Customs, Excise and Gold Tribunal - Delhi
Life Long Appliances Ltd. vs Commissioner Of Central Excise on 26 April, 2000
Equivalent citations: 2000(72)ECC313, 2000(123)ELT1110(TRI-DEL)
ORDER C.N.B. Nair, Member (T)
1. The appellants are engaged in the manufacture of Over Toaster Griller classifiable under sub-heading 85.16 of the Central Excise Tariff Act. Parts of their produce is sold with the brand name of another, namely "Bajaj". Therefore, those goods are not eligible for small scale exemption. They claimed benefit of exemption under Notification No. 16/97 in respect of the remaining goods sold by them under their own brand name "Lifelong". The impugned order has denied them the exemption on the ground that the appellants had taken Modvat credit in respect of inputs used for the manufacture of the goods sold under the brand name Lifelong in violation of Para 2 (iii) of Notification No. 16/97. Para 2 (iii) of the Notification stipulates that the exemption shall apply only subject to the condition that "the manufacturer does not avail of the credit of duty" under Rule 57A.
2. The contention of the assessee is that revenue's allegation that they had availed themselves of Modvat credit on the inputs used in the manufacture of Oven Toaster Griller sold under their own brand name of "Lifelong" is not factually correct at all. They explained that the inputs for the products manufactured under the two brand names "Bajaj" & "Lifelong" being common, they procured the stores together and credit of duty paid on the inputs taken on receipt of the inputs. The inputs used in the manufacture of 'Bajaj' brand name goods are eligible for Modvat Credit as those Oven Toaster Grillers were liable to duty. The appellants were paying 8% duty under Rule 57CC in respect of Oven Toaster Griller cleared under brand name of ' Lifelong' in consideration of taking of Modvat credit on the entire quantity of common inputs procured. They contend that the payment of 8% duty was to compensate for the Modvat credit taken on the inputs used in the manufacture of goods on which exemption is claimed and such payment of duty is equivalent to not availing of Credit in respect of inputs used in the manufacture of exempted goods. It has been submitted that when raw-materials are commonly procured and stored for manufacture of exempted and dutiable goods, the requirement under Modvat rules was that the assessees reverse the Modvat credit used in the manufacture of exempted goods. With the coming into effect of Rule 57CC, the appellants had the option either to store the inputs for manufacture of exempted goods separately without taking credit or to pay 8% duty on the manufactured goods. During the hearing, Ld. Counsel for the appellant submitted that it was settled legal position that reversal of credit taken satisfied the condition of not taking Modvat credit. He relied on the decision of the Supreme Court in the case of Chandrapur Magnet Wires Ltd. v. CCE reported in 1991 (81) ELT 3 (SC) in support of this submission. The Ld. Counsel for the appellant submitted that in the present case also, the appellant having paid 8% duty, the goods cleared under the brand name Lifelong had to be treated as goods produced without taking Modvat credit. As against this, the Ld. DR has submitted that it is a condition of Notification No. 16 that the manufacturer does not avail of the credit of duty under Rule 57A. The appellant had taken Modvat credit in respect of their entire inputs, including the inputs used in the manufacture of the goods cleared under the brand name 'Lifelong'. Therefore, they remain barred from benefiting from the exemption notification. It made no difference that they paid 8% on the manufactured goods. He also submitted that exemption notification should be construed strictly and if any of the conditions of the exemption were not fulfilled, an assessee cannot benefit from the exemption notification.
3. We have perused the records and have considered the rival submissions. It is common commercial practice that assessees procure inputs intended for use in exempted and dutiable goods together and store them together. Such raw materials may go into production of both dutiable and exempted goods. If the exemption of goods in subject to the condition that no Modvat credit should have been taken on the inputs used in the manufacture of the exempted goods, the appellant had to reverse the Credit attributable to the inputs used in the manufacture of the goods on which exemption is claimed. This is the rule laid down by the Supreme Court in its judgment in the Chandrapur Magnet Wires (P) Ltd. case (Supra). The exemption claimed in that case was under Notification No. 69/86. It was a condition in the Notification that "No Credit of duty paid on goods used in the manufacture has been taken under Rule 56A of the Central Excise Rules." The appellant had initially taken Credit of the duty paid on the inputs used in the manufacture of the exempted goods but reversed the same. The Supreme Court held as under:
6. It is true that the assessee has not maintained separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods, as should have been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration. There is no doubt that the assessee should have maintained separate accounts for duty free goods and the goods on which duty has to be paid. But our attention was drawn to a departmental circular letter on this problem in which it has been clarified by the Ministry of Finance as under:
3. The credit under Modvat rules may be maintained chapterwise, Modvat credit is not available if the final products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products.
This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products.
7. In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods.
4. The present appellant's case is identical. They were also producing exempted and dutiable goods from the same inputs which were procured and stored together. The exemption which they claimed was also subject to the same condition that Modvat credit should not have been taken on the inputs used in the manufacture of the exempted goods. In order to satisfy these requirements they paid Central Excise Duty of 8% as fixed for such cases under Rule 57CC. Rule 57CC relates to "adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer". This rule is specific to cases where adjustment of credit is required to be made as the inputs have gone into the production of exempted final products. Sub-rule (1) of this rule specifically provides that payment of duty at 8% may be done, if the manufacturer is not able to meet the requirement [under Sub-rule (9)] of maintaining separate inventory and accounts of the receipt and use of inputs for the manufacture of goods on which exemption is claimed. Such payment of duty at 8% brings about the adjust of excess credit taken. In other words, it is equivalent to reversal of credit on inputs. Therefore, the appellant had satisfied the requirement of not taking Modvat credit on the inputs used in the manufacture of exempted goods. Their case is specifically covered by Rule 57CC as well as the decision of Supreme Court with regard to not availing of Modvat credit on inputs in the Chandrapur Magnet Wires (P) Ltd. case. The impugned order is, therefore, clearly erroneous. The same is accordingly, set aside and the appeal is allowed.