person liable to pay duty had collected any amount in excess of the duty assessed/determined and paid on such excisable goods as evident from Section 11D(1). Therefore, it was implicit that the goods should have been duty paid goods. In terms of the judgement of the Hon’ble Supreme Court in the case of CCE Vs. Dhiren Chemicals [(2002) 139 E.L.T. 3 (SC)] exempted/nil rated goods cannot be said to be duty paid goods. Therefore, the provisions of Section 11D were Page 14 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB not applicable on exempt/nil rated goods prior to 10.05.2008. The same has been consistently held by the Tribunals in the following cases: • Electrosteel Castings Limited Vs. Commissioner of Central Excise, Kolkata – III [2018 (11) TMI 907 (Tri. – Kol.)] • Everest Industries Limited Vs. CCE [2019 (6) TMI 735 (Tri. – Chennai)] • The Indian Hume Pipe Company Limited Vs. CCE & ST, Madurai [2017 (11) TMI 1322] • Ascent Laboratories Limited Vs. CCE [2008 (221) E.L.T. 583] (vi) Section 11D(1A) specifically included exempted goods and/or goods chargeable nil rate of duty within its fold in addition to excisable goods prevalent prior thereto and therefore it cannot be anybody’s case that exempted excisable goods were covered by pre-amended Section 11(D). The aforesaid position has also been clarified vide Board Circular No. 334/1/2008 – TRU dated 29.02.2008. The same is also an accepted position in the relevant note-sheets of Department pertaining to the proceedings for the subsequent period as stated above. Since the demand in the instant case wholly pertains to the period prior to 10.05.2008, the demand raised by invoking Section 11D is not sustainable. (vii) An assessee maintaining separate account could not be put to dis-advantage vis-à-vis an assessee not maintaining separate accounts in the matter of reimbursement of CENVAT loss incurred under both the options, prescribed in Rule 6: Page 15 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB (viii) In a case where an assessee does not maintain separate records with respect to inputs/input services used in dutiable and exempted goods, it has been held by the Larger Bench of the Tribunal in the case of Unison Metals Vs. Commissioner of Central Excise, Ahmedabad – I [2006 (4) STR 491] and has also been clarified by the Board vide its circular bearing No. 870/8/2008-CX dated 16.05.2008 that provisions of section 11D is not attracted on the collection of 8% CENVAT loss from the customers. Relying upon the same, demand for the period when the Appellant was maintaining separate records has been dropped by the Ld. Adjudicating Authority in the instant proceedings. It cannot be denied that the Appellant continued to suffer CENVAT loss even during the period when separate records were being maintained, in the form of credit foregone. Therefore, when such loss was allowed to be collected when no separate records were maintained, the appellant cannot be put a disadvantage by disallowing such collections when separate records were being maintained. Reliance in this regard is being placed on the Board Instruction No. 96/85/2015 – Cx. dated 07.12.2015 whereby it was clarified that the provisions of Section 11D are not attracted even if such amount is collected from the buyer but not deposited with the Department. Such a notification being a beneficial one has to be applied retrospectively. Page 16 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB (ix) The amount of 8% was collected “in lieu of excise duty”, which itself clarifies that the amount collected was other than excise duty: (x) The ld. adjudicating authority has relied upon Clause 7(ii) to aver that 8% was being collected in lieu of 16% excise duty and as such the said amount of 8% also represents excise duty. It is submitted that the expression “in lieu of” has been defined in the Black’s Law Dictionary to mean “instead of or in place of; in exchange or return for”. The said phrase was also interpreted by the Hon’ble Karnataka High Court in the case of CIT Vs. P. Surendra Prabhu in the context of the Income Tax Act, 1961 to mean that the expression “profit in lieu of salary” is not the same as salary but would mean gain or advantage that the assessee would receive instead of or in place of salary. Similarly, in the instant case, the expression 8% of the basic price (as per Rule 6 of the CCR) in lieu of 16% excise duty applicable otherwise cannot be held to be a collection of excise duty per se and that too when such 8% was not shown and charged separately as excise duty in the assessment document. The Department had no business to go into the economics of the negotiated contract price which was a matter of arrangement between the parties inter se, as held by the Tribunal in the case of Ultratech Cement Ltd. Vs. CCE reported in 2010 (259) ELT 452 (Tri. - Ahmd.). Page 17 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB C. Other Submissions (i) The demand of Rs. 6,62,60,643/- confirmed by the Ld. Adjudicating Authority suffers from serious infirmities as the same has been confirmed under both Section 11A and Section 11D of the CEA. Sections 11A and 11D operate on two different aspects i.e., one for demand of duty short paid and other for recovery of amount collected from customers in excess and therefore cannot operate simultaneously. Reference is drawn in this regard to Bharat Petroleum Corporation Limited Vs. Commissioner of Central Excise, Allahabad [2017 (351) E.L.T. 313 (Tri. – All.)] (ii) The instant proceedings have been kept in abeyance for a period of more than 12 years without any reasons whatsoever and therefore the revival of the proceedings after such an inordinate delay is in clear violation of principles of natural justice. It is a trite law that show cause notice which have not been adjudicated for a long period of time deserves to be quashed. Reliance in this regard is being placed on the judgement of Surendralal Girdharilal Mehta Vs. Union of India [2018 (364) ELT 81 (Cal. HC)] and G.D. Traders Vs. Commissioner of Customs (Port), Kolkata [2025 (3) TMI 790 (Tri. Kol.)]. (iii) Extended period of limitation cannot be invoked against the Appellant in the instant case as there was no suppression and/or misrepresentation of facts and accordingly imposition of penalty is not sustainable. Page 18 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB (iv) The entire demand in the instant case has been raised beyond the normal period of limitation by invoking Section 11A(1) of the CEA. In terms of the submissions made above, Section 11A is itself not applicable in the instant case therefore the question of invocation of extended period of limitation does not arise. Further, any suppression or material misstatement of facts cannot be alleged against the appellant as the exemption was claimed by the appellant on the strength of valid certificates issued by the competent authorities. Invocation of extended period of limitation requires establishment of necessary mens rea on the part of the appellant. Reference is drawn in this regard to Uniworth Textiles Limited Vs. CCE [2013 (288) E.L.T. 161 (SC)]. However, in the instant case, the various evidence relied upon by the Department fail to establish any mala fide intent on the part of the Appellant. (v) Further, when the demand is itself unsustainable, there can be no question of imposition of penalty under Section 11AC of the CEA. Reliance in this regard is being placed on the judgement of the Hon’ble Supreme Court in the case of Devans Modern Breweries Limited Vs. CCE [2006 (202) E.L.T. 744]. D. Submissions with respect to personal penalty on the Co-appellant namely, Shri Rajesh Daga: (i) Penalty under Section Rule 26 can be imposed only when a person deals with excisable goods, which he knows or has reasons to believe are liable for confiscation. In the instant case does not propose any confiscation of goods from the Page 19 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB Appellant and as such personal penalty under Rule 26 is not invocable. Refer - P.M. Enterprises, reported in 2015 (328) ELT 756. (ii) The appellant no. 2 viz. Shri Rajesh Daga is only an employee of the appellant and cannot be said to derive any monetary/financial benefit in respect of the alleged omissions and commissions by the appellant-company. In the absence of any benefit accruing to the co- appellant out of the modus followed by the appellant, it cannot be alleged at all that there existed a guilty mind on the part of this appellant so as to evade payment of duty. (iii) When penalty has been imposed on the Company, there is no question of imposing personal penalty on the employee/key managerial person. Reference is drawn in this regard to CCE vs Bhavani Smelters Pvt Ltd [2009 (236) ELT 176]. (iv) Mens rea, which is an essential ingredient for the imposition of penalty, has not been established in the instant case and as such penalty cannot be imposed on the Co-Noticee. The appellant relies in this regard on the decision in the case of V.P. Yadav vs CCE & ST [2018 (361) ELT 1030]. (v) When the demand is itself not sustainable, personal penalty under Rule 26 cannot be imposed. Reliance in this regard is placed on Shri Mahavir Ferro Alloys Pvt. Ltd. and Shri Vicky Jain Managing Director Versus Commissioner of CGST & C. Ex. [2025 (2) TMI 477 – (Tri. – Kol.)] Page 20 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 7. On the other hand, the Ld. Authorized Representative of the Revenue supported the impugned order qua confirming the demand against the assessee-appellant along with the penalties imposed thereon on the appellants, but contested the aspect of non-imposition of penalty on other co-noticees by the ld. adjudicating authority. 8. After hearing the parties, we find that the following issues emerge: - (A) Whether duty can be demanded under Section 11A of the Central Excise Act, 1944 on the ground that the appellant-company has incorrectly availed the benefit of exemption as provided under Notification No. 06/2002 on the allegations of (i) No water treatment plant (“WTP”), (ii) Pipes supplied to such projects were not used for the intended purpose, without disputing the veracity and authenticity of the certificates based on which the exemption was claimed and/or the use of such pipes in the water supply projects, or not; (B) Whether duty can be demanded under Section 11D of the Central Excise Act, 1944 on the ground that while claiming the benefit of the said exemption Notification, the appellant has recovered an amount equal to 8% / 16% representing excise duty from the said customers by merging the same as part of basic price, without disputing that excise/commercial invoice did not reflect any excise duty element separately, or not; and Page 21 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB (C) Whether penalty can be imposed on Shri Rajesh Daga, the then AGM of the appellant- company (appellant no. 2) under Rule 26 of the Central Excise Rules, 2002, in the facts and circumstances of the case, or not. 9. We find that the facts are not in dispute that the appellant-company has cleared the said pipes, for water treatment plants, by claiming exemption in terms of Notification No. 06/2002-C.E. dated 01.03.2002, as amended, during the relevant period under dispute. For better appreciation of the facts, the relevant portion of the above exemption Notification is extracted hereinbelow: - “In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table below or specified in column (3) of the said Table read with the concerned List appended hereto, as the case may be, and falling within the Chapter, heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the corresponding entry in column (2) of the said Table, - (a) from so much of the duty of excise specified thereon under the First Schedule (hereinafter referred to as the First Schedule) to the Central Excise Tariff Act, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table; and (b) from so much of the Special duty of excise leviable thereon under the Second Schedule (hereinafter referred to as the Second Schedule) to the Central Excise Tariff Act, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (5) of the said Table, subject to the relevant conditions specified in the Annexure to this notification, and referred to in the corresponding entry in column (6) of the said Table : Provided that nothing contained in this notification shall apply to goods falling under sub-heading No. 3605.10 Page 22 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB against S. Nos. 65, 66, 67 and 68 of the said Table on or after the 1st day of April, 2002 : Provided further that nothing contained in this notification shall apply to the goods specified against S. Nos. 193, 195, 199 and 200 of the said Table on or after the 1st day of March, 2005. Explanation. - For the purposes of this notification, the rates specified in columns (4) and (5) of the said Table are ad valorem rates, unless otherwise specified :- Table S. No. Chapter or heading No. or sub- heading No. Description of goods Rate under the First Sch- edule Rate under the Second Sch- ed-ule Co- ndi- tion No. (1) (2) (3) (4) (5) (6) “196A 84 or any other Chapter The following goods, namely :- (1) All items of machinery, including instruments, apparatus and appliances, auxiliary equipment and their components/ parts required for setting up of water treatment plants; (2) Pipes needed for delivery of water from its source to the plant and from there to the storage facility. Explanation. - For the purposes of this exemption, water treatment plants includes a plant for desalination, demineralization or purification of water or for carrying out any similar process or processes intended to make the water fit for human or animal consumption, but does not include a plant supplying water for industrial purposes. Nil - 47A [Notification No. 06/2002-C.E. dated 01.03.2002, as amended vide Notification No. 47/2002-C.E. dated 06.09.2002] Page 23 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 9.1. The above said exemption is available subject to fulfilment of Condition No. 47A appended to the said Notification. The said Condition 47A reads as under: - 47A. If, a certificate issued by the Collector/District Magistrate /Deputy Commissioner of the District in which the plant is located, is produced to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction, to the effect that such goods are cleared for the intended use specified in column (3) of the Table.” 9.2. In the impugned order, the ld. adjudicating authority has denied the benefit of the aforesaid exemption Notification on the ground that such pipes have allegedly not been used for their intended purpose viz., supply of water, and that there is no water treatment plant in existence. 9.3. We find that, as per Condition No. 47A of Notification No. 06/2002-C.E. dated 01.03.2002, as amended, a certificate is required to be issued by the Collector/District Magistrate /Deputy Commissioner of the District in which the plant is located, which is to be produced to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction, to the effect that such goods are cleared for the intended use. For better appreciation of the facts, one such certificate produced by the appellant is reproduced below: - Page 24 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 10. From the above, it is seen that such certificate satisfies the Condition No. 47A of the said Notification i.e., the same has been issued by the Collector & District Magistrate, Dungarpur, in terms of Notification No. 47/2002-C.E. dated 06.09.2002, for the pipes in question being used in Water Supply Scheme Reorganization of UWSS Sagwars (Gada Vejaniya) as sanctioned by the competent authority of the State Government. Thus, these pipes are meant for intended use, as per the said Notification. Page 25 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 10.1. In the impugned order, however, the ld. adjudicating authority has neither disputed the said fact nor proved that the certificate on the basis of which exemption is claimed by the appellant is a fake/fabricated certificate. 10.2. In these circumstances, we hold that the benefit of the exemption Notification No. 06/2002-C.E. dated 01.03.2002, as amended vide Notification No. 47/2002-C.E. dated 06.09.2002, cannot be denied to the assessee-appellant. 11. The said view has also been taken by this Tribunal in the decision rendered in the case of M/s. The Indian Hume Pipe Co. Ltd. & ors. v .Commissioner of Central Excise, Tirunelveli [2017 (9) TMI 695 - CESTAT, Chennai] wherein it has been observed as under: - “8. On the first issue regarding the liability of the appellant under Notification No. 6/2002-CE, we note that all supplies of pipes are made in terms of the certificate issued by the jurisdictional District Collectors. The certificates categorically mentioned the requirement of pipes for the projects referring to the above mentioned Notification. However, the Revenue held a view that wherever there is no treatment plant the whole exemption will not apply. Here we note that this is against the certificate issued by the District Collector. Generally, when an exemption notification is to be extended based on a certificate by third party Government authority, such certificates unless repudiated are to be accepted for extending the benefit. Such view has been taken by the Tribunal in various cases. A reference can be made to the recent decisions in the cases of P&C Constructions P. Ltd. Vs. Commissioner of Central Excise Final Order No. 41721/2017 dated 11.8.2017. The similar decisions can be referred to in Jain Irrigation Systems Ltd. Vs. Commissioner of Central Excise 2017-TIOL-918-CESTAT-MUM: M/s. Laxmi Pipes and Fittings Pvt. Ltd. Vs. Commissioner of Central Excise 2017-TIOL-2160-CESTAT-DEL and in the appellant s own case vide Final Order No. Page 26 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 42123/2016 dated 1.11.2016. In view of the consistent finding of the Tribunal, on similar set of facts, we find denial of exemption is not tenable. Here we also note that the Id. counsel submitted that the treatment plant does not mean an elaborate establishment of machinery. There can be a situation where the water can be made fit for distribution for human consumption, by a simple process including at the place of source. It is his case that the plant cannot be so strictly interpreted to refer to only an elaborate process of treatment.” 11.1. The said order was challenged before the Hon'ble Apex Court and thereafter, the said order has been affirmed in Civil Appeal No. 11184 to 11187 of 2018 vide Order dated 14.08.2023. 11.2. Further, in the case of M/s. Jain Irrigation Systems Ltd. v. Commissioner of C.Ex. & Cus., Nashik [2017 (358) E.L.T. 677 (Tri. – Mumbai)], a similar issue was again dealt with by this Tribunal, wherein it was held as under: - “9. It is for the very reason that such projects undertaken in public interest prescribes certification by responsible public authorities. Undoubtedly, interpretation of exemption notifications cannot be left to the hands of authorities that are not created by or acknowledged in the relevant taxing statutes. However, the nature of the project to which the exemption is extended, if certified by the authority specified in the notification, cannot also be questioned by taxing authorities that are not conversant with such projects. Thus, where certificates are the qualification for exemption, it is not open to the Central Excise authority to overrule that certification. This has been unambiguously enunciated by the Hon’ble Supreme Court in re Dalmia Dadri Cement Ltd.” Page 27 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 11.3. In this regard, it is also relevant to refer to the judgement in the case of Commissioner of Customs (Imports), Mumbai v. M/s. Tullow India Operations Ltd. [2005 (189) E.L.T. 401 (S.C.)], wherein the Hon'ble Supreme Court has made the following observations: - “35. The essentiality certificate, thus, must be treated to be a proof of the fact that the importers have fulfilled the conditions enabling them to obtain the benefit under the exemption notification. 36. The principles as regard construction of an exemption notification are no longer res integra; whereas the eligibility clause in relation to an exemption notification is given strict meaning wherefor the notification has to be interpreted in terms of its language, once an assessee satisfies the eligibility clause, the exemption clause therein may be construed liberally. An eligibility criteria, therefore, deserves a strict construction, although construction of a condition thereof may be given a liberal meaning. 37. The decision of this Court in Jindal Drilling and Indus Ltd. (supra), relied upon by Mr. Ganguly has no application to the facts and circumstances of the instant case. 38. It is true that ordinarily, the golden rule of literal interpretation must be given effect to. But it is also well-settled that where literal interpretation gives rise to an anomaly of absurdity; the same should be avoided. [See Ashok Lanka and Another v. Rishi Dixit and Others - (2005) 5 SCC 598]; Colgate Palmolive (India) Ltd. v. MRTP Commission and Others - (2003) 1 SCC 129]. 39. Furthermore, it is also well-settled that the Legislature always intends to avoid hardship. In a situation of this nature, the exemption notification cannot be construed in a way which would prove to be oppressive in nature. However, we do not intend to lay down a law that delay on the part of the authorities in granting such certificates would automatically enable an assessee to obtain refund. Each case has to be judged on its own facts.” Page 28 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 11.4. Further, in the case of M/s. P & C Constructions P. Ltd. v. Commissioner of Cus. & C.Ex., Salem [2018 (18) G.S.T.L. 462 (Tri. – Chennai)], this Tribunal has again examined the issue, observing as under: - “7. The main ground raised by Revenue is that certificate issued by the District Collector cannot be accepted as the basis for compliance of the condition in the notification. We are able to agree with this argument of the Revenue. Ld. Counsel for appellant has submitted that certificate has been signed by the District Collector as well as Executive Engineer, TWAD Board but the Revenue has acted upon a letter issued by the Executive Engineer, TWAD Special Division, Cuddalore written to the department seeking information about the exemption of the duty eligible to the appellant as well as for further information regarding clearances of goods. When the certificate has been issued by the District Collector as well as TWAD Board authorities, we have to say that department cannot deny the exemption by merely relied upon a letter issued by Executive Engineer, Special Division, Cuddalore. In the case of Jain Irrigation Systems Ltd. v. CCE & Customs, Nashik - 2017-TIOL-918- CESTAT-MUM = 2017 (358) E.L.T. 677 (Tribunal), the Tribunal in similar set of circumstances had observed that it is not open for the Central Excise authority to overrule the certificate issued by a competent a public authority. The said principle has been enunciated by the Hon’ble Supreme Court in the case of State of Haryana v. Dalmia Dadri Cement Ltd. - 2002-TIOL-262-SC-CT = 2004 (178) E.L.T. 13 (S.C.). The relevant portion of the Supreme Court judgment is reproduced as under : “10. We are unable to accept the submission of Mr. Bana that, in order to get the exemption it must be shown that the goods in question, namely, the cement supplied by the assessee in this case was actually used in the generation or distribution of electrical energy. It must be noted that the important words used in the relevant provisions are goods for use by it in the generation or distribution of such energy (emphasis supplied by us). On a plain reading of the relevant clause it is clear that the expression “for use” must mean “intended for use”. If the intention of the Page 29 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB legislature was to limit the exemption only to such goods sold as were actually used by the undertaking in the generation and distribution of electrical energy, the phraseology used in the exemption clause would have been different as, for example, “goods actually” used or “goods used”. So also this Tribunal in the case of The Indian Hume Pipe Co. Ltd. (supra) has considered the identical facts and held that contention of Revenue is unsustainable. In the judgment relied upon by Ld. Counsel for appellant in identical circumstances, the issue has been held in favour of the appellant holding that they are eligible for the exemption. Following the same, from the discussions made above, we find that the demand is not sustainable and impugned order is set aside and appeal allowed with relief if any as per law.” 12. In view of the above judicial pronouncements, we are of the considered opinion that the appellant- company is entitled to the benefit of exemption as per Notification No. 06/2002-C.E. dated 01.03.2002, as amended. Consequently, we hold that the demand amounting to Rs.6,62,60,643/- under Section 11A of the Act is not sustainable. 13. With regard to the demand of duty under Section 11D of the Act, we observe that the said issue has already been examined in the appellant's own case reported in 2018 (11) TMI 907 – CESTAT, Kolkata wherein this Tribunal observed as under: - “8. The dispute covers the period 2005-2006 to 2006-2007. For the period prior to this, the appellant was required to pay an amount @8% of the value of the exempted goods, in terms of Rule 6(3) of the Cenvat Credit Rules, 2004, for non maintenance of separate accounts for inputs used in dutiable and exempted final products. The dispute however is not with reference to such payment of 8%. To compensate for the loss of 8% by reversal, the appellant started recovering such arnounts from Page 30 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB their customers. To this effect, they successfully re- negotiated the DGS&D rate contracts. During the disputed period, even though no reversal @8% was required to be made by the appellant, they continued to recover the amounts @8% by merging it with the value charged from their customers. The records however clearly indicate that the Invoices did not indicate such amounts @8% separately as recovery of excise duty. 9. The adjudicating authority, accepting the position as above, went ahead with the order for payment of the amount recovered @8%, under Section 11D of the Act. He has considered such amount as recovered in the guise of central excise duty. The question therefore to be decided is whether the Revenue is entitled to order recovery of such amount under Section 11D as It stood at the relevant time. 10. From the impugned order we find that the adjudicating authority has recorded a categorical finding that the appellant has not collected the amount @8% by showing separately in the invoices during the relevant period. The Tribunal in the case of Mayfair Polymer Pvt. Ltd. (supra) had occasion to examine a similar situation. For a similar period (prior to amendment of Section 11D), the Tribunal has observed as follows: \"7. We have carefully considered the submissions from both sides. As the assessee has availed the exemption available to small scale unit, they were paying at different rates during the course of each financial year, depending upon the actual clearances effected by them. In the normal course, when the rates depending upon value of clearances, the assessee would have collected the price and applicable rate of duty in which case, the sale price would be different depending upon the actual rate of duty during the course of year. The assessee has chosen to supply to their customer at a fixed price, in terms of the contract, for the supplies made during the entire year. While the contract has taken note of the prevailing rate of duty, i.e. it was indicated as up to 20% in some contracts, which obviously has taken into account that during the initial period of financial year, lower rate would be applicable, the contract envisaged a fixed price for the entire year. Page 31 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB The price quoted was a cum-duty price. No evidence have been produced that the invoices raised for each consignment indicated certain duty amount and that the appellant has collected more than that amount from their customer. The contract with a view to fix the purchase price, has taken note of the prevailing rates of excise duty. It also specified that no extra amount would be payable on account of excise duty. In these circumstances, the allegation that the assessee has indeed collected no amount than what was paid as duty and that excess amount was collected representing excise has not been proved. 8. The relevant portion of Section 11D of Central Excise Act reads as follows: \"11D. Duties of excise collected from the buyer to be deposited with the Central Government. (1) Notwithstanding anything to the contrary contained' in any order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder, [every person who is liable to pay duty under this Act or the rules made thereunder, and has collected any amount in excess of the duty assessed or determined and paid on any excisable goods under this Act or the rules made thereunder from the buyer of such goods) in any manner as representing duty of excise, shall forthwith pay the amount so collected to the credit of the Central Government.\" 9. While the contract might have indicated the ruling rates of excise, the excise duty collected should be with reference to the document mentioned in Section 12A of the Central Excise Act viz. document relating to assessment as well as invoice and other like documents where the assessee was required to indicate the excise duty payable at the time of clearances of the goods. In the present case, no evidence has been produced to indicate that they have shown an amount of duty more than the what they have paid to department in such assessment documents Page 32 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB and collected such higher amounts and hence no case is made out for seeking recovery under Section 11D. Similar views have been expressed by the Tribunal in the other cases cited by the appellant and we do not find it necessary to repeat the observations of the Tribunal in other cases. 11. It is not in dispute that the appellant have not indicated in their invoices the amount of 8% separately as excise duty. Hence, in the line with the decision of the Tribunal (supra) we are of the view that the demand cannot be sustained. 12. The reference to Section 11D as it stood at the relevant time also makes it clear that the Section will have no application to exempted goods. Section 11D was made applicable to goods which are wholly exempted or chargeable to the 'Nil' rate of duty only after its amendment w.e.f. 10.05.2008. This fact has also been circulated by CBEC at the time of amendment vide their instructions dated 29.02.2008. 13. In view of the above discussions, we set aside the impugned order and allow the appeal.” 13.1. Further, we find that this issue has also been dealt with in the case of M/s. The Indian Hume Pipe Co. Ltd. & ors. v. Commissioner of Central Excise, Tirunelveli [2017 (9) TMI 695 - CESTAT, Chennai] wherein it was observed as follows: - “9. Regarding the demand under section 11D of the Act, we note that the said section stipulates that any person who has collected any amount in excess of duty assessed shall forthwith pay the amount so collected to the credit of the Central Government. Sub-section (1A) is added with effect from 10.5.2008 and the same is not applicable to the period in dispute in the present appeals. Sub-section (1) only talks about collecting any amount in excess of excise duty, representing as excise duty. Apparently, in the present case, the invoice raised by the appellant did not represent any excise duty. However, Revenue proceeded against them only on Page 33 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB the inference that the contract being inclusive of duty payable it will necessarily lead to a conclusion that the excise duty element is inbuilt and the appellant did collect the same. Support was taken from the ledger entry as indicated above. We note that the appellant accepted the said ledger entry which was also recorded in the show cause notice that they have reversed such entry recorded on due advice from the auditors. We note that even otherwise to apply the provisions of section 11D(1), it is to be clearly established that the appellant did collect any amount in excess of excise duty payable, as if representing excise duty to invoke such provision. In the present case, no such evidence is available to attract the provisions of Section 11D(1). We also refer to the decisions of the Tribunal in the case of Poddar Industrial Corporation Vs. Commissioner of Central Excise 2003 (158) ELT 473 (Tri. Kol.): Commissioner of Central Excise Vs. Tapi RCC 2005 (186) ELT 107 (Tri. Mumbai); Shreyans Industries Ltd. Vs. Commissioner of Central Excise 2005 (179) ELT 351 (Tri. Del.) and Ascent Laboratories Ltd. Vs. Commissioner of Central Excise, Mumbai 2008 (221) ELT 583. In various decisions, Tribunal held that if there is a composite contract for consideration which show excise duty is inclusive, a demand under section 11D cannot be raised.” 13.2. Admittedly, in the case on hand, the invoices raised by the appellant-company do not indicate collection of any duty from their customers. Moreover, it is also a fact that the price has been increased by the appellant-assessee, which has been accepted by their customers. In such circumstances, we find that the ratio of the decisions in the appellant’s own case for the subsequent period (supra) and M/s. The Indian Hume Pipe Co. Ltd. (supra) is squarely applicable to the facts of this case. Therefore, following the same, we hold that the demand of duty of Rs.14,46,70,979/- under Section 11D of the Act is also not sustainable. Accordingly, we set aside the same. Page 34 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 14. As no demand of duty is sustainable against the assessee, we hold that no penalty can be imposed on the appellant-company as well as its AGM / DGM (Commercial), namely, Shri Rajesh Daga, the appellant no. 2 herein. Accordingly, the penalties imposed on the appellant-company and Shri Rajesh Daga are dropped. 15. The Revenue has filed an appeal against the non-imposition of penalties on the co-noticees to the Show Cause Notice. As we have already held that no demand of duty is sustainable in this case, therefore, we find that the question of imposition of penalties does not arise. In view of this, we do not find any merit in the Revenue’ appeal and accordingly, the same is rejected. 16. In view of the above, we pass the following order: - (1) No demand is sustainable against the appellant-company under Sections 11A and 11D of the Central Excise Act, 1944. (2) No penalty is imposable on the appellant-company as well as Shri Rajesh Daga, AGM / DGM (Commercial) of the appellant-company. (3) The Revenue’s appeal deserves no merit. Page 35 of 35 Appeal No(s).: E/77089,77090,77156/2019-DB 17. In the result, the appeals filed by the assessee-appellants / co-noticees are allowed and the appeal filed by the Revenue is dismissed. (Order pronounced in the open court on 07.08.2025) (ASHOK JINDAL) MEMBER (JUDICIAL) (K. ANPAZHAKAN) MEMBER (TECHNICAL) Sdd Sd/- Sd/- "