Custom, Excise & Service Tax Tribunal
M/S Maruti Udyog Limited vs Cce, Delhi Iii, Gurgaon on 20 October, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. COURT NO. III DATE OF HEARING/DECISION : 20/10/2015. Excise Appeal No. 1672 of 2007, 907 of 2008, 186 of 2009, 3182 of 2009 with Stay Application No. 3264 of 2009 and 3184 of 2009 with Stay Application No. 3265 of 2009 and 1356, 2724 and 2725 of 2011 [Arising out of the Order-in-Original No. 05 & 06/PP/CE/2007 dated 31/03/2007, Order-in-Original No. 27/CE/JM/2007 dated 31/12/2007, Order-in-Original No. 26/CE/JM/2008 dated 21/10/2008, Order-in-Appeal No. 253/MA/GGN/2009 dated 15/09/2009, Order-in-Original No. 7-8/SSS/CEX/2009 dated 09/09/2009, Order-in-Original No. 05/SSS/C.CE/2011 dated 23/02/2011 and Order-in-Original No. 18-CE/PKJ/CCE/ADJ/2011 dated 23/08/2011 all passed by The Commissioner of Central Excise, Delhi III, Gurgaon.] For Approval and signature : Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri B. Ravichandran, 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? 2. Whether it would be released under Rule 27 of : the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair : copy of the order? 4. Whether order is to be circulated to the : Department Authorities? M/s Maruti Udyog Limited Appellant Versus CCE, Delhi III, Gurgaon Respondent
Appearance Shri B.L. Narasimhan, Advocate for the appellant.
Shri G.R. Singh, Authorized Representative (DR) for the Respondent.
CORAM: Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) Final Order No. 53344-53351/2015 Dated : 30/10/2015 Per. B. Ravichandran :-
These are eight appeals filed by the appellants against various orders of lower authorities. Since, the issue involved is same in all these appeals they are taken up together for disposal.
2. The appellants are engaged in the manufacture of motor vehicles liable to Central Excise duty. They clear these vehicles on payment of duty for sale through their dealers. There are instances of damage to these vehicles in transit. When the damage is minor, repairs are carried out by the dealers before the vehicle is sold. If the damage is beyond any repair work that can be done at the dealers end. Such vehicles are received back into the factory of appellant for being re-made/repair. Number of such vehicles is less than 0.5% of the total clearance by the appellant.
3. Prior to July 2001 the appellants were following procedure under Rule 173H/173L of the erstwhile Central Excise Rules, 1944. After the introduction of Central Excise Rules, 2002 the appellant followed procedure under Rule 16. They have availed Cenvat credit of duty paid at the time of initial clearance of the vehicles which were later returned to the factory because of damage.
4. A dispute arose regarding the eligibility of such credit and the proceedings were initiated to deny the same. These proceedings resulted in the first order-in-original dated 31/03/2007 and thereafter many orders denying the Cenvat credit mainly on the following grounds :-
(a) The vehicles which are brought into the factory after damage are not the same goods which were cleared from the factory in terms of Rule 16 (1);
(b) the damaged car received into the factory is lost in the process of dismantling and, hence, the vehicle brought into the factory and later cleared are not same. This violates Rule 16 (2) The learned Counsel Shri B.L. Narasimhan submitted that there are serious misapplication of the provisions of Rule 16 by the lower authorities. Wrong inferences were drawn by relying on the definition of inputs as appearing in Cenvat Credit Rules, totally ignoring the deeming provision under Rule 16 (1) of Central Excise Rules, 2002. The main submissions made by the learned Counsel can be summarized as below :-
(a) Rule 16 (1) provides that the assessee can receive back duty paid goods and take credit of such duty as if these goods are input received in the factory. The purpose of receipt of such duty paid goods should be for being re-made, refined, re-conditioned or for any other reason. In their case, admittedly, they are receiving back duty paid vehicles which are damaged and the purpose is to remake them into a saleable vehicle. These are not disputed facts ;
(b) The learned Commissioner in the first order dated 31/03/2007 concluded that the appellants are eligible for credit proportionate to the salvaged parts which were used for further manufacturing. He denied credit attributable to completely damage portion/parts of the vehicle which were not salvaged, but were scrapped. The learned Counsel submitted that such conclusion is beyond any legal provision and it is totally untenable ;
(c) The learned Commissioners view that the damaged vehicle cannot be treated as input in terms of Rule 2 (k) of the Cenvat Credit Rules, 2004 is totally erroneous as the credit available to them is in terms of deeming provision under Rule 16 (1) of Central Excise Rules. There is no application of Rule 2 (k) in this present context ;
(d) The process undertaken by the appellant is a manufacturing activity and this has been settled by the Tribunal in their own case 2002 (146) E.L.T. 427 (Tri. Del.). It is clear from provisions of Rule 16 (2) that the said rule recognizes and permits activity amounting to manufacture and as such denying benefit of Rule 16 on the ground that the brought back damaged vehicle and the new product are different will lead to legal absurdity. This will be totally against the language and purpose of Rule 16 ;
(e) the quantification of demand is incorrect as the credit available on salvaged parts which was allowed by the learned Commissioner in his order dated 31/03/2007 is not taken into consideration in the later demands and accordingly the demands require recalculation ;
(f) the first show cause notice dated 20/10/05 for the period of July 2001 to September 2004 is beyond the normal period and hit by time bar. The issue relating to receipt of damaged cars has been in dispute for a quite long time even under the erstwhile Rules 173L/173H, as clearly evident from the CESTAT order (supra). Reliance was placed on various Tribunal/Supreme Courts orders in support of their plea on time bar.
5. The learned AR Shri G.R. Singh reiterated the findings of the lower authorities. He submitted that the totally damaged vehicles cannot be considered as input for the purpose of availing credit of duty. The damaged vehicle cannot be utilized in full as input in the further manufacture of a new vehicle. As such, he pleaded that the credit availed on such vehicles cannot be allowed as they are to be considered as scrap only.
6. We have heard both the sides and examined appeal records. The short point for decision is the eligibility of the appellant for the credit of duty paid on the vehicles at the time of their initial clearance which were later brought back to the factory due to damage. The scope and applicability of Rule 16 of Central Excise Rules is required to be examined and decided. Rule 16 of Central Excise Rules, relevant for the present appeals is as below :-
RULE 16. Credit of duty on goods brought to the factory (1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilize this credit according to the said rules.
(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.
(3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner.
7. The admitted facts of the case are that the appellants discharged due duty at the time of clearance of vehicle. Due to damage in transit, the said duty paid vehicle is brought back to the factory for being re-made or salvaged to the extent possible. We find that the case of the appellant is clearly covered by the provisions of Rule 16 (1). The said rule permits Cenvat credit of the duty paid as if such goods are received as inputs under the Cenvat Credit Rules, 2002 and to utilize this credit according to the said rules. Clearly a legal fiction has been created in this rule. In normal course duty paid motor vehicle cannot be an input for making same type of motor vehicle. Here the said vehicle is deemed to have been input only because it is brought into the factory for being re-made, refined, re-conditioned or for any other reason. We find the scope for which a duty paid vehicle can be brought to the factory is very wide and includes the processes undertaken by the appellants in the present case.
8. Rule 16 (2) makes it clear that as to how duty liability of the brought back goods are to be dealt with. If the goods are subjected to a process amounting to manufacture the manufacturer shall pay duty as applicable to any such products manufactured by him. In the present case, the process undertaken by the appellant clearly amounts to manufacture as held by the Tribunal in the appellants own case.
9. The learned Commissioner misapplied the provision of Rule 16 and held that the Cenvat credit to the extent of salvaged parts will only be available to the appellant. We find no legal basis for such assertion. We find that the learned Commissioner invoked the provisions of Rule 16 (3) to justify his action. We find the learned Commissioner is in complete error as he cannot prescribe a procedure to restrict the available credit as per law, in the name of removing difficulty in following the provisions of Rule 16 (1) and (2). In fact we find no difficulty in appellant following the said provisions. Apart from this primary objection, we find there is no legal basis at all for apportioning the credit which is entitled to the appellant in terms of Rule 16 (1). It is a fact that only when dismantling the damaged vehicle the usability of various components including engine etc. can be ascertained. The process of dismantling, identifying and retrieving usable parts components from the damaged vehicle is the first step in the process of using the damaged vehicle in further manufacture. As already explained and held by the Tribunal the process undertaken by the appellant is not simple repair but amounts to manufacture of new motor vehicle. The dismantling/salvaging is part and parcel of such manufacturing process. In view of this, we find that credit of duty paid at the time of initial clearance is available in full to the appellants. Apportioning the credit for salvaged and usable parts and non-usable scrap is not having support of any provision of law. Further, it should be noted that while the usable salvaged items were put into manufacturing stream of new vehicle, the unusable items were cleared by the appellant on due payment of duty. As such, there is no legal basis for apportioning the credit into eligible or ineligible component.
10. We find the learned Commissioners finding that the situation in appellants case is different and not covered by Rule 16 (1) and (2) is not correct. After coming to the categorical conclusion that credit of duty paid on the damaged vehicle can be taken under Rule 16 (1), the Commissioner goes ahead and decides that only some portion of such credit will be eligible. We are not able to understand or appreciate the logic or legal basis for such conclusion. When the vehicle is brought back to the factory for the intended purposes as stipulated under Rule 16 (1) the credit of duty paid on such vehicle is available to the appellant. That such vehicles undergo a process of manufacture and become part of process of production of new vehicle is settled and undisputed. As such, we find no legal basis for denial of credit either partly or fully in respect of such vehicles in terms of clear provisions of Rule 16 (1), as discussed above.
11. We also find strong force in appellants plea regarding the demand covered by the first show cause notice being completely time barred as the issue involved under dispute is well within the knowledge of the Department for long and has been subject matter of decisions including by this Tribunal.
12. Considering the above discussion and findings, we set aside the impugned orders and allow the appeals. The stay applications linked to the appeals are also disposed of.
(Operative part of the order pronounced in the open court.) (Sulekha Beevi C.S.) Member (Judicial) (B. Ravichandran) Member (Technical) PK ??
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