Customs, Excise and Gold Tribunal - Delhi
Hind Spinners Industries Growth Centre vs Commr. Of C. Ex. on 26 August, 1997
Equivalent citations: 1997(96)ELT651(TRI-DEL)
ORDER G.R. Sharma, Member (T)
1. The ld. Collector in the impugned order held that:
"8. On close and careful consideration of the above two provisions, I am not convinced, I can buy the view, canvassed by the party in this case. The provision under Rule 57-S(2), protection under which is sought by the party ensures that the credit taken on capital goods can be utilised for payment of duty on clearances of any of the final products but the same does not mean that the credit can be taken without using the capital goods at all. Provisions under Rule 57Q which spells out the scope of the scheme refers to allowing 'credit of specified duty paid on the capital goods used by the manufacturer in his factory and for utilising the credit so allowed towards payment of duty of excise leviable on the final products...subject to the provisions of this Section.' It follows therefore, the directions contained in Rule 57Q(1) determines the utilisation of the credit as permitted under Rule 57-S(2). Reading of the provision makes it clear that utilisation of the credit of duty paid is available only on capital goods - "used" as provided under Rule 57Q(1). "Used" in the context of capital goods would mean 'installed' in the factory of the manufacturer for the purpose of carrying out manufacturing activities. Utilisation of the credit prior to installation is not permitted by the rule. As such, if one gives into the view propounded by the party it would mean that capital goods can be acquired by the party and credits taken thereon would be utilised for payment of duty on whatever goods, the party may choose to clear, without the capital goods being ever 'used' at all, as required under Rule 57Q. It would also mean that the party would be free to utilise the credits taken fully for. clearance of its final products and then decide to dispose of the capital goods themselves by paying duty thereby postponing the payment of duty from their PLA. Modvat scheme on capital goods is not an advance assistance scheme, as the party would like me to believe and approve. Such a position has no sanctity in law in the background of the prescription in Rule 57Q that the credit accrued is available on "capital goods used." I am, therefore, to hold that the utilisation in May, 1994 of the credit accrued on capital goods not used, i.e. not installed for manufacture, till July, 1994, for payment of duty on clearances of final products was incorrect and properly liable for disallowance/recovery under Rule 57U of Central Excise Rules, 1944, read with Section 11A of the Central Excises & Salt Act, 1944. As, by the above incorrect utilisation of Modvat credit accrued on capital goods, the party had violated the provisions of law, they are also liable to be penalised under Rules 173Q and 209 of the Central Excise Rules, 1944. However, keeping in mind the otherwise fine track record of tax compliance by the party, I am inclined to take a lenient view while fixing the quantum of penalty.
9. In view of my findings and conclusions foregoing, I order as below :
(i) amount of Rs. 17,30,206/- being the Modvat credit taken on capital goods and utilised incorrectly is disallowed/confirmed for recovery under Rule 57U of the Central Excise Rules, 1944.
(ii) A penalty of Rs. 17,000/- (Rupees Seventeen Thousand only) is imposed on the party under Rule 173Q of the Central Excise Rules, 1944."
2. Being aggrieved by this order, the appellants have filed the present appeal before us.
3. The facts of the case in brief are that the appellants received new spinning machine and accessories in March, 1994 and took Modvat credit on these machines in terms of Rule 57Q of the Central Excise Rules. The credit taken on these machines was utilised in May, 1994 for payment of duty on the clearances of final product. The capital goods on which Modvat credit was taken in March, 1994 were ultimately installed in July and August, 1994. The Department alleged that the appellants were not eligible to take Modvat credit on such goods and utilise the same before installation of the machine and accessories. Accordingly, a show cause notice was issued. In reply to the show cause notice, the appellants submitted that they had taken credit on capital goods under Rule 57T(3) and utilised it under Rule 57-S(2) which permitted utilisation of the credit for paying duty of excise on any of the final products manufactured by them. It was also contended that Rule 57-S(2) did not specify that the credit on capital goods has to be utilised for clearances of the final product which should have been manufactured from the machines on which credit has been taken. It was also contended that use of the word 'any' in Rule 57-S(2) relating to the utilisation of the credit reinforced the legislative intent that the relevant machines need not be utilised directly for the manufacture of the final product, but are to be used in the factory of the manufacture of the final product. After considering the submissions of the appellants, the ld. Collector of Central Excise confirmed demand of duty and also imposed a penalty as indicated above.
4. Shri V. Sridharan, the ld. Advocate appearing for the appellants, submits that Rule 57T lays down the procedure for taking Modvat credit on capital goods; that a declaration was filed describing the capital goods as ¦well as the final product; that Modvat credit was taken in terms of Rule 57T(1); that entry was made in Form RG 23C Parts I and II regarding the receipt of capital goods and credit particulars; that there was no provision in Rule 57T stipulating that credit can be taken only after capital goods are installed and commissioned. The ld. Counsel submitted that the adjudicating authority has misconstrued the provisions of Rule 57Q and the expression of duty paid on the 'capital goods used' by the manufacturer in his factory; that the expression 'capital goods used by the manufacturer in his factory' appearing in Rule 57Q is only a manner of describing the goods in respect of which the provisions of Section AAAA of Central Excise Rules would apply; that the provisions of Rule 57Q are worded in such a manner as to describe the capital goods and the final product to which provisions of Rules relating to the capital goods would apply; that the expression 'capital goods used by the manufacturer in his factory' in Rule 57Q cannot, therefore, be interpreted in isolation to mean that only when the capital goods are actually put to use in a factory, credit can be taken and utilised. The ld. Counsel submitted that a reading of Rule 57A shows that Modvat credit is available in respect of inputs used in or in relation to manufacture of final product subject to the provisions of various rules under Section AA in the Central Excise Rules; but once the credit is taken in terms of Rule 57G by following the procedure set out therein, the manufacturer can utilise the said credit towards payment of duty on any final product in terms of Rule 57F(4); that such utilisation is permitted despite the fact that consignment of inputs is still in stock. The ld. Counsel submitted that the Modvat scheme under Rule 57A is in force for the last 10 years and that the Department has not objected to the taking of credit and utilising the said credit of duty paid on inputs even though the said inputs are not yet utilised in the manufacture of the final product. The ld. Counsel also submitted that one-to-one co-relation between the inputs and final product is not the intention of the Modvat scheme. He submitted that the Tribunal in the case of M/s. Gujarat Narmada Valley Fertilisers Ltd. reported in 1997 (18) RLT 625, held that when the capital goods for the manufacture of Acetic Acid and Hydrogen had not entered the production process at all, they did not satisfy the user criterion, and taking of the Modvat credit thereon and utilising such credit for payment of duty on other products was irregular and not in consonance with Rule 57Q. Further, the requirement for utilisation of credit under Rule 57-S(2) prior to its amendment on 16-3-1995 was that it should be in accordance with declaration filed under Rule 57T(1). The ld. Counsel submitted that this decision of the Tribunal was based on the finding of the Collector Appeals taking into consideration Board's Circular Nos. 88/88/94, dated 26-12-1994. The ld. Counsel submitted that this Circular of the Board was amended by Circular No. 277/111/96-CX., dated 2-12-1996; that in this Circular, the Board clarified that:
"3. It is found that aforesaid Circular is restricted to initial setting up of a factory and it should not be applied to units/factories already in manufacturing operation, where Modvat credit was availed and utilised in respect of capital goods, procured and received into factory prior to 1-1-1996. It was only with the issue of Notification No. 1 /96-C.E. (N.T.), dated 1-1-1996 that it was provided specifically in the rules that Modvat credit could be availed on capital goods only after the capital goods are actually installed and brought into production of excisable goods.
4. In view of the above, it is clarified that for capital goods procured and received into the factory prior to 1-1-1996, credit of specified duty availed and utilised immediately will be admissible, even if such goods were not actually brought into production of excisable goods on the date of such availment and utilisation."
5. He submitted that the decision of the Tribunal in the case of M/s. Gujarat Narmada Valley Fertilisers Ltd. is distinguishable. He submitted that in view of the above submissions, the impugned order may be set aside and the appeal allowed.
6. Shri P.K. Jain, the ld. SDR, submitted that Board Circular cannot prevail over the Rules. He submitted that Rules required that Modvat credit on capital goods can be taken and utilised only after their installation. He submitted that the ld. Collector Central Excise has carefully analysed the position as available under the rules and, therefore, prays that the impugned order may be upheld and the appeal may be rejected.
7. Heard submissions of both sides. The department has interpreted the expression "duty paid on capital goods used by the manufacturer in the factory" as to mean that credit of duty on capital goods can be utilised only after installation and commissioning of the capital goods. We note that similar expression is used in Rule 57A which provides that Modvat credit is available in respect of the goods used 'in or in relation to' the manufacture of the final product. In respect of all the provisions of various other rules, the Department has been admitting the Modvat claims under Rule 57A for the last so many years. No objection has been raised about the utilisation of the Modvat credit taken even if the inputs were not used and were still lying in stock. We also note that credit of duty can be taken initially on receipt of the goods along with the duty paying documents. Once credit is taken, there is no embargo that it cannot be utilised unless the capital goods are installed. We also note that in the instant case, the factory was in existence. We note that, the Board in its Circular had clarified that in the case of existing plants, Modvat credit can be utilised immediately after its taking. We also note that capital goods can be removed as such after paying duty applicable, but in no case less than the amount taken as Modvat credit. All this goes to show that Modvat credit can be utilised before the installation of the machine or accessories, especially in the factories which are in existence and where the specified final product is already manufactured and cleared. We also note that the Tribunal's judgment on the issue is clearly distinguishable inasmuch as the same was based mainly on a circular of the Board issued on 26-12-1994 and that circular was amended subsequently by issuing another circular on 2-12-1996.
8. Having regard to the above findings and discussions, we hold that Modvat credit can be taken and utilised on capital goods in the case of a factory which is already in existence and where the specified final product is being manufactured and cleared. In the result, the appeal is allowed. Consequential relief, if any, shall be admissible to the appellant in accordance with law.