Customs, Excise and Gold Tribunal - Delhi
Eicher Tractors vs Commissioner Of C. Ex. on 31 December, 1999
Equivalent citations: 2000(116)ELT712(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. Briefly stated, the facts of the case are that the appellants are engaged in manufacture of tractors and parts thereof falling under Chapter Heading No. 8701 and 8708 of the Schedule to Central Excise Tariff Act, 1985 and availing Modvat Credit under Rule 57-A of the Central Excise Rules, 1944. The appellants manufacture tractors of two types viz. Tractors having engine capacity of more than 1800cc and less than 1800cc. The tractors having engine capacity more than 1800cc are charge-able to Central Excise duty while those having engine capacity less than 1800cc are exempted under the provisions of Notification No. 164/86, dated 23-2-1986 as amended. The appellants are using three types of inputs for manufacture of tractors. The first type of inputs are those which are used exclusively in the manufacture of dutiable tractors. The second type of inputs are those which are common for dutiable as well as exempted tractors. The third type of inputs are meant exclusively for exempted tractors. The appellants availed Modvat Credit of duty paid on the inputs exclusively meant for use in the manufacture of exempted tractors from 1-9-1996 to 20-9-1996. They also informed Deputy Commissioner, Faridabad and Jurisdictional Superintendent vide their letter dated 10-9-1996 that the subject benefit was available under Rule 57C and new Rule 57CC and that they were requested to pay amount equal to 8% of the price. During the said period, the appellants availed Modvat Credit amounting to Rs. 18,37,104/-.
2. A show cause notice dated 27-12-1996 was issued to the appellants proposing recovery of the above amount of Modvat Credit for the reason that, under the provisions of Rule 57-C(2) and 57 CC, while they were entitled to take credit of common inputs which were used in the manufacture of dutiable and exempted tractors, they were not entitled to take credit of inputs exclusively meant for use in the exempted tractors and proposing imposition of penalty.
3. The Assistant Commissioner confirmed the duty demand and also imposed penalty of an amount equal to the duty amount under Rule 173-Q(1)(bb) of the Rules read with Section 11 AC of the Act. The Commissioner (Appeals) upheld the order of the Adjudicating authority holding as under :
"The correct position in law is that Rule 57CC(1) comes into picture only when the inputs involved are common to both dutiable and exempted categories of final products which was not the case with the appellants. Accordingly, they should have followed the procedure contained in sub rule (2) of Rule 57CC and maintained separate accounts etc. and not taken credit of the specified duty on the subject inputs. As they have failed to follow the procedure contained in Rule 57CC(2) and as the procedure contained in Rule 57CC(1) was not rightly applicable to them, the provisions of Rule 57C(1) could not be deemed to be satisfied and the duty demand of Rs. 18,37,104/-has been rightly confirmed by the adjudicating authority. However, I observe that provisions of Section 11 AC are not applicable in this case as none of the grounds for imposing penalty under this section are satisfied. The appellants had followed this erroneous procedure for a total of 20 days immediately on introduction of Rule 57CC and had also informed the department regarding the same during this period. Accordingly, I hold that imposition of penalty on the appellants was not justified and I set aside the same."
Hence this appeal before the Tribunal."
4. We have heard Shri S. Madhavan, learned Chartered Accountant and Shri Mewa Singh, learned DR Rule 57C(1) of the Central Excise Rules states that 'no credit of the specified duty paid on inputs used in or in relation to the manufacture of final product...shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty'. Sub-Rule (2) states 'where a manufacturer avails of the credit of specified duty on any inputs and is engaged in the manufacture of any final product which is chargeable to duty as well as in the manufacture of any other final product which is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty in the same factory, the provisions of Sub-rule (1) shall be deemed to be satisfied only when the manufacturer follows the procedure prescribed in Sub-rule (1) of rule 57CC or the provisions of Sub-rule (2) of that rule are complied with.' While Sub-rule (1) refers to inputs exclusively used in the manufacture of exempted goods, Sub-rule (2) covers inputs used in relation to both dutiable as well as exempted products. The expression 'any inputs' used in Sub-rule (2) means inputs which are commonly used in both types of final products, dutiable and exempted and the contention of the appellants that the above expression covers exclusive inputs as well as common inputs, is not tenable, having regard to the language of Sub-rule (2) which refers to manufacture of both types of final products. The further contention of the appellants is that Sub-rule (2) of Rule 57C grants manufacturers availing of Modvat Credit on inputs, the option of following either the procedure laid down under Rule 57-CC(1) or (2), and that once the manufacturer follows anyone of the two against taking procedures, the bar against taking Modvat Credit contained in Rule 57C(1) would not apply. We do not see force in this submission. Rule 57CC(1) states that 'where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as any other final product which is exempted from the whole of duty of excise leviable thereon or chargeable to nil rate of duty' and the manufacturer takes the credit of specified duty on any input (...) which is used or ordinarily used in or in relation to the manufacture of both aforesaid categories of final products...manufacturer shall, unless the provisions of Sub-rule (2) of this rule are complied with, pay an amount equal to 8% of the price... of the second category of final products charged by the manufacturer for the sale of such goods at the time of their clearance from the factory...'. Sub-rule (2) of Rule 57CC provides that in respect of inputs which are used in or in relation to the manufacture of any goods which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventories and accounts of the receipt and use of inputs for the aforesaid periods and does not take credit of the specified duty on such inputs. A reading of the above Sub-rules makes it clear that Rule 57CC applies only to those inputs which are used in or in relation to the manufacture of both categories of final products i.e. dutiable and exempted. The segregation of inputs as prescribed under Sub-rule (2) of Rule 57CC relates to segregation of inputs (which are common to both the varieties of final product) used in exempted products from inputs used in dutiable products. To illustrate our point, let us give an example. Rule 57CC would apply to nuts and bolts which the appellants state are capable of use in tractors having engine capacity below 1800cc and exceeding 1800cc. For nuts and bolts, the appellants have the option either to pay 8% of the price of the tractors with engine capacity exceeding 1800cc (which are chargeable to duty at the rate of 10% during the relevant period) at the time of clearance of both varieties of tractors, dutiable as well as exempted; if the appellants do not wish to opt for payment of 8% of the price of exempted tractors at the time of clearance of dutiable and exempted tractors, they can maintain inventory and accounts for receipt and use of inputs going into the manufacture of the exempted variety and not avail of credit of the specified duty on such inputs i.e. inputs used in or in relation to the manufacture of exempted variety of tractors. This option under Rule 57CC is not available in respect of inputs which are exclusively used in or in relation to the manufacture of the exempted variety of tractors.
In view of the above discussion, we hold that the appellants are not entitled to take Modvat Credit exclusively meant for use in the exempted variety of tractors and they have wrongly availed of Modvat Credit of Rs. 18,37,104/-during the period from 1-9-1996 to 20-9-1996 on inputs. Accordingly we hold that they are liable to duty. We uphold the impugned order confirming the above duty demand and reject the appeal.