Custom, Excise & Service Tax Tribunal
M/S. Apollo Tyres Ltd vs Cce, Cochin on 21 August, 2012
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing:21/08/2012
Date of decision:21/08/2012
Appeal No.E/298, 1080/2010
(Arising out of Order-in-original No.14/2009 dt. 4/12/2009 passed by CCE&C, Cochin and No.2/2010 CE dt. 29/2/2010 passed by CCE,C&ST, Calicut)
For approval and signature:
Honble Mr. P.G. Chacko, Member(Judicial)
Honble Mr. M. Veeraiyan, Member(Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
M/s. Apollo Tyres Ltd.
..Appellant(s)
Vs.
CCE, Cochin
CCE, Calicut
..Respondent(s)
Appearance Mr.Joseph Kodianthara, Sr. Advocate for the appellant.
Mr. Ganesh Haavanur, Addl. Commissioner(AR) for the respondents.
Coram:
Honble Mr. P.G. Chacko, Member(Judicial) Honble Mr. M. Veeraiyan, Member(Technical) FINAL ORDER No._______________________ [Order per: P.G. Chacko] The appellant is engaged in the manufacture of automotive tyres, for which one of the raw materials is Nylon Tyre Cord Fabric (NTCF), which is procured from various sources and further processed in the appellants factory to get Dipped Nylon Tyre Cord Fabric(DNTCF) which is captively consumed in the manufacture of tyres.
2. The appellant had been taking CENVAT credit of the additional excise duty(AED) paid on NTCF under Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Prior to 01/03/2003, the credit of AED(GSI) could be used only for payment of AED(GSI) on any final product manufactured and cleared from the factory. The appellant was having accumulated credit of AED(GSI) amounting to Rs.9,97,11,819/- as on 01/03/2003. The amendment to the CENVAT Credit Rules(CCR), 2002 enabled the appellant to utilize credit of AED(GSI) for payment of basic excise duty(BED) on their final product from 01/03/2003. Further, as per a circular issued by the CBEC on 06/03/2003, the credit of AED(GSI) accrued prior to 01/03/2003 could be utilized for payment of BED on the final product. Accordingly, the appellant utilized the aforesaid credit of Rs.9,97,11,819/- for payment of BED on tyres for the period from February to July 2003. However, in terms of a subsequent circular issued by the CBEC, the Department issued a show-cause notice to the appellant for recovery of the above credit of Rs.9,97,11,819/- on the ground that the aforesaid amendment to the CCR, 2002 was effective from 01/03/2003 only and, therefore, the credit of AED(GSI) accrued prior to that date was not available for utilization for payment of BED on tyres. Later, the relevant rule was further amended by the Finance (No.2) Act, 2004 to provide that AED(GSI) paid on NTCF on or after 01/04/2000 only was available as credit for utilization in payment of BED on final product. By virtue of this retrospective amendment of Rule 3(6) of the CCR, 2002, utilization of credit of AED(GSI) paid prior to 01/04/2000 for payment of BED on the final product was not permissible. The amount of such AED(GSI) credit utilized by the appellant for payment of BED on tyres was Rs.5,41,28,449/- which was liable to be recovered by the Revenue. The Finance Act, 2005 introduced a procedure for recovery of the BED paid by utilizing this credit of AED(GSI) paid prior to 01/04/2000. Accordingly, the appellant paid back the entire amount of Rs.5,41,28,449/- and interest thereon in 36 monthly instalments from July 2005 to June 2008. However, upon payment of each instalment, equivalent credit of AED(GSI) was restored by the appellant to their CENVAT account and this accounting for each month was reflected in the relevant ER1 return. The total amount of AED(GSI) credit so-restored was obviously Rs.5,41,28,449/-.
3. Out of the above credit of AED(GSI), an amount of Rs.16,76,148/- was utilized by the appellant in March 2008 for payment of AED(GSI) on DNTCF manufactured from NTCF prior to 01/04/2000, for which the Department had raised a demand through show-cause notice dt. 30/10/1998. As DNTCF was further used captively in the manufacture of tyres by the appellant, credit of the AED(GSI) paid on DNTCF was also taken by them in March 2008 itself as per the CCR, 2004 and utilized for payment of BED on tyres cleared in the month of May 2008.
4. In a show-cause notice issued by the Department to the appellant in January 2009, the following proposals were raised:
(a) The AED(GSI) credit of Rs.5,41,28,449/- wrongly restored to the appellants CENVAT credit account upon payment of equivalent amount as BED on tyres in 36 instalments from July 2005 to June 2008 is recoverable from them under Rule 14 of the CCR, 2004 read with Section 11A of the Central Excise Act, 1944;
(b) The AED(GSI) credit of Rs.16,76,148/- wrongly utilized for payment of AED(GSI) on DNTCF in March 2008 is recoverable likewise;
(c) The amount of Rs.16,76,148/- paid as AED(GSI) on DNTCF and forthwith taken as credit for the second time is liable to be reversed under Rule 14 read with Section 11A;
(d) As the said credit of AED(GSI) paid on DNTCF in March 2008 was not admissible to the appellant and hence not liable to be utilized for payment of BED on tyres in May 2008, equivalent amount is recoverable as BED on the tyres under Rule 14 read with 11A;
(e) Interest at the appropriate rate is also recoverable on the aforesaid amounts under Rules 12/14 of the CCR, 2002/2004 read with Section 11AB of the Central Excise Act.
(f) Penalty is liable to be imposed on the appellant under Rule 13/15 of the CCR, 2002/2004 and Rule 25 of the Central Excise Rules(CER), 2002 read with Section 11AC of the Central Excise Act.
5. In their reply to the show-cause notice, the appellant sought to justify their actions on certain legal grounds. They also invoked the principle of restitution to justify the restoration of CENVAT credit of AED(GSI) after the repayment of duty pursuant to the retrospective amendment of Rule 3(6) by the Finance (No.2) Act, 2004. Further, they relied on Order-in-Original No.18/2006-07 dt. 28/02/2007 passed by the Commissioner of Central Excise, Mumbai-III in the case of M/s. CEAT Ltd. and also on the Tribunals decision in Goodyear (India) Ltd. vs. CCE, Faridabad [2006(199) ELT 842 (Tri. Delhi)]. The adjudicating authority, however, on its own interpretation of Rule 3(6) of the CCR, 2002 as amended from the time to time as also of the relevant provisions of the amending statutes viz. the Finance (No.2) Act, 2004 and the Finance Act, 2005, held all the issues against the assessee. As regards the Order-in-Original dt. 28/02/2007 of the CCE, Mumbai-III in the case of M/s. CEAT Ltd., the adjudicating authority noted that the said order had not attained finality inasmuch as it was appealed against by the Department and the issue involved therein was under reference by the CESTATs Mumbai Bench to a larger Bench. The case of Goodyear (India) Ltd. was distinguished by the adjudicating authority by pointing out that any situation of taking recredit of AED(GSI) accrued prior to 01/04/2000 and its utilization for payment of BED on tyres was not involved in that case. On the plea of limitation raised by the assessee, the adjudicating authority held that recovery of CENVAT credit beyond the normal period of limitation was time-barred. In the result, (a) demand of duty to the extent of Rs.1,05,24,976/- out of Rs.5,41,28,449/- found to have been wrongly recredited/restored to the CENVAT credit account as AED(GSI) credit was confirmed under Rule 14 read with Section 11A(2) of the Central Excise Act; (b) demand of duty of Rs.16,76,148/- on account of wrong utilization of ineligible credit of AED(GSI) against show-cause notice No.15/1998 dt. 30/10/1998 was confirmed under Rule 14 read with Section 11A(2); (c) the AED(GSI) credit of Rs.16,76,148/- found to have been taken wrongly for the second time was disallowed under Rule 14 read with Section 11A; (d) the demand of duty of Rs.16,76,148/- on the tyres cleared in May 2008 was confirmed under Section 11A(2) on the ground of wrong utilization of ineligible AED(GSI) credit; (e) interest at the appropriate rate was demanded under Rule 14 read with Section 11AB of the Act and (f) penalties of Rs.10 lakhs and Rs.2 lakhs were imposed on the assessee under Rule 15 of the CCR, 2004 and Rule 25 of the CER respectively. The assessees appeal No.E/298/2010 is directed against his decision of the Commissioner of Central Excise, Cochin.
6. Appeal No.E/1080/2010 of the same assessee pertains to another manufacturing unit and is directed against an order passed by the Commissioner of Central Excise, Calicut. This unit had paid BED of Rs.13,45,34,545/- on tyres by utilizing equal amount of accumulated credit of AED(GSI) paid prior to 01/04/2000. Pursuant to the relevant retrospective amendment of Rule 3(6) of the CCR, 2002 by the Finance (No.2) Act, 2004, the Department recovered this amount in 36 monthly instalments (with a total interest of Rs.2,63,26,928/-) as per the procedure introduced by the Finance Act, 2005. The assessee then restored an amount of Rs.9,39,19,737/- in their AED(GSI) credit account in March, 2008 and utilized this amount for payment of AED(GSI) on DNTCF removed for captive consumption during 1995-98. This payment of duty in March 2008 was made against a pending demand.
7. In a show-cause notice dt. 30/01/2009, the Department demanded the aforesaid amount of Rs.9,39,19,737/- from the assessee as AED(GSI) on DNTCF under Section 11AC of the Central Excise Act on the ground of irregular utilization of CENVAT credit of AED(GSI) taken on NTCF. This show-cause notice also demanded interest on duty under Section 11AB of the Act apart from proposing penalties under Section 11AC of the Act and Rule 15 of the CCR, 2004 read with Rule 25 of the CER, 2002. The demands were contested by the assessee who relied on the Tribunals decision in Goodyear (India) Ltd. (supra). After considering their submissions, the Commissioner confirmed the demand of duty (with interest) against the assessee and imposed on them a penalty equal to duty under Section 11AC of the Act and separate penalty of Rs.50,000/- under Rule 15 of the CCR, 2004. Hence the assessees appeal.
8. On the facts stated hereinabove, the following two issues are found to be common for both the appeals:
(i) Whether the recredit/restoration, in the AED(GSI) credit account, of an amount equal to the BED paid by the assessee in 36 instalments is legally sustainable. (In respect of one manufacturing unit, the assessee had restored an amount of Rs.5,41,28,449/- in their AED(GSI) credit account after payment of an equal amount of BED on their final product in 36 monthly instalments from July 2005 to June 2008. In respect of the other unit, they had restored an amount of Rs.9,39,19,737/- in their AED(GSI) credit account in March 2008 in similar circumstances.)
(ii) Whether the utilization of an amount from the AED(GSI) credit so restored for payment of AED(GSI) on DNTCF manufactured and captively consumed in the manufacture of tyres is legally sustainable. (One unit utilized an amount of Rs.16,76,148/- from the restored credit of AED(GSI) for payment of AED(GSI) on DNTCF in March 2008 while the other unit utilized the entire restored AED(GSI) credit of Rs.9,39,19,737/- for payment of AED(GSI) on DNTCF manufactured and captively consumed in the manufacture of tyres.)
9. Heard both sides. The learned counsel for the appellant referred to Order-in-Original No.18/2006-07 dt. 28/02/2007 passed by the CCE, Mumbai in the case of M/s. CEAT Ltd. and submitted that the view taken therein on an identical issue in favour of M/s. CEAT Ltd. was affirmed by this Tribunal in CCE, Mumbai vs. CEAT Ltd. [2010(254) ELT 349 (Tri. Mumbai)]. It was also contended that, as the Department had not obtained any stay of operation of the Tribunals order in the said case, the ratio of the Tribunals decision was liable to be followed in the present case also.
10. The additional Commissioner(AR) fairly acknowledged that the aforesaid two issues were covered by the Tribunals decision in the case of CEAT Tyres. He did not claim that the Tribunals decision had not attained finality.
11. On our part, we have also perused the full text of the Tribunals decision rendered in the case of CEAT Tyres. The ratio of that decision is clearly discernible from the following excerpt:
5. We have perused? the case records and carefully considered the rival submissions. The common case of the parties is that the assessee-CEAT had procured tyre cord fabrics paying AED (GSI) and used in the manufacture of its final product automotive tyres. As tyres and flaps did not attract AED (GSI) and since the relevant modvat/cenvat provisions prohibited utilization of AED (GSI) for discharge of BED payable on tyres and flaps, credit of such AED paid on inputs could not be utilized and accumulated in its account. As per Rule 3(6)(b) of CCR, Cenvat credit in respect of, inter alia, Additional Duty of Excise leviable under Sec. 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, shall be utilized only towards payment of duty of excise leviable under the said AED (GSI) Act. By issue of Notification No. 13/2003-C.E. (N.T.), dated 1-3-03, this prohibition was relaxed and the assessee was allowed use of AED (GSI) to discharge BED payable on tyres. The assessee had accumulated credit of Rs. 32,78,21,329/- which it utilized for payment of BED. Vide Sec. 88 of the Finance Act, 2004, Government restricted use of AED (GSI) for payment of BED and barred use of such AED (GSI) earned prior to 1-4-2000. Vide Sec. 124 of Finance Act, 2004, Government issued detailed directions for payment of BED discharged by the assessee along with interest @13% in 36 equal instalments. The assessee accordingly paid an amount of Rs. 65,54,373/- every month from July, 2005 to June, 2006. On payment of BED from PLA the appellant took suo motu credit of equal amount in the AED (GSI) account. Through the impugned proceedings, the department sought to disallow credit taken by the assessee under AED (GSI) account on the ground that the same was taken against TR.6 Challans and not against valid documents prescribed under the Rules. The proper procedure to take re-credit of Cenvat credit wrongly used was to file refund claim under Section 11B of the Central Excise Act. Vide the impugned order, the Commissioner held that the appellants were entitled to restoration of the AED (GSI) equal to the amount it paid towards BED on tyres, which had been initially discharged using accumulated credit under AED (GSI) available as on 1-3-2003.
6. Under Sec. 88? of the Finance Act, 2004, the following Explanation was introduced in Rule 3(6)(b) of Cenvat Credit Rules, 2004 effective from 1-3-03 :
Explanation - For the removal of doubts, it is hereby declared that the credit of the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and paid on or after the 1st day of April, 2000, may be utilized towards payment of duty of excise leviable under the First Schedule or the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986). As per these provisions, the appellants were barred from using the accumulated AED (GSI) credit earned on procurement of tyre cord fabrics prior to 1-4-2000. As on 1-3-2003, the assessee had a total credit of about Rs. 32,78,21,329/-, out of which an amount of Rs. 20,49,01,087/- had been earned prior to 1-4-2000. Had the Rule 3(6)(b) of C.C.R. not been amended with effect from 1-3-2003, the assessee would have continued to have a balance of Rs. 32,78,21,329/- including Rs. 20,49,01,087/- earned prior to 1-4-2000. Since the Finance Act, 2004 prohibited use of AED (GSI) for payment of BED, the credit balance of AED (GSI) would remain undisturbed in its account. During July, 2005 to June, 2006, the assessee had paid an amount of Rs. 65,54,373/- every month from AED (GSI) and later discharged the same liability by payment of duty from PLA. We find that credit is intended to be spent only to pay duty. The department had not recognized debits from AED (GSI) as payment of BED. Therefore, such debits cannot be held to have affected the balance of AED (GSI) in the accounts of the assessee. Therefore, once the appellant discharged the duty liability on tyres by debiting PLA, the appellants account stood credited with the debits initially made. A refund claim is warranted when duty is excess paid. In the instant case, the payment from AED (GSI) was not recognized as payment of duty. Therefore, there was no question of the assessee claiming refund of the same. The transaction utilizing AED (GSI) should be held to have been cancelled. We find that that the Commissioner properly allowed the appellant to retain the AED (GSI) credit and maintain status-quo ante once the debits made towards BED during July, 2005 to June, 2006 was held to be not payment of duty.
7. We have? considered the case laws cited by the ld. counsel for the respondents. We discuss them below seriatim.
(i) In the Friends Wire Industries case the appellant had utilized Modvat credit for payment of duty on a final product which was not declared under Rule 57G of the Central Excise Rules. While upholding demand of duty due on the final product cleared by debiting Modvat credit, the Tribunal held that duty was to be paid from PLA or in cash. When the duty was so paid, the Modvat credit which was utilized wrongly had to be restored. Its utilization for payment of duty for an eligible product could not be objected to.
(ii) In the Mahindra & Mahindra Ltd. case, dealing with a similar case of utilization of Modvat credit towards payment of duty on I.C. engines and M.V. parts, which had not been declared as final product by the assessee, the Tribunal held that while duty involved on I.C. engines and M.V. parts could be ordered to be paid through PLA that had to be simultaneous with restoration of an equivalent amount in RG-23A Part II for utilization towards the duty on the declared final product viz. motor vehicles.
(iii) In Punjab Maize Products case supra, the Tribunal granted the relief of restoration of the credit which had been held by the authorities to have been wrongly utilized for payment of duty on glucose for which the particular raw material in question had not been declared as the input. The Tribunal held that the application made for restoration of the credit which had been admittedly utilized wrongly should be allowed once the respondents had rectified the error by payment of duty from PLA.
(iv) In Kumar Auto Cast Limited case supra, the Tribunal found that the respondents had wrongly availed Modvat credit for payment of duty on MCI inserts by debiting their RG 23A Part II account. The Tribunal ordered that once they had regularized such wrong utilization of Modvat credit by payment of duty from their PLA, the RG. 23A account had to be credited with the amount debited earlier.
8. We find that? the judicial authorities cited by the appellants are to the effect that once the utilization of Modvat/Cenvat credit for payment of duty was found to be irregular and the duty was then paid from PLA, the assessee became automatically entitled to credit of equivalent amount in its RG 23A account.
11. We find that? the Tribunal had dealt with a different dispute in Final Order No. M/159/08/SMB/C-I, dated 9-7-2008 in the case of BDH Industries Ltd. [2008 (229) E.L.T. 364 (Tri. - LB)]. In the said decision, the Tribunal had considered two cases :
(a) Motorola India Pvt. Ltd. [2006 (193) E.L.T. 468 (T) = 2007 (7) S.T.R. 613 (T) = 2005 (71) RLT 334] In this case the appellant had paid excess duty by mistake and thereafter sought permission to take credit of the amount paid by mistake. The Tribunal held that the amount involved was not duty and limitation did not apply for its refund.
(b) Comfit Sanitary Napkins (I) Pvt. Ltd. - 2004 (174) E.L.T. 220.
In this case it was held that the assessee cannot suo motu take credit without applying for refund, when excess duty was paid. The conflict of views entailed the following reference to a Larger Bench of the Tribunal :-
If an assessee avails suo motu credit of the amount of duty paid in excess by him, whether the view taken by the Tribunal in the case of Comfit Sanitary Napkins (I) Pvt. Ltd. - 2004 (174) E.L.T. 220 will apply or the views taken by the Tribunal in the case of Motorola India Pvt. Ltd. - 2006 (193) E.L.T. 468 (Tri.) = 2007 (7) S.T.R. 613 (Tri.) = 2005 (71) RLT 334 will apply.
The Tribunal answered the reference holding that all types of refund have to be filed under the Central Excise Act and Rules made thereunder and no suo motu credit of the duty paid in excess may be taken by the assessee. We find that the ratio of the BDH Industries Ltd. case relates to excess duty paid and the procedure to be followed for getting back such excess duty paid. Ratio of that case does not apply to the subject case.
19. The impugned credit had? been legitimately earned by the assessee on procurement of inputs on payment of duty and used for payment of duty following the amendment of Cenvat Credit Rules under Budget 2003. Vide Circular No. 7/16/2003-C.X., dated 6-3-03, the CBEC had also clarified that it was considered appropriate not to put any cap on the use of the AED (GSI) credit accruing prior to 1-3-2003. In terms of the provisions enacted in Finance Act, 2004, the debits were held not amounting to payment of duty and the assessee was required to meet the same obligation by payment from PLA. In the instant case, the debits were held to be of no consequence when the assessee was required to pay duty initially discharged using AED (GSI) credit. Therefore, the credit needed to be restored and was correctly ordered so by the Commissioner. We find considerable merit in the finding of the Commissioner that but for the statutory changes introduced with effect from 1-3-03 following which the assessee had discharged the duty liability on tyres using AED (GSI), it would have continued to have the impugned credit in its account. We also find that the Commissioner correctly held that the respondent had taken the impugned credit under valid duty paying documents under cover of which inputs had been received. Accordingly, we sustain the impugned order and reject the appeal filed by the Revenue.
The common issues arising in the two appeals before us are squarely covered by the above order of this Tribunal and hence the same are held in favour of the appellant.
12. Two other issues arising in appeal No.E/298/2010 are the following:
(i) Whether the availment of credit of AED(GSI) paid on DNTCF in March 2008, amounting to Rs.16,76,148/-, is legally sustainable.
(ii) Whether its utilization for payment of BED on tyres in May 2008 was legally correct.
13. The learned counsel for the appellant submitted that both the above issues were covered by the Tribunals decision in the case of Goodyear (India) Ltd. (supra). It was also pointed out that this decision of the Tribunal was affirmed by the Punjab & Haryana High Court by judgment dt. 25/01/2007 in Central Excise Appeal No.140/2006 (CCE vs. Goodyear (India) Ltd.). We heard the learned Additional Commissioner(AR) also who reiterated the relevant findings of the adjudicating authority.
14. After considering the submissions, we find that the issues are covered by the Tribunals decision rendered in the case of Goodyear (India) Ltd. It is not in dispute that the AED(GSI) was paid on DNTCF in March 2008 and the same was utilized for payment of BED on tyres in May 2008. It is not in dispute that utilization of CENVAT credit of AED(GSI) paid on the input on or after 01/04/2000, for payment of BED on the final product was not affected by any of the amendments to Rule 3(6) of the CCR, 2004. In the present context, DNTCF processed from NTCF in the appellants factory is input vis-`-vis the final product, in the manufacture of which it was captively used. AED(GSI) was paid on this input by the appellant in March 2008. CENVAT credit of this duty was, therefore, available to the appellant for utilization in payment of BED on the final product. No judicial authority has been cited before us on behalf of the Department to read the expression AED(GSI) paid on or after 01/04/2000 as AED(GSI) payable on or after 01/04/2000. In the instant case, what the assessee did was utilization of the AED(GSI) paid on DNTCF long after 01/04/2000, in payment of BED on their final product. The decision rendered in the case of Goodyear (India) Ltd. (supra) supports this view. We also note that the appeal filed by the Department against that decision was dismissed by the Honble Punjab & Haryana High Court.
15. In the result, both the issues mentioned in para 12 above are liable to be held in favour of the appellant.
16. In view of the findings recorded hereinbefore, the penalties imposed on the appellant are also liable to be set aside.
17. In the result, the impugned orders are set aside and these appeals are allowed.
(Operative portion of this order pronounced in the court on conclusion of the hearing) (M. VEERAIYAN) MEMBER (TECHNICAL) ( P.G. CHACKO ) MEMBER (JUDICIAL) Nr 17