Custom, Excise & Service Tax Tribunal
M/S Shree Krishna Paper Mills & ... vs Cce, Jaipur on 5 October, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
Principal Bench, New Delhi
COURT NO. I
DATE OF HEARING : 28/09/2016.
DATE OF DECISION : 05/10/2016.
Excise Appeal No. 3484 of 2010
[Arising out of the Order-in-Original No. 22/2010 (C.E.) Commissioner dated 04/08/2010 passed by The Commissioner of Central Excise, Jaipur.]
M/s Shree Krishna Paper Mills & Industries Ltd. Appellant
Versus
CCE, Jaipur Respondent
Appearance
Shri A.K. Sharma, Sr. Vice President for the appellant.
Shri Yogesh Agarwal, Authorized Representative (DR) for the Respondent.
CORAM : Honble Shri Justice Dr. Satish Chandra, President
Honble Shri B. Ravichandran, Member (Technical)
Final Order No. 53948/2016 Dated : 05/10/2016
Per. B. Ravichandran :-
The appeal is against order dated 04/08/2010 of Commissioner of Central Excise, Jaipur I. The appellants are engaged in the manufacture of writing paper and news print paper. They were availing Cenvat credit of duty paid on inputs, capital goods and input services. From 01/04/08 they have started availing exemption under Notification No. 4/2006-CE dated 01/3/2006 in respect of writing paper. News print paper which is also manufactured by the appellant is liable to nil rate of duty as per tariff. The officers of Central Excise conducted certain verification of records of the appellant in January 2009. It was noticed that the appellant have availed Cenvat credit on inputs and input services received on or after 01/04/08. Further, the credit of duty taken on inputs lying in stock, inputs contained in WIP (Work in Progress) and inputs contained in finished goods as on 01/04/08 has not been reversed by the appellant. It was also noticed that credit on inputs and input services availed for the period prior to 01/04/08, but lying in balance as on 01/04/08, is also to lapse in the accounts of the appellant. On these three issues proceedings were initiated against the appellant by issue of show cause notice dated 28/04/09. The adjudication was completed by the impugned order. The Commissioner held against the appellant on all the three issues, as above and imposed a penalty of Rs. 5 lakhs on them in terms of Rule 15 (1) of Cenvat Credit Rules, 2004. The present appeal is directed against the said impugned order.
2. Shri A.K. Sharma, appearing on behalf of the appellant submitted that they have availed exemption under Notification No. 4/2006-CE for the first clearance of 3500 MT in a financial year. The whole demand relating to reversal of Cenvat credit as well as lapsing of such credit as on 01/04/08 which is subject matter of the present adjudication, is hit by time bar.
3. Further, on merit, it is submitted that the provisions of Rule 11 (2) is not applicable to the present case as it is only a transitory provision. The exemption under Notification No. 4/2008-CE is issued under Section 5A of Central Excise Act, 1944. The same is subject to condition and it is not absolute exemption. Further, reliance was placed on various decided cases by the Tribunal, High Courts and Supreme Court.
4. The learned AR reiterated the findings of the Original Authority. He submitted that the appellants started availing full exemption in terms of Notification No. 4/2008-CE, Sl. No. 90 of which grants exemption for the first clearance of 3500 MT. Such quantity based exemption is clearly covered under the provisions of Rule 11 (2). Further, it is very clear that the appellants continue to avail credit even after 01/04/08 when they are not liable to pay any Central Excise duty on their final products. This is a clear violation of Rule 6 (1) of Cenvat Credit Rules, 2004. The various case laws cited by the appellant are not on the facts of the present case. None of the decisions are on the applicability of Rule 11 (2) of Cenvat Credit Rules, 2004. The statutory provision is very clear and there is no reason to deviate the findings of the Original Authority.
5. We have heard both the sides and perused the appeal records. The three points are all inter-connected to the issue of appellant availing exemption under Sl. No. 90 of Notification No. 4/2006-CE. On the first point regarding Cenvat credit of duty availed on inputs and input services received by the appellant on or after 01/04/2008 it is clear that such credits are availed in violation of Rule 6 (1) of Cenvat Credit Rules, 2004. The provisions of said rule clearly states that the Cenvat credit shall not be allowed on such quantity of input used in or in relation to manufacture of exempted goods. As such, the manufacturer is not eligible to avail any credit when they are manufacturing only exempted goods.
6. The second and third issue are regarding reversal of credit availed on inputs, inputs contained in WIP and finished goods as on 01/04/08 as well as lapsing of balance of credit lying on the books of accounts of the appellants as on 01/04/2008; we note that legal issue in this regard has been settled by various decisions of the Honble High Courts and Honble Supreme Court. The Honble High Court of Himachal Pradesh in Ranbaxy Laboratories Ltd. vs. CCE, Chandigarh reported in 2012 (279) E.L.T. 194 (H.P.) examined similar set of facts and reversed the decision of the Tribunal. The findings of the Honble High Court is as below :-
13.?It would be worthwhile noticing that while relying upon the decision of Apex Court in Dai-Ichi Karkaria Ltd. (supra), this Court in United Vanaspati Ltd., (supra), has held :-
The short question which arises for decision is whether a manufacturer who has obtained credit of the Central Value Added Tax paid by him in respect of the raw material and inputs lying in stock or in process or contained in the final product lying in stock is required to refund/repay the credit when the final product is exempted from excise. The main argument of Shri Sandeep Sharma, learned Assistant Solicitor General of India is that the authorities below have not taken into consideration Rule 9(2) of the Cenvat Rules.
A show cause notice was issued to the assessee on 31-1-1997 asking it to reverse the Modvat credit of Rs. 93,584/- on the inputs in hand and in process as well as on the inputs contained in the final product as on 23-7-1996.
The undisputed facts of the case are that the assessee is engaged in the manufacture of vegetable products and was taking credit of the duties paid on the inputs used in the manufacture of final products. The final product was exempted from payment of duty vide notification No. 16/96-C.E. dated 23-7-1996. Therefore, the notice was issued requiring the assessee to reverse the credit of Rs. 93,584/-. The assessee contested this notice on the ground that once the credit has been taken, the same cannot be dis-allowed since in the books it had already been used and there was no legal provision which provided for recovery of such credit. It was further contended that Rule 57C places a bar on taking credit of inputs used for the manufacture of final product exempted from duty. However, as per the assessee, this Rule comes into operation only after the date when the final product is exempted and there was no legal provision requiring it to reverse the credit which it had taken prior to the date of the issuance of the exemption notification. The Assistant Commissioner did not accept the plea of the assessee and dis-allowed credit of Rs. 93,584/-.
The assessee filed an appeal and the Commissioner (Appeals) upheld the order of the Assistant Commissioner. Thereafter, the assessee approached the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) which allowed the appeal in view of the law laid down by a Five Member Bench in CCE, Rajkot v. Ashok Iron & Steel Fabricators reported in 2002 (48) RLT 789.
The main argument of Shri Sandeep Sharma, learned Assistant Solicitor General of India is that in the case of Ashok Iron & Steel Fabricators, the Tribunal held that there was no rule which permitted the department to seek reversal of the Modvat credit. He relies upon Rule 9(2) of the Cenvat Rules in this behalf.
It is pertinent to mention here that the Apex Court in Collector of Central Excise, Pune and others v. Dai Karkaria Ltd. and others, 1999 (7) SCC 448 considered a similar question relating to the reversal of Modvat credit under Central Excise Rules, 1944. Rule 57H (5) of the said Rules reads as follows :-
Where a manufacturer who opts for exemption from the whole of the duty of excise leviable on goods manufactured by him under a notification based on the value or quantity of clearances in a financial year, and who has been availing of the credit of the duty paid on inputs before such option is exercised, he shall be required to pay an amount equivalent to the credit, if any, allowed to him in respect of inputs lying in stock or used in any finished excisable goods lying in stock on the date when such option is exercised and after deducting the said amount from the said amount from the balance, if any, lying in his credit, the balance, if any, still remains shall lapse and shall not be allowed to be utilized for payment of duty on excisable goods, whether cleared for home consumption or for export.
After considering the Rule 57, the Apex Court held as follows :-
It is clear from these rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the rules which provides for a reversal of the credit by the Excise Authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilized, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available.
Rule 9(2) of the Cenvat Rules reads as follows :-
A manufacturer who opts for exemption from the whole of the duty of excise leviable on goods manufactured by him under a notification based on the value or quantity of clearances in a financial year, and who has been taking of Cenvat credit on inputs before such option is exercised, he shall be required to pay an amount equivalent to the Cenvat credit, if any, allowed to him in respect of inputs lying in stock or in process or contained final products lying in stock on the date when such option is exercised and after deducting the said amount from the balance, if any, lying in his credit, the balance if any, still remaining shall not be allowed to be utilized for payment of duty on excisable goods, whether cleared for home consumption or for export.
The language of Rule 57H(5) of the Excise Rules and Rule 9(2) of the Cenvat Rules is identical, therefore, the decision also has to be similar.
It would also be pertinent to mention here that the High Court of Kerala in Collector of Central Excise and Custom, Cochin v. Premier Tyres Ltd. 2001 (130) E.L.T. 417 following the judgment of the Apex Court answered a similar question in favour of the assessee and against the Department.
It would also be pertinent to mention that the judgment of the Tribunal in Ashok Iron and Steel Fabricators case has been upheld by the High Court of Rajasthan in Hindustan Zinc Ltd. v. Union of India, 2008 (223) E.L.T. 149. The High Court held as follows :-
It can be seen from yet another angle. In case inputs are received in factory and used in manufacture of end product. But the end product is destroyed by fire before stage of its removal from factory premise. In such circumstances, no excise duty becomes payable on end product. Yet Modvat credit availed on inputs used in destroyed goods is not to be recalled. This is also suggestive of the fact the relevant date for considering exemption from duty of the end product in or in relation to which inputs are used is the date of its receipt in factory and condition is its actual use in or in relation to manufacture of end product by the manufacturer. The chargeability to duty or non-chargeability due to exemption or notified nil rate is to be considered at the stage before goods are actually produced, but on receipt of inputs intended to be used in manufacture of such goods. That being so ultimate clearance of goods at nil rate due to contingency existing at the time of removal does not affect the entitlement that legally arises long before that date.
14.? We are in respectful agreement with the judgment of the Kerala [2001 (130) E.L.T. 417 (Ker.)] and Rajasthan High Courts. Since the language of Rule 9(2) of the Cenvat Rules is identical to that of Rule 57H(5) of the Excise Rules, we feel that the interpretation given by the Apex Court has to apply in the present case also and, therefore, even though the final product may be exempt from payment of excise, the assessee cannot be asked to reverse the Modvat credit already taken by it.
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16.? Further our attention has been invited to the decision rendered by the Division Bench of High Court of Karnataka in CEA No. 82 of 2007 [2011 (268) E.L.T. 49 (Kar.)], titled as Commission of Central Excise, v. M/s TAFE Limited (Tractor Division), wherein it has been held that once the input credit is legally taken and utilized on the dutiable final product, it need not be reversed on the final product being exempted subsequently. However, if products are purchased subsequent to the said exemption and if any tax is paid on such inputs, as the final product is exempted from payment of tax, the assessee would not be entitled to avail the Cenvat credit on such inputs. But the Cenvat credit availed on such inputs till the date of exemption, vest in the assessee and the assessee cannot be divested of that credit as the law does not provide for the same. The Court further held that Revenue cannot take advantage of the notification exempting the final product and claim reversal of Cenvat credit either in respect of final product which have come into existence on the date of the notification or on the inputs stored in the godown or the work in progress and finished products. Significantly, SLP (Civil) CC 14763/2011, titled as Commr. of Cen. Exc. Bangalore v. M/s TAFE Limited, Doddaballapur, assailing the aforesaid judgment stands dismissed by the Apex Court vide its order dated 16-9-2011.
17.?In the instant case, there is no dispute that credit claimed is with regard to the goods manufactured prior to the year 2005.
18.?In Eicher Motors Ltd. v. Union of India, 1999 (106) E.L.T. 3 (S.C.), while interpreting Rule 57F(4A) of Central Excise Rules, 1944, which are almost similar to the instant Rules, the Apex Court has held that if on the inputs the assessee had already paid the taxes on the basis that when the goods are utilized in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs, that right would continue until the facility available thereto gets worked out or until those goods existed. The Court further held that Section 37 of the Act does not enable the authorities concerned to make a rule, subjecting the goods to taxation and applying it to goods manufactured prior to 16-3-1995, on which duty already stood paid and credit facility availed of for the purpose of manufacture of further goods.
19.?We also find that not only this Court but other High Courts have also taken a similar view while deciding the similar and/or identical substantial question of law. Following decisions are referred to in this regard:-
(i) CCE v. Premier Tyres Ltd., 2001 (130) E.L.T. 417 (Ker);
(ii) TAFE Limited (Tractor Division) v. CCE, 2007 (210) E.L.T. 571 (Tru.-Bang.);
(iii) Hindustan Zinc Ltd. v. CCE, 2008 (223) E.L.T. 149 (Raj);
(iv) CCE v. CNC Commercial Ltd., 2008 (224) E.L.T. 239 (P & H); and
(v) CCE v. Apco Pharma Ltd., (2011) 33 STT 491 (Uttrakhand).
7. In view of the above settled position of law, we find that there is no justification to demand reversal of Cenvat credit already availed and also lying in books of accounts of the appellant. However, no fresh credit can be taken from 01/04/2008 on any inputs as the appellants were manufacturing only exempted goods from that date and they are not covered by the credit scheme during that period.
8. Regarding imposition of penalty under Rule 15 (1) of Cenvat Credit Rules, 2004 we find that considering our finding that except for credits availed after 01/4/2008, the appellant is not liable to reverse/lapse the other credits duly taken, it is right and proper to reduce the penalty to Rs. 1 lakh on the appellant.
9. In view of the above findings, the appeal is partly allowed to the extent discussed above.
(Order pronounced in open court on 05/10/2016.) (Justice Dr. Satish Chandra) President (B. Ravichandran) Member (Technical) PK ??
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