Customs, Excise and Gold Tribunal - Tamil Nadu
Sri Devaraj Fruit Products (P) Ltd. vs Collector Of Central Excise on 25 February, 1994
Equivalent citations: 1994(53)ECR219(TRI.-CHENNAI)
ORDER
S. Kalyanam, Member
1. STAY-We propose to dispose of the appeal itself today as the issue is covered by a number of rulings of this Bench and also the ruling of the Delhi High Court and therefore, grant stay of recovery of duty, pending disposal of the appeal today.
2. APPEAL-Shri Sampath, the learned Counsel for the appellants submitted that the short question that falls for consideration in the present appeal is whether the order of the original authority viz. the Deputy Collector of Central Excise dated 31.12.1992 and confirmed in appeal under the impugned order of the Collector of Central Excise, Trichy dated 8.9.1993, directing the appellants to reverse the Modvat credit taken on the duty paid inputs on the ground that after the credit had been lawfully and properly taken and before utilisation of the same, by reason of Notification 19/91 dated 25.7.1991, the end product, viz. Mango pulp came to be exempted from the payment of duty and therefore the appellants cannot take the credit in terms Rule 57C of the Central Excises and Salt Act, 1944 is sustainable in law. The learned Counsel submitted that the Tribunal in the case of Collector of Central Excise v. Wipro Information Technology in respect of proforma credit in terms Rule 56A, dealing with a similar situation and subsequently in the case of Collector of Central Excise v. Premier Tyres Ltd. reported in 1992 (62) ELT 140 and in the case of Vikrant Tyres v. Collector of Central Excise, reported in 1988 (38) ELT 302 and in the case of Sathya Steel Strips (P) Ltd., Order dated 30.11.1989 in Appeal No. E/66/88/MAS has held that taking of credit and utilisation of credit are two different and distinct legal functions and once the credit taken is proper under the rules, such properly taken credits cannot be directed to be reversed, because there is no one to one correlation between input vis a vis end product.
3. Shri Gregory, the learned SDR submitted that even though in a number of rulings it has been held that taking of credit and utilisation credit are two different and distinct functions, the department has filed reference applications for consideration of the question of law.
4. We have considered the submissions made before us. As rightly contended by the learned Counsel for the appellants the issue is squarely covered by a number of rulings of the Bench and the South Regional Bench in the case of Collector of Central Excise v. Premier Tyres Ltd. cited supra has held as under:
The Rules as such provide for taking of the Modvat credit on the specified inputs when the specified product in or in relation to which these inputs are to be used, are not exempt. In the present case it is not the case of the Revenue that the finished product for which the inputs were received, were exempt from payment of duty as such. It is possible that in some cases the finished product as such may be chargeable to duty but the same may be cleared without payment of duty under certain conditions as is the case here. Such cases cannot be taken to be covered by Rule 57C and Rule 57C can be taken to be applicable only in cases where at the time when the inputs were received and when the credit is to be taken the finished specified goods can be cleared under a general exemption notwithstanding the same being specified under Rule 57A. As mentioned earlier, we, therefore note that the credit taken was correctly taken and the only fault that can be found by the authorities is with reference to the utilisation of the same. Now, the manner of utilisation of the credit is specified under Rule 57F and under Rule 57F(3)(i) the same can be used for payment of duty on any of the final product in or in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under Sub-rule (1) of Rule 57G. It would be seen that all that the assessee has to show is that the credit has been utilised towards payment of duty of the final product which were declared under Rule 57G(1). It is not in dispute in the present case that the respondents have utilised the credit for discharge of the duty on the finished product declared by them under Rule 57G(1). It has to be observed that no one-to-one correlation has been prescribed between the inputs and the finished product for the purpose of utilisation of the Modvat Credit and all that is required is that the credit should be utilised for discharging the duty liability on the finished product which has been declared under Rule 57G(1) in respect of the inputs for which the Modvat credit was taken. Similar provision exists under Rule 56A, which is a parallel provision allowing proforma credit and this Tribunal's Special Bench in the various decisions by the respondent cited have held that even in the event of part of the goods being cleared without payment of duty the credit would still be available for discharging duty liability in respect of the remaining portion of the goods cleared on payment of duty. It may be mentioned that at the time when the inputs are received the credit taken gets added to a pool from which it can be drawn for payment of duty on the finished products as and when the same are cleared. No correspondence is provided for in regard to the quantum of inputs used in the finished product and the credit available in respect of the inputs going into a batch of the final product cleared on payment of duty. The Rules appear to have been deliberately worded so as to ensure that such question of correlation do not arise and the purpose of providing for Modvat Credit or proforma credit facilities is not defeated by each clearance becoming an issue regarding the quantum of credit that can be taken. The Rules as are worded clearly provide for the utilisation of the credit taken in respect of the inputs for payment of duty towards the final product irrespective of when the final product is cleared and whether a particular batch of inputs have gone into that particular batch of the final product. In the Rules, it is seen, so far as an event of taking credit is concerned that is provided for separately under Rule 57A and the event of utilisation of the credit has been provided for separately under Rule 57F and if the credit has been wrongly taken, the same can be reversed or recovered within a period of six months or 5 years as provided for under Rule 57I. The same would apply in case the said credit has been wrongly utilised. But each event will have to be dealt with separately. In the present case we observe there is no dispute in regard to the taking of the credit and since we have held that the credit has been correctly utilised, the respondents cannot be called upon to pay back the credit utilised as pleaded by the Revenue.
We also note that the Delhi High Court in the case of Good Year India Ltd. v. Union of India has taken a view that in respect of proforma credit scheme, the scheme provides that the credit can be utilised for payment of duty against any excisable product that are brought from the factory and no debit can be claimed after the credit has been taken on goods, brought into the factory. We also take note of the fact that there is no High Court ruling contra. In the facts and circumstances, following the ratio of the above rulings we set aside the impugned order and allow the appeal. Before parting with this case, we cannot fail to observe the none too understandable impropriety on the part of the adjudicating authority in not following the law laid down by this Bench in a catena of cases cited before the authority and the authority in open defiance of the ratio of the ruling of this Bench choosing to follow the ratio of the ruling of the East Regional Bench in the case of East India Pharmaceuticals Ltd. v. Collector of Central Excise. If the Collectorates functioning within the jurisdiction of the South Regional Bench, choose to defy orders of the Tribunal it would only result in judicial chaos and anarchy and we hope that adjudicating authorities would be aware and alive to the authoritative pronouncements of the Highest court that the law declared by the jurisdictional higher authorities has jurisdictional binding effect on them.
Sd/-
(S. Kalyanam) Member (Pronounced in the open Court) V.P. Gulati Member
5. I observe that in the present case some inputs were found to be lying in stock on the date the finished product, viz. Mango pulp came to be exempted from duty by notification 19/91 dated 25.7.1991. The Revenue is seeking to reverse the Modvat credit earlier taken in respect of these inputs. The question to be decided is as to whether legally there is any provision to recover this Modvat credit. As pointed out by the learned Counsel for the appellants, in the case of M/s. Premier Tyres cited supra, the Tribunal has held that taking of Modvat credit and utilisation of the Modvat credit are two separate legal events and it is not disputed that at the time when the inputs were brought in the appellants were eligible to take Modvat credit and it is also not the case of the Revenue that this credit taken was in any way contrary to the provisions of law. In view of this, following the ratio of our earlier decisions cited, it has to be held that the credit earlier taken could not be recovered for the reason that the inputs were still lying in stock when finished goods came to be exempted. However, we observe that as soon as the inputs are received and Modvat credit is taken in respect of the same, the character of the input changes from duty paid to non-duty paid. That is why under Rule 57F there is a provision that in case these inputs arc removed these will have to be removed on payment of duty treating these, goods as if these are the manufacture of the said factory. In the present case also, therefore, so far as the character of the input in terms of Rule 57F is concerned, the same continued to be as if these were the manufacture of the appellant even after the appellant became disentitled to the Modvat benefit consequent on the finished product becoming exempted under Notification 19/91. These goods, therefore, as and when are taken into use in the appellant's own factory or are removed from that factory will come prima facie within the purview of Rule 57F for duty payment purposes. For this however separate proceedings will have to be drawn and it is open to the Revenue, if permissible under law, taking into consideration the limitation to raise a demand in respect of these goods. I like to observe that the Tribunal has held in the case of Detergents India Ltd. v. Collector of Central Excise , where the part of the input product emerged as such after processing that the Modvat credit, in respect of this quantity cannot be reversed and in the context of part which was not utilised we have observed as under:
We observe that the authorities had not applied their mind nor have framed any issues in regard to the clearance of the spent acid but have confined themselves to the issue of whether the Modvat credit has been correctly taken. As held earlier the Modvat credit as envisaged under the Rules has been correctly taken. We like to observe that there is no one-to-one correlation prescribed for correlating the inputs and outputs. The credit taken in respect of the inputs received can be taken to form a credit pool from which the appellants can go on drawing for the purpose of paying duty on the declared specified finished product. The authorities have allowed the clearance of spent acid free of duty without applying their mind as to whether under the scheme of Modvat under the Rules this could be allowed. The issue posed before us is not in the context of the free clearance of the spent acid but in the context of only that portion of the input not consumed in the manufacturing process. As mentioned earlier, in case the portion of the input which came out unutilised in the same form, the Rules clearly provide for payment of duty on the same under Rule 57F in case the same was being cleared from the factory or for being treated as waste under Rule 57F(4). For the purpose of the appeal before us we hold that the order demanding the amount from the appellants is not maintainable in law. In the result the impugned order is set aside and the appeal allowed.