Customs, Excise and Gold Tribunal - Tamil Nadu
Collector Of C. Excise And Customs vs Premier Tyres Ltd. on 10 March, 1994
Equivalent citations: 1994(72)ELT916(TRI-CHENNAI)
ORDER V.P. Gulati, Member (T)
1. This Reference Application arises out of the order of the Tribunal dated 3-2-1992 bearing No. 90/1992. The issue before the Tribunal in the above order was whether MODVAT credit had been correctly taken and correctly utilised in respect of inputs which had been utilised for manufacture of the finished excisable goods specified for MODVAT purposes under Rule 57A, when a part of the finished product was cleared on payment of duty and a portion of the same was cleared without payment of duty for a specified use and for that reason the proportionate MODVAT credit in respect of the inputs used in that portion of the finished goods which was cleared free of duty should be reversed. The Tribunal in the order has taken the view that at the time when the MODVAT credit was taken the same was correctly taken in terms of Rule 57A read with Rule 57G and the credit taken was correctly utilised in terms of Rule 57F for payment of duty towards the finished excisable goods and, therefore, the question of reversal of the MOD-VAT credit would not arise as there is no specific provision in the MODVAT Rules providing for reversal of MODVAT credit in such a contingency. Under Rule 57F(2) the MODVAT credit taken can be utilised for payment of duty on the finished notified goods under Rule 57A and this was what was done by the assessee and therefore, legally no fault can be found in respect of the use of MODVAT credit also. It is pertinent to note that there is no one-to-one correlation provided in the MODVAT Rules for the use of particular inputs for a particular batch of finished product and this appears to be a deliberate omission to facilitate the use of the MODVAT credit avoiding disputes in respect of the quantum of inputs contained in any given batch of finished product.
2. The Revenue has urged the following question of law under Section 35G(1) of the Central Excises & Salt Act, 1944 for reference to the Hon'ble High Court:
"Whether the Tribunal is right in holding that the respondent is eligible to take modvat credit on that part of inputs used in the manufacture of finished goods cleared at NIL rate of duty under the provisions of Rule 57C."
3. The Revenue has pressed the ruling of the East Regional Bench in the case of East India Pharmaceutical Works Ltd. v. C.C.E., reported in 1991 (54) E.L.T 355 (Tri.). The learned SDR for the Department referred us to para 8 of this ruling, which is for convenience of reference reproduced below :
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4. We observe that provisions similar to provisions regarding MODVAT credit under Rule 57A to 57-1 exist in the Central Excise Rules under Rule 56A. The basic difference is that under Rule 56A the proforma credit can be taken and utilised when the inputs and the finished product fall under the same Tariff heading while in the case of MODVAT provisions the input and the final product need not fall under the same Tariff heading but the same are required to be specified in the notification issued under Rule 57A. The procedure regarding taking of the MODVAT credit and utilisation of the same is also similar. In a similar case arising in the context of Rule 56A in the case of C.C.E., Bangalore v. Wipro Information Technology, reported in 1988 (33) E.L.T 172 (Tribunal), the question raised and the facts before the Tribunal were --
"Whether the Assistant 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 of duty on the computers manufactured by them. The situation was created by the fact that on 17-3-1985 Government issued Notification No. 67/85 exempting computers from duty. Consequently, the benefit of Rule 56A became inapplicable to component parts to be used in the manufacture of computers."
and the Tribunal has held as under :
"With reference to point (5), it has been clarified that proforma 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 clarification further states that the requirement of strict input/output correlation has been dispensed with. This would mean that in utilising 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 manufacture 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."
However, since the East Regional Bench in the context of MODVAT credit has taken a divergent view in the case of East India Pharmaceutical Works Ltd., quoted supra, and the scope of Rule 57C requires to be interpreted in the context of the other provisions viz. Rule 57A and Rule 57F, we hold that a question of law does arise for reference as pleaded by the Revenue. We, therefore, refer the following question of law to the Hon'ble High Court of Kerala under Section 35G(1) of the Central Excises & Salt Act, 1944 :
Whether the Tribunal is right in holding that the credit taken in respect of the inputs contained in that portion of the goods which were cleared without payment of duty does not require to be reversed, as the credit was correctly taken when the inputs were brought into the factory, and the same were correctly utilised in terms of Rule 57F and that the provisions of Rule 57C in the facts of this case would not apply.