Customs, Excise and Gold Tribunal - Delhi
Albert David Ltd. vs Commissioner Of C. Ex. on 28 November, 2002
Equivalent citations: 2003(86)ECC344, 2003(151)ELT443(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. The issue involved in this Appeal, filed by M/s. Albert David Ltd., is whether the Cenvat credit is to be reversed if subsequent to the availment of credit, the finished product becomes exempted wholly from payment of duty.
2. Briefly stated the facts are that the Appellants manufacture P & P medicines and avail of Cenvat credit of the duty paid on inputs under Rule 57AA of the Central Excise Rules, 1944; that intravenous fluids was exempted from payment of duty under Notification No. 6/2000-C.E., dated 1-3-2000 as amended by Notification No. 36/2000-C.E., dated 4-5-2000; that the Deputy Commissioner, under Order-in-Original No. 35/2001, dated 29-5-2001 confirmed the demand of an amount of Rs. 38,22,164/- and imposed a penalty of Rs. 3 lakh holding that as per provisions of Rule 57AB of the Central Excise Rules, Cenvat credit is not available in respect of inputs which are used in or in relation to the manufacture of exemption goods and I.V. fluids is exempted with effect from 4-5-2000; that the Commissioner (Appeals) also under the impugned Order rejected their Appeal holding that Rule 57AD provides that Cenvat credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods.
3. Shri D. Chitlangia, General Manager of the Appellants, submitted that the credit was validly taken when I.V. fluids were not exempted products; that the exemption came later on and therefore, the credit was taken validly and in a legal manner; that upon a co-joint reading of Rules, 57AB(1), 57AC(1) and 57AD (1), it becomes very clear that while no credit can be taken in respect of inputs received on or after the date of exemption of the final products, credit which has already been taken legitimately, prior to the date of exemption is not liable to be reversed; that none of the Rules provide for reversal of Cenvat credit availed legally when finished goods were dutiable but later on exempted from excise duty. He relied upon the decision of the Supreme Court in the case of CCE, Pune v. Dai Ichi Karkaria Ltd, 1999 (112) E.L.T. 353 (S.C.) wherein the Supreme Court has 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."
3.2 He also relied upon the decision in the case of CCE v. Premier Tyres Ltd. 2001 (130) E.L.T. 417 (Ker.) wherein the Kerala High Court has held that there is no provision in the Rules to provide for reversal of credit except where it has been illegally or irregularly taken. He finally mentioned that similar views have been expressed by the Larger Bench of the Tribunal in CCE Rajkot v. Ashok Iron and Steel Fabricators, 2002 (140) E.L.T. 277 (T). He also contended that the demand is hit by time limit as the credit was availed as and when the inputs were brought to the factory and as such credit was availed upto 31-3-2000; that the notice issued on 17-4-2001 is thus clearly time barred; that no penalty is imposable as they have not contravened any of the provisions of the Rules.
4.1 Countering the arguments, Shri R.D. Negi, learned SDR, submitted that the Cenvat credit of the duty is available only if the inputs are used in or in relation to the manufacture of the excisable goods which are not wholly exempted from payment of duty; that once the final product becomes exempted, it can not be claimed that inputs have been used in or in relation to manufacture of goods which are chargeable to duty. The fact that inputs are used in relation to manufacture of exempted goods makes the credit availed of irregular; that the credit is allowed to be taken immediately on receipt subject to the condition that the same are used in or in relation to manufacture of finished product chargeable to duty. He emphasized that Rule 57AD(1) clearly provides that Credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods and contended that in view of this specific provision, the Appellants have been rightly denied the Cenvat credit. He also relied upon the decision of the Allahabad High Court in the case of Super Cassettes Industries Ltd. v. UOI - 1997 (94) E.L.T. 302 (AIL), wherein the High Court has held as under :
"As is evident, entries in PLA account and other documents are at times provisional in nature and become final after certain events take place. For example a personal ledger account is commenced with a credit entry represented " by a cash deposit in the treasury as required under Rule 9. When the first deposit is made in the treasury there is no payment of any excise duty. The deposit and the corresponding credit in the PLA account is only a provision for making payments of excise duty on the goods that are manufactured and are to be removed. Therefore, when a person makes the cash deposit in the treasury he does not actually pay excise duty he only makes a provision for the payment thereof and the actual excise duty stands paid only when it becomes payable in accordance with the Act and the Rules. Rule 57A clearly shows that Modvat credit is available for utilizing the credit so allowed towards payment of excise duty leviable on the final products. Therefore, there can be no finalized credit unless the inputs are used in accordance with Rules 57A and 57 F and either excise duty on the final product is paid or the inputs are otherwise disposed of for home consumption or export etc. Till such events occur the Modvat credit is only provisional and cannot be said to be final and irrevocable. It is only for certain accounting purpose that the amount is credited to the PLA account and can be used as a credit balance for actual payment of duty on manufactured goods at the time of their removal. The final settlement would, however, happen only when such inputs have actually been used for the purposes of specified and/or excise duty has been paid on the final product. It is true that Rule 57G does not specifically contemplate a reversal of the credit but this is implied from purpose of the scheme and the nature of the Rules"
4.2 The learned SDR finally submitted that as the inputs have been used in relation to manufacture of exempted goods on or after 4-5-2000, the show cause notice issued on 17-4-2001 is within the time period of one year.
5. We have considered the submissions of both the sides. The undisputed facts are that the Cenvat credit was taken by the Appellants in their books of account when the I.V. Fluids were chargeable to duty. Subsequently the I.V. fluids were exempted from payment of duty. The Revenue has sought demand only in respect of the inputs which were lying unutilized. It is also not in dispute that these inputs are being used in the manufacture of I.V. fluids which are wholly exempted from payment of duty. The Cenvat Credit Scheme is a scheme to remove the cascading effect of the Central Excise duty as the same is levied at each stage of manufacture. The credit is available only and only if the final product suffers the Excise Duty. If no excise duty is payable in respect of any final product the question of availing the Cenvat credit does not arise as there is no duty of excise at more than one level. A harmonious reading of Rules dealing with Cenvat Scheme and particularly Rule 57AC and Rule 57AD of the Central Excise Rules, 1944 makes it very evident that Cenvat credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods. We agree with the findings in the impugned Order that the decision in Premier Tyres Ltd. And consequently decision in Ashok Iron and Steel case, is not applicable as these decisions were passed on the ground that there was no provision for reversal of credit. Now there is a specific provision in Rule 57AD which clearly provides that "Cenvat credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods." Rule 57AH contains the provision for the recovery of Cenvat credit utilized wrongly. As the inputs have been utilized in the manufacture of wholly exempted goods credit taken in respect of such inputs is recoverable. The demand is not hit by the time limit as the recovery is related in the instant matter to utilization of inputs for manufacture of exempted goods. As the show cause notice has been issued within one year of such utilization, demand is within the time limit specified in the Act and Rules. We are, however, of the view that in the facts and circumstances of the case, no penalty is imposable on the Appellants. We order accordingly.
6. The Appeal stands disposed of in above terms.