Customs, Excise and Gold Tribunal - Tamil Nadu
Collector Of Central Excise vs Wipro Information Technology on 14 August, 1987
Equivalent citations: 1987(14)ECC517, 1988ECR490(TRI.-CHENNAI), 1988(33)ELT172(TRI-CHENNAI)
ORDER
S. Venkatesan, President
1. The question raised in this appeal is whether the Assistamt Collector was right in demanding the amount of Rs. 72,825/- of which proforma credit was taken by the respondents under Rule 56A, and subsequently utilised by them against payment od duty on the computers manufacturd by them. They situation was created by the fact that on 17-03-1985 Government issued Notification No. 67/85 excmptin computers from duty. Consequently, the benefit of Rule 56A became inapplicable to componet parts to be used in the manufacture
2. The case of the respondents is that the issue of the notification was subsequent to their taking proforma credit for the component parts, and subsequent also to their utilizing the credit for the clearance of computers manufactured by them. According to them, the credit which was lawful at the time it was taken and the utilization of the credit which was lawful at the time of utilization should not be affected because subsequently computers were exempted from duty. The case of the Revenue is that in terms of Rule 56A(2) and in the light of the exemption notifiation, they were not entitled to the credit and, therefore, they should pay it back.
3. Appearing before us for the appellant Collector, Shri Bhatia referred to the basic facts. He laid stress on Sub-rule (2) of Rule 56A. The proviso to this Sub-rule states that no credit of duty shall be allowed if the finished excisable goods are exempt from the whole of the duty of excise leviable. In this case the computers were so exempted, and therefore the proviso would come into operation.
4. Apart from this, Sub-rule (3), Clause (v) also laid down that if any material or component parts, in respect of which credit had been allowed, were not duly accounted for as having been disposed of in the manner authorised in the rulle, the manufacturer should pay the duty leviable, on demand by the proper officer. This clause would also apply o the present case.
5. Further, Clause (vi)(a) and (b) of Sub-rule (3) made it clear that the credit of duty allowed under Rule 56A could be utilised only in the manner prescribed in Sub-rule (2).
6. The respondents had placed reliance on a trade notice No. 222/79, issued by the Ahmedabad Central Excise Collectorate. With reference to point No. (5), it had been stated that "requirement of strict input/output co-relation has been dispensed with." This did not, however, mean that no correlation was required. There should be a broad correlation between the inputs and the outputs. It need not be a piece-to-piece correlation, but it had to be a proportionate correlation. It had even been laid down that wastage had to be properly accounted for. There could therefore be no doubt that the main product, that is, the input had to be properly accounted for.
7. Even assuming that the trade notice, which was said to be based on instructions of the CBEC, could bear the meaning claimed by the respondents, executive instructions could not enlarge or restrict the scope of a statutory provision. Further, the Board's clarification had reference to Notification No. 9.5/79, which inter_ alia made the procedure under Rule .56A applicable. The clarification was not with reference to Rule 56A as such.
8. In the show-cause notice, Sub-rule (5) of Rule 56A had been invoked. No doubt this sub-rule, which referred to credit being wrongly- allowed on account of error, omission or misconstruction, was not applicable to the present case. However, Sub-rule (3)(v), read with Sub-rule (2), would be applicable. No time limit was applicable for demanding duty in terms of these provisions. For these reasons Shri Bhatia submitted that . the appeal should be allowed.
9. For the respondents, Shri Khunger submitted that there were two separate provisions, one for allowing the credit and another for utilizing the credit. As regards allowing the credit, specific provisions had been made in Sub-rule (2) for the Collector to allow the credit subject to certain conditions. These included intimation to the proper officer and verification by him. If these were satisfactory, the credit was to be finally given by the proper officer. All this had been duly done in the present case. There was no allegation that any mistake had been committed at the time the credit was given.
10. The question of utilisation came later. The whole of the credit given had been utilised against the payment of duty on finished computers. It could not be said that by immediately utilising the credit for the clearance of computers, the respondents had misutilised it. This would be cleat from the Board's clarification contained in the Ahmedabad Collec loraio trade notice. The trade notice and the clarifications were quite relevant because the provisions being interpreted were those contained in Rule 56A, Originally the notification had contained a proviso (ii), which could be considered as calling for one-to-one correlation. But that proviso had been deleted by Notification No. 176/79. Thereafter the provisions of Notification No. 95/79 were parallel to those of Ruie 56A.
11. The clarification with reference to point (5) was quite clear. It stated that the requirement of strict input/output correlation had been dispensed with, and that proforma credit of the duty paid on inputs accrued to the manufacturer immediately on receipt of the inputs in his factory. The reference to disposal of waste was not relevant. It was quite clear that once the inputs had been brought into the factory the credit could be taken. Once it was taken it could immediately be utilised on the clearance of the finished products, since it was specifically stated that strict input/output correlation had been dispensed with.
12. The invocation of Sub-rule (3)(v), was clearly wrong, since at the time of allowing credit there was no mistake either by the assessee or by the proper officer. Nor was there any misutilisation or "mis-direction" of the credit at the time it was utilised for clearance of the finished goods, because at that time the exemption notification had not been issued.
13. Shn Khunger submitted that the scheme of Rule 56A did not provide for recovery of the credit in a case like the present one, where the credit was correctly allowed and correctly utilised. This was not a case of set-off of duty, where one-to-one correlation was required. There was no fault on the part of the respondents. The Collector (Appeals) had rightly held in their favour, and the present appeal should be rejected.
l4. In reply, Shri Bhatia submitted that even if "strict" correlation was not necessary, a broad correlation was still required.
15. We have carefully considered the rival submissions. This is a peculiar case where the respondents did not do anything which could be said to be wrong, but because of a subsequent action of Government hey have been called upon to pay back a substantial sum of money.
16. Neither of the learned representatives appearing before us cited any judicial decision in support of his case. We have ourselves searched for guidance from judicial decisions. We have found reference to a decision of the Madras High Court in the case of E.l.D. Parry (India) Ltd., Madras, reported in 1979 C.L.T. 253. This case related to additional duty of customs on rock phosphates used in the manufacture of fertilizers. It appears that proforma credit of the countervailing duty, utilisable against the duty payable on the fertilizers, was admissible, subject to the procedure under Rule 56A.
17. The judgment of the learned single Judge is brief and the facts have also not been set out in detail. Further, the case had reference to Rule 56A(3)(vi), which was differently worded at the time relevant to that case. The judgment is not therefore of direct relevance to the present case. It dies however contain the observation that "so long as there has been a complete utilisation, in other words there is no misdirection of the imported goods, there is every compliance with Rule 56A(3)(vi)." To the extent that this judgment can be said to be applicable, it might be considered to be in favour of the respondents. Thai perhaps is why Shri Khunger, without specifically riling this judgment, stressed that there had been no "misdirection" of the inputs.
18. In the absence ot any direct judicial authority, the case has to be decided from first principles and whatever other guidance may be available It appears to us that the Ahmedabad Colleetorate trade notice, which is evidently based on claritications given by the Board or the Ministry of Finance, does have relevance to the case. Notification No. 95/79 was one with quite a wide scope, covering several important commodities. It was also stipulated in the "notification that in relation to the exemption, the procedure set out in Rule 56A should be followed. This being so, it could reasonably be assumed that the detailed clarifications given with releronce. to this notitication were such as the higher authority considered to be consistent with the provisions of Rule 56A 19.With reference to point (5), it has been clarified that proforrna credit of the duty paid on inputs accrues to the manufacturer immediately on receipt of the inputs in his factory. This necessarily means that the credit is available for utilisation (which naturally should be consistent with the provisions of the Rule) immediately on receipt of the inputs. The claritication furiher states thai' the requirement of strict input/output correlation has been dispensed with. This would mean that in utilizing the credit the question of correlation, in the manner relevant where there is a provision for "set off", would not arise. According to our understanding, it is standard practice in such cases that the amount of duty available , through proforma credit could be fully utilised against the duty payable on the finished goods, provided that as a genus, they are the goods in the manufacture of which the inputs are utilised. This we think is how the (Central Excise Department in general would have understood the clarifications of the Board, and also how the provisions of Rule 56A were being interpreted and applied. If the view put: forward by Shri Bhatia is correct, utilisation of the credit would have to be rationed out, by providing that against the clearance of each computer only that much of the credit which could be attributed to the duty content of the inputs utilised in the manulacture of that computer, could be utilised. This would reduce the procedure to one of "set-off". As far as we are aware, Rule 56A has not been interpreted or applied in this manner. Certainly if the Central Excise authorities felt that this kind of correlation or "rationing" of utilisation of credit was required in terms of Rule .56A, they should have raised an objection much earlier to the manner in which the respondents were operating under Rule 56A, since the necessary information was available to them from the excise records and returns of the respondents,
20. It is not necessary to elaborate the point further, because it is abundantly clear, as we stated at the outset, that both at the time of taking credit and at the time of utilising it, the respondents were doing what both they and the Department felt to be authorised under Rule 56A.The question then is whether there is anything in Rule 56A which authorised the Department to take back the duty credit on the ground that, the respondents became disentitled to it because of the subsequent exemption from duty granted in respect of computers.
21. It appears to us that in such a situation, where the assessee was acting in good faith and where what he did was not at the time he did it illegal or unauthorised, any action which would impose a liability on him should be something clearly authorised by law. We have, therefore, to see whether there is anything in Rule 56A which authorised the Department to demand back the duty amount in a case like this. It is obvious that, although Rule 56A covers more than seven printed pages, and includes a mass of detail, it does not specifically provide for a case of this nature.
22. Certain provisions have been relied upon by the Department. of these, Sub-rule (v), which was cited in the show-cause notice, and which refers to credit having been wrongly allowed, is obviously inapplicable, and this has been accepted by Shri Bhatia himself. He has however relied on Sub-rule (3)(v), read witn Snb-rule (2). Sub-rule (3)(v) is procedural, and therefore one has to go back to Sub-rule (2) and the proviso thereto. That sub-rule, however, refers to credit being allowed. We find force in the submission of Shri Khunger that allowing credit and utilising it are two different stages. Obviously, since the credit is to be allowed as soon as the inputs are brought into the factory (and there has to be a time lag before they are used in manufacture and the finished goods are cleared) the grant of credit is not to wait till the finished goods have been actually manufactured. Therefore, allowing of credit would have to be with reference to the facts as prevailing at the time the inputs are taken into the factory. If there was no error or irregularity in the allowing of credit at that point of time, it does not appear to us that the credit becomes liable to be disallowed subsequently, becuase the finished goods are subsequently exempted from duty. If this be the position, recourse to Clauses (v) and (vi) of Sub-rule (3) would not help the Revenue.
23. No other provision has been brought to our notice which would justify the taking back of the credit in a case of this nature. It is no doubt an unusual case. It may be that Government by oversight omitted to provide for cancellation or taking back of the credit in such a case. But so long as no such provision exists, and when it has not been shown or even alleged that there was any irregularity either at the time the credit was taken or at the time it was utilised, we do not think the Department has the authority to take back the credit. We think the Collector (Appeals) was right in taking the view that he did and in setting aside the Assistant Collector's order. We accordingly reject this appeal.