Customs, Excise and Gold Tribunal - Tamil Nadu
Tractors And Farm Equipment Ltd. vs Cce on 1 February, 2007
Equivalent citations: 2007(116)ECC440, 2007ECR440(TRI.-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. The appellants are manufacturers of tractors (Heading 87.01 of the CETA Schedule), which was dutiable prior to 9.7.2004. They were availing Modvat/Cenvat credit on inputs used in the manufacture of the vehicles prior to the said date. On 9.7.2004, the date on which the above goods were exempted from duty under Notification No. 6/2002-CE as amended by Notification No. 23/2004-CE dt. 9.7.2004, there were stocks of inputs as such and of final product in their factory and Cenvat credit of the duty paid on the inputs present in stock and on the inputs contained in the final product present in stock had already been taken. The credits so taken on inputs lying as such in stock as on 9.7.2004 and on inputs contained in the finished tractors lying in stock as on that date were to the extents of Rs. 2,39,29,898/- and Rs. 2,02,72,473/- respectively. According to the department, these credits were liable to be reversed by the appellants as their final product was cleared on and after 9.7.2004 at 'Nil' rate of duty under the above Notification. Therefore, a show-cause notice dated 6.5.2005 was issued to them seeking to recover the above amounts from them under Rule 14 of the Cenvat Credit Rules, 2004 with interest thereon under Rule 14 of the said Rules as also to impose penalty under Rule 15 of the said Rules. The demand in the SCN was based on Rule 6(1) of the Cenvat Credit Rules (CCR, for short) which did not allow Cenvat credit on such quantity of input which was used in the manufacture of exempted goods except in the circumstances mentioned in Sub-rule (2). Accordingly, the notice alleged that the appellants were not entitled to utilize the Cenvat credit earned on the inputs lying in stock as on 9.7.2004 and the inputs contained in the final product lying in stock as on the said date. The demand raised in the SCN was contested by the party on the strength of case law concerning relevant provisions of the erstwhile Central Excise Rules, 1944. In adjudication of the dispute, learned Commissioner ordered recovery of the aforesaid amounts under Rule 14 of the CCR read with Section 11A(2) of the Central Excise Act with interest thereon under Rule 14 read with Section 11AB of the Act from the appellants and also imposed on them a penalty of Rs. 50 lakhs under Rule 15 of the CCR. His order is under challenge in the present appeal.
2. After hearing both sides and considering their submissions, we note that the only substantive question to be decided upon in this case is whether the appellants were entitled to take Cenvat credit of the duty paid on the inputs lying in stock as on 9.7.2004 and the inputs contained in the finished tractors lying in stock as on that date.
3. Learned Counsel submitted that the above issue was already covered in favour of the appellants by Final Order No. 2103/2006 dt. 23.11.2006 passed by the South Zonal Bench, Bangalore in appeal No. E/418/2005 (TAFE Ltd. (Tractor Division) v. CCE B'lore). Ld. counsel also relied on the Tribunal's Larger Bench decision in the case of CCE Rajkot v. Ashok Iron and Steel Fabricators . Reliance was also placed on the apex court's judgment in Collector v. Dai Ichi Karkaria Ltd. , which had been followed by the Tribunal's Larger Bench in Ashok Iron and Steel Fabricators (supra) and the Bangalore Bench in Final Order No. 2103/2006 ibid. Ld. counsel submitted that a manufacturer of final product was entitled to take Cenvat credit on his inputs as long as the final product was dutiable. He argued that the credit so taken was not liable to be reversed as held by the Tribunal's Larger Bench in Ashok Iron and Steel Fabricators (supra). It was also pointed out that the Special Leave Petition filed by the department against the Larger Bench decision was dismissed by the Supreme Court as reported in 2003 (156) ELT A.212 (SC).
4. Learned SDR relied on the Tribunal's decision in Albert David Ltd. v. CCE Meerut , wherein it had been held that credit taken on inputs used in the manufacture of wholly exempted final product was reversible. The civil appeal filed by M/s. Albert David Ltd. was dismissed by the Supreme Court as reported in 2003 (157) ELT A. 81 (SC). It was, further, pointed out by ld. SDR that the review petition filed by the said company was also dismissed by the court as . In these circumstances, according to ld. SDR, the view taken by the Tribunal in Albert David case had binding effect. Ld. SDR claimed that there was nothing in the apex court's judgment in Dai Ichi Karkaria (supra) which provided basis for a sweeping finding that there was no rule providing for reversal of Modvat/Cenvat credit and, therefore, the view taken in Final Order No. 2103/06 ibid on the basis of Dai Ichi Karkaria (supra) was erroneous. Ld. SDR urged that the view taken by the Tribunal in Albert David (supra) be followed in the present case. She pointed out that the said decision had been followed by the Tribunal in the cases of CCE Ghaziabad v. Explicit Trading and Marketing (P) Ltd. , Sunsui India Ltd. v. CCE Jaipur and CCE Indore v. Ives Drugs (I) Pvt. Ltd. 2005 (191) ELT 639 (Tri.-Del).
5. In his rejoinder, learned Counsel sought to distinguish the cases of Albert David (supra), IVES Drugs (supra) etc., by submitting that the question of utilization of credit had not been considered in any of these cases. He also invited our attention to CCE Tirupati v. Venugopal Fruits Processed Industries Ltd. (Tri.-Bang.), wherein the Tribunal's Larger Bench decision in Ashok Iron and Steel Fabricators (supra) was followed in preference to the Two-Member Bench decision in Albert David (supra) on the premise that both these decisions had been affirmed by the apex court. In this context, learned Counsel adverted to the doctrine of merger and referred to the Supreme Court's judgment in Kunhayammed v. State of Kerala and S. Shanmugavel Nadar v. State of Tamil Nadu and Anr. . Rival arguments were advanced by learned SDR also, who referred to the apex court's judgment in UOI v. West Coast Paper Mills Ltd. .
6. We have given careful consideration to the submissions. The facts of the case are not in dispute. The appellants' final product was wholly exempt from duty w.e.f. 9.7.2004. Admittedly, whatever inputs lying as such in stock on that date were subsequently used in the manufacture of exempted final product and, therefore, the appellants were prohibited by Rule 6 of the CCR from taking credit of the duty paid on such inputs. Before the advent of Rule 6, such prohibitive provision was available under Rule 57AD of the erstwhile Central Excise Rules, 1994. Prior to the coming into force of Rule 57AD, Rule 57C had held the field. The provisions of Rule 57C were no different from the successor-Rule 57AD. These rules mandated that no credit of duty paid on input would be allowed if the final product was exempt from the whole of the duty of excise leviable thereon or chargeable to 'Nil' rate of duty. In the case of Dai Ichi Karkaria (supra), the Hon'ble Supreme court examined the Modvat Rules including Rule 57C and held as under:
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 correlation 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 it 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.
7. It was from the above paragraph of the apex court's judgment that the Tribunal's Larger Bench, in the case of Ashok Iron and Steel Fabricators (supra), took the view that, if the credit was taken at the time when the final product was not exempted from duty and it was utilized, subsequent exemption of the final product would not be a reason for reversal of the credit. The S.L.R filed by the department against the decision in Ashok Iron and Steel Fabricators (supra) was dismissed by the apex court. On the other hand, the contra view taken by a Two-Member Bench of the Tribunal in the case of Albert David Ltd. (supra) after distinguishing the case of Ashok Iron and Steel Fabricators (supra) stood affirmed by the apex court when the civil appeal filed against it by the party was dismissed by the court. The review petition filed by the party was also dismissed by the court in an order reading as follows:
Delay condoned.
We have gone through the review petition and the connected records. We do not find any merit therein. The review petition is, therefore, dismissed.
Applying the doctrine of merger, we find that the view taken in Albert David case having the stamp of approval of the apex court, has binding effect. In Albert David case, Cenvat credit had been taken by the party when their final products (I.V. fluids) were chargeable to duty. Subsequently, the I.V. fluids were exempted from duty. On the date on which this exemption came into force, there was a stock of inputs in their factory, on which Cenvat credit had been taken. The Tribunal referred to Rule 57AD and held that the credit taken on inputs lying in stock on the date from which the final products were exempt from duty was recoverable from the assessee. It was this view which was upheld by the Supreme Court. The Tribunal, in the case of Albert David (supra), noticed that there was a provision (Rule 57AH) for such recovery. There is no finding of sweeping character in the apex court's judgment in Dai Ichi Karkaria (supra) that, at the material time, there was no provision for reversal of Modvat credit. On the other hand, their lordships held thus "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. Thus the Hon'ble Supreme Court's judgment provides room for reversal of credit illegally or irregularly taken as also for recovery of credit if already utilized. In the appellants' own case, the Bangalore bench of the Tribunal held, on a similar set of facts, that the decision in Albert David was per incuriam. With great respect, we are unable to agree with such an observation. We are of the considered view that the Tribunal's decision in Albert David case, affirmed by the apex court, requires to be followed in the present case and, accordingly, we hold that the credit taken by the appellants on the inputs lying in stock as on 9.7.2004 is liable to be reversed if unutilized and to be recovered if utilized.
8. The same logic is applicable to inputs contained in the final products lying in stock as on 9.7.2004 also as held by the Tribunal in the cases of Explicit Trading & Marketing (supra), Sunsui India (supra) and Ives Drugs (supra). Accordingly, it is held that the credit taken on the input contained in the final product lying in stock as on 9.7.2004 is also liable to be reversed if unutilized and to be recovered if utilized.
9. On the above basis, the demand raised by the Commissioner has to be sustained and it is ordered accordingly. However, the liability to pay interest on the amount under Section 11AB of the Central Excise Act would commence only on the first day of the month following the month in which the Cenvat credit on inputs became reversible or recoverable. The credit was neither reversible nor recoverable before 9.7.2004. The liability to reverse the credit arose on 9.7.2004 only and, therefore, interest is payable only from 1.8.2004 under Section 11AB. It is ordered accordingly.
10. The substantive dispute in this case is (sic) in the nature of interpretation of the relevant Modvat/Cenvat Credit Rules with reference to binding judicial authorities. Hence it would not be correct to hold the appellants liable to be penalized. Hence the penalty on the appellants is vacated.
11. The appeal is disposed of in the above terms.
(Operative part of the order was pronounced in open court on 1.2.2007)