Customs, Excise and Gold Tribunal - Mumbai
Commissioner Of Central Excise vs Core Healthcare Ltd. on 30 November, 2005
ORDER Archana Wadhwa, Member (J)
1. All the appeals, one filed by the revenue and the other filed by the manufacturing unit as also other co-appellants are directed against the same impugned order passed by the Commissioner of Central Excise, Ahmedabad, and as such, are being disposed off by a common order. Revenue is aggrieved with that portion of the impugned order vide which the adjudicating authority has dropped the demand of duty of Rs. 2,94,37,443/- (Rupees two crores ninety four lakhs thirty seven thousand four hunderd and forty three only) issued to the respondents vide show cause notice dated 31-12-97 and the demand of duty of Rs. 27,95,393/- (Rupees twenty seven lakhs ninety five thousand three hundred ninety three only) and Rs. 1,42,85,8507-(Rupees one crore forty two lakhs eighty five thousand eight hundred and fifty only) issued vide show cause notice dated 31-12-97 on the point of time bar by holding that the extended period of five years in terms of proviso to Section 11A of the Central Excise Act, 1944 is not applicable. The assessee has filed the appeal against the other portion of the impugned order vide which demand of duty of Rs. 91,236/- (Rupees ninety one thousand two hundred thirty six only) and Rs. 68,116/- (Rupees sixty eight thousand one hundred and sixteen only) and Rs. 2,25,598/- (Rupees two lakhs twenty five thousand five hundred ninety eight only) stands confirmed against them along with imposition of personal penalty of Rs. 1 lakh and Rs. 3 lakhs under the provisions of Rule 173Q. Other appeals are against the imposition of personal penalties of Rs. 50,000/-, Rs. 40,000/-, Rs. 10,000/- and Rs. 10,0007- imposed upon Shri Rakesh Shah, Shri N.K. Doshi, Shri V.K. Patel and Shri B.L. Dhabi, respectively.
2. We have heard Shri Uday Joshi, Id. Advocate, appearing for the revenue and Shri G.N.Srinivasan, Id. Advocate, appearing for the assessee.
3. As per facts on record, the appellants are engaged in the manufacture of medicaments falling under Chapter 30 of the Schedule to the Central Excise Tariff Act, 1985 and are manufacturing dutiable as well as exempted final products. The appellants was availing credit of duly paid on the inputs used in the manufacture of dutiable as well as exempted final products and was maintaining a consolidated record for the said purpose. Common inputs are Dextrose fP. Plastic granules, Sodium Chloride I.P., Activated Charcoal etc. and the packing material i.e. BOPP Film/BOPP tapes, etc. Intravenous fluids being manufactured by them are dutiable as well as exempted category of final products. As such, in terms of the provisions of Rule 57C, inputs credit was not admissible in respect of exempted category of final products and the appellant was admittedly reversing the same at the time of clearance of exempted products. However, the dispute relates to the quantum of reversal in respect of the said inputs. Apart from the above, a part of the demand has been confirmed in respect of shortages of inputs and as demand of duty @ 8% of the value of the final products in terms of the provisions of Section 57CC with effect from 1-9-96.
4. The appellant's factory was visited by the Central Excise Officers on 12-9-97 and relevant records were taken into possession. Scrutiny of these records revealed that the appellant was debiting the credit proportionate to the inputs contained in the exempted final products and not on the entire quantity of inputs used in the manufacture of such exempted products Apart from the above certain shortages of bottles involving duty of Rs. 91,236/- and certain shortages of raw materials were also noticed. Statements of various persons, including the Production Shift-in-charge Excise Officer, Production Head, DGM (Works), Store-in-charge. Packing-in-charge and Production Manager were recorded. Based upon the said investigation, the appellants were issued show cause notices dated 4-12-97 and 31-12-97 raising demand of duties in respect of the credit allegedly short debited by them as also on the other issues. The said two show cause notices stands adjudicated by the impugned order of the Commissioner, vide which he has held against the appellants on merits as regards the short issue of debit of credit but has dropped the demand of duty on the point of limitation. We would be first dealing with the revenue's appeal against dropping of demand on limitation point.
5. There is no dispute on the merits. Admittedly, the appellants are reversing credit proportionate to that quantity of the inputs, which are actually contained in the exempted final products and not on full quantum of inputs, which are otherwise required or actually issued for the manufacture of the said exempted final products. To elaborate a little on the said issue; if the 100 units of raw materials are required for manufacture of the final products and only 97 units are actually contained in the final products with 3 units resulting in emergence of waste and scrap, etc. the appellants have reversed credit only in respect of 97 units and not in respect of 100 units. The Commissioner has held that the assessee was required to debit the credit in respect of the entire 100 units. We do not find any fault in the above findings of the Commissioner. Under the provisions of modvat rules an assessee is required to maintain two separate accounts of inputs used in the manufacture of dutiable and exempted final products. It is only by way of concession that an assessee is first allowed to take credit in respect of all the common inputs and subsequently is allowed to reverse at the time of clearance of the exempted final products. If the appellants would have maintained two separate accounts, the entire 100 units of the inputs going into the manufacture of final products would not have earned any modvat credit. As such, it is the inputs used and not contained in the final products, which are not entitled to the credit. The Commissioner while dealing with the above issue has observed as under :-
29. The clear and unambiguous language/phraseology used in the aforesaid Rule 57C indicates the final Products are exempted from payment of duty on account of any reason (barring 4 exceptions enumerated in the said Rule) no Credit of duty shall be allowed on such quantity of inputs used in the manufacture of final products. The words "such quantity of inputs which is used in the manufacture of final products" clearly indicate that the cases where the final products are fully exempted from payment of duty or are charged to nil rate of duty, no modvat credit is permissible for all such inputs which go into the manufacture of the exempted final products. There is no stipulation, express or implied, in the provision of Rules 57C that duty paid on the inputs used for manufacture of exempted products and partly contained in the scrap or any other by-products can be utilized for payment of duty on such dutiable by-products, waste or scrap.
30. One would be tempted to lean on the argument that there is no express bar for proportional reversal of credit on the exempted final products and availment of the remaining credit for payment of duty on the dutiable scrap, waste or by-product under the provisions of Rule 57C. Also that Rule 57C should have no linkage with the Provision of Rule 57D(i) however, if would be against the basic principle of harmonious construction of the Rules of the same statute, if the provisions of Rules are not read in harmony with the Provisions of Rule 57D(i). The principle of harmonious construction would therefore, require that whatever is expressly applicable under Rule 57D(i) should also he made applicable to Rule 57C, while deciding the question of eligibility of modvat credit of duty paid on inputs. Reading Rule 57C and 57D(i) in isolation will lead to anomalous situations, which is not permissible in law. If full credit is allowed under the provisions of Rule 57D(i) to dutiable final products, irrespective of waste and scrap so generated, dutiable or otherwise, the only logical conclusion is that the entire credit is to be reversed where inputs are used for manufacture of exempted "final products" irrespective of the fact, whether waste and scrap or by-product generated are dutiable or otherwise. It could not be assessees case that waste and scrap are "final products". These may be definitely called "goods" as these are sold and purchased in the market, but these are definitely not final products but merely unintentional byproducts which arise during the course of manufacture of the final products. The durability or otherwise of such waste scrap is not at all relevant for the purpose of applying the bar on availment of modvat credit on inputs which are used in the manufacture of final products, under the provisions of Rule 57C of the Central Excise Rules 1944, Moreover, the emphatic, clear and unambiguous language used in Rule 57C clearly enjoins that no credit of ditty paid on inputs shall be allowed, if such inputs are used in the manufacture of exempted final products, except 4 situations of clearance of such exempted final products to a unit in a Free Trade Zone or 100% EOU etc. The argument that the assesses can use a part of the modvat account for payment of duty on dutiable plastic scrap is therefore repugnant to the express language of Rule 57C as well as Rule 57D(i) of the Central Excise Rules, 1944 if the final products are fully exempted from payment of duty.
31. It would be worthwhile to elaborate on the principles of harmonious construction, as set out in the authoritative Book "Interpretation of Taxing Status" by Justice Markandey Katju (page 40-1998 edition published by Butterworths India, a Division of Read Elsevier India (P) Ltd :-
The rule of ex visceribus actus (i.e.'within the four corners of the Act'), laws down that a statute must be read as a whole, and every provision in the statute must be construed with reference to the context and other clauses in the statute so as, as far a possible, to make a consistent enactment of the whole statute Huble Municipality v. Subha Rao . As Paul says. The meaning of a sentence may be more than that of the separate words, as a melody is more than the notes (RE Paul Taxation in the US). Thus, in Hubli Municipality v. Subha Rao it was held that Sections 78 to 81 of the Bombay Municipal Boroughs Act, 1925 must be constructed so as to harmonise with Section 82.
Where two provisions in the same statute are apparently inconsistent with each other, effort should be made to reconcile the two, and one must be read as a qualification of the other, so that some effect furthering the intention of the legislature is given to each.
In Associated Cement Company v. Commercial Tax Office the Supreme Court of India held that interpreting a statute, the repugnancy of two provisions should be avoided, and an interpretation given which gives full effect to both the provisions.
An attempt should be made to avoid conflict rather than create it, and the principle of harmonious construction should be adopted (sc Prashar v. Vasant Sen ).
32. Thus, on merits it is held that the assessee should not availed the modvat credit on such inputs at all during the period in which they were manufacturing only exempted category of final products (i e. Nov. 94 to May 95). In the subsequent period they should have reversed "in full" the credit taken and not resorted to "partial reversal" on the "inputs content theory" in respect of exempted final products.
6. However, as regards limitation, the Commissioner has dropped the demand on the ground that cross examination of the three concerned officers of the revenue has reflected that the fact of proportional reversal was known to the jurisdictional Central Excise Officers and the notices have also filed a classification list for payment of duty on the dutiable plastic scrap and this was mentioned in RT-12 returns. He has also referred to certain show cause notices issued in the year February 96 demanding duty on the inputs used in the exempted final products and has concluded that there was a genuine doubt and confusion on the part of the departmental officers regarding interpretation of Rule 57C.
However, we find that while extending the benefit of limitation to the assessee, the Commissioner has merely referred to cross examination of the officer without actually detailing the contents of the such cross examination. It is also not on record as to whether knowledge, if any, on the part of these officers, was in their personal capacity or as a revenue officer. It has also not been disclosed as to what were the basis of knowledge on the part of the said officer, when admittedly the reversal formula was never disclosed by the respondents to revenue at any point of time. This has been fairly admitted by the Id. Advocate during the course of hearing before us and he has not been able to point out to any communication that such proportionate reversal instead of full reversal was ever intimated to the revenue by the appellants. The mere fact of filing of RT-12 returns and demand of duty on the plastic scrap generated during the course of manufacture of exempted products, by itself, is not an indication to show that the credit originally taken on the inputs was being reversed on the lesser side, based upon some formula derived at by the appellants himself. The revenue cannot be expected to do arithmetical calculation on the basis of figures reflected in RT-12 returns and to find out or conclude that only proportionate quantum and not full quantum of credit has been reversed. The assessee has also not been able to forward any reason or basis for him to entertain any reasonable belief that proportionate quantum and not the full reversal of credit is required especially when the assessee is a large scale manufacture of medicaments and is expected to be fully aware of the Central Excise laws, In any case, if they were entertaining any doubt, they should have sought clarifications either from the revenue or from the legal consultants. No such evidence to show efforts on the part of the assessee to seek any clarifications has been placed before us. We also note that the Commissioner has not referred to, while relying upon the result of the cross examination, to the period of knowledge on the part of such officers. The period involved is 1993-96. It is not been shown on record as to whether knowledge on the part of the officers was during the period in question or subsequently acquired by them, in which case longer period would be applicable in view of the Larger Bench's decision of the Tribunal in the case of M/s. Nizam Sugar Factory v. Commissioner of Central Excise . Any subsequent knowledge on the part of the officer after the period of demand cannot absolve the assessee from limitation, if the facts are otherwise not being placed before the department. As such, we are of the view that the said portion of the order needs to be re-decided by the Commissioner in the light of the observation made by us as above. The same is accordingly set aside and the matter remanded for decision on the said limited issue of limitation. Inasmuch as the merits have already been decided against the appellants by the adjudicating authority, which has not been found at error by us.
7. As regards the assessee's appeals, the Commissioner has confirmed demand of duty of Rs. 68,116/- in terms of the provisions of Rule 57CC for the period after 1-9-96, The appellants have not advanced any reason in their memo of appeal as to why the said demand should not be confirmed against them.
8. As regards the demand of duty of Rs. 2,25,598/- confirmed under proviso to Section 11A(1) in respect of the goods not account in RG-I register, the appellants have contested the same on the ground that the same was raised without reconciling the RG-I register with physical stock. Reference has been made by the adjudicating authority only to monthly stock report which was being made by them for bank purpose as well as internal audit purpose, whereas the figure shown in RG-1 were actual stock. Inasmuch as the matter is being sent back to Commissioner on the main issue of limitation, we would like the Commissioner to re-adjudicate the said quantum and also after taking into account the appellants arguments on the same. Similarly, demand of duty of Rs. 91,236/-is confirmed in respect of goods not recorded, but the appellants have taken a ground the same were lying in the factory premises at various places. The same would also be re-adjudicated by the Commissioner in the de novo proceedings, after taking into account the appellants stands on the same. As regards the penal interest under the provisions of Section 11A and 11AB, it is seen that the period involved is prior to introduction of the said sections. The law on the above point is settled by various decisions and the Commissioner would follow the same while re-adjudicating the matter.
9. As a result, all the appeals are allowed by way of remand.
(Pronounced in Court on 30-11-2005)