Customs, Excise and Gold Tribunal - Tamil Nadu
Collector Of Central Excise vs Premier Tyres Ltd. on 3 February, 1992
Equivalent citations: 1992(62)ELT104(TRI-CHENNAI)
ORDER V.P. Gulati, Member (T)
1. This appeal has been filed by the Revenue against the order of the Collector of Central Excise (Appeals), Madras, dated 24-10-1989.
2. The short point that falls for consideration in the appeal is whether the credit on the inputs under Rule 57A going into that portion of the specified finished product, which is cleared under exemption notification, has to be reversed. The respondents are manufacturers of tyres and, after filing a declaration under Rule 57G, they took MOD VAT credit in respect of the inputs specified under Rule 57A. After the finished product had been manufactured, the respondents cleared part of the goods free of duty under a notification.
3. The learned SDR for the Department pleaded that the MODVAT Scheme was introduced with the object of avoiding cascading effect of duty and under Rule 57C it has been specifically provided that credit of duty is not to be allowed if final products are exempt. The said Rule for convenience of reference is reproduced below:
"RULE 57C. Credit of duty not to be allowed if final, products are exempt. - No credit of the specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty."
He pleaded in the present case admittedly the respondents cleared part of the goods under an exemption notification without payment of duty and, therefore, in terms of Rule 57C no credit of duty in respect of inputs used in the manufacture of this exempted portion of the finished goods could be allowed. In this connection he cited the dissenting judgment in the case of Vikrant Tyres v. C.C.E., Bangalore [1988 (38) ELT 301 (Tri.)] . He pleaded although in the majority judgment in that case it has been held that proforma credit once allowed cannot be recovered subsequently even if the finished products are exempted later on as no inter-linking account is provided for under Rule 56A, in the dissenting judgment it has been held that in terms of Rule 56A the credit taken in respect of the inputs used in the manufacture of the finished product, which are cleared under an exemption notification, will not be available.
4. The learned Advocate for the respondents, however, pleaded that the position in regard to the availment of credit where portion of the finished product is cleared under an exemption notification without payment of duty, is well-settled by now by a number of decisions of the Special Bench and the Regional Benches and he cited the following case laws in this regard:
(1) 1988 (33) E.L.T. 172 (Tribunal). (2) 1988 (38) E.L.T. 301 (Tri.) (3) 1989 (41) E.L.T. 181.
He pleaded that as held by the various Benches of the Tribunal no one-to-one correlation is provided for under Rule 57A and in that view of the matter once it is shown that the inputs are eligible for MODVAT credit the credit taken can be utilised for payment of duty on the finished product, which is notified under Rule 57A, notwithstanding the fact that part of the finished product has been cleared under an exemption notification. He pleaded that at the time when the inputs are received the assessees may not know that a part of the final product manufactured would be cleared under an exemption notification. In the present case, he pleaded, the exemption was in respect of goods which were to be used as original equipment and only at a later date, after the inputs had been received, the assessees could know whether the finished product is going to be cleared under the exemption notification depending upon when the orders from the original equipment manufacturers were received.
5. We observe that on the face of it the argument of the Revenue appears attractive that benefit of the MODVAT credit should only be limited to the extent of that portion of inputs as have been used for the finished product for which these have been brought in and which are cleared on payment of duty only, as only in that case the object of providing for MODVAT credit i.e. reducing the impact of cascading effect of duty could be achieved and that Rule 57C supports this view. We, however, observe that a reading of the Rules, as a whole does not support this view. Under the Rules what is to be satisfied is that inputs in respect of which MODVAT credit is sought to be taken, are specified in the notification issued under Rule 57A and, that the same were required for the manufacture of the finished product specified under the said Rule. Therefore, after the declaration in this regard has been filed and acknowledged by the Assistant Collector under Rule 57G, the credit on the inputs received can be taken by the asses-sees. In the present case there is no plea from the Revenue that the credit, which was taken on the inputs received, was wrongly taken. The objection of the Revenue is only in regard to the utilisation of the same. Further, we observe, in the nature of things when the inputs are received the respondents might not have known that part of the end-products would be cleared without payment of duty, as the clearance under the exemption for the use in original equipment by manufacturers would depend upon the orders placed for the supply. It would not also be known at the time when the inputs are received as to which portion of the goods into which the inputs are going would be cleared under the exemption notification. The Rules as such provide for taking of the MOD VAT credit on the specified inputs when the specified product in or in relation to which these inputs are to be used, are not exempt. In the present case it is not the case of the Revenue that the finished product for which the inputs were received, were exempt from payment of duty as such. It is possible that in some cases the finished product as such may be chargeable to duty but the same may be cleared without payment of duty under certain conditions as is the case here. Such cases cannot be taken to be covered by Rule 57C and Rule 57C can be taken to be applicable only in cases where at the time when the inputs were received and when the credit is to be taken the finished specified goods can be cleared under a general exemption notwithstanding the same being specified under Rule 57A. As mentioned earlier, we, therefore, hold that the credit taken was correctly taken and the only fault that can be found by the authorities is with reference to the utilisation of the same. Now, the manner of utilisation of the credit is specified under Rule 57F and under Rule 57F(3) (i) the same can be used for payment of duty on any of the final product in or in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under sub-rule (1) of Rule 57G. It would be seen that all that the assessee has to show is that the credit has been utilised towards payment of duty of the final product which were declared under Rule 57G(1). It is not in dispute in the present case that the respondents have utilised the credit for discharge of the duty on the finished product declared by them under Rule 57G(1). It has to be observed that no one-to-one correlation has been prescribed between the inputs and the finished product for the purpose of utilisation of the MOD VAT credit and all that is required is that the credit should be utilised for discharging the duty liability on the finished product which has been declared under Rule 57G(1) in respect of the inputs for which the MOD-VAT credit was taken. Similar provision exists under Rule 56A, which is a parallel provision allowing proforma credit and this Tribunal's Special Bench in the various decisions cited by the respondent have held that even in the event of part of the goods being cleared without payment of duty the credit would still be available for discharging duty liability in respect of the remaining portion of the goods cleared on payment of duty. It may be mentioned that at the time when the inputs are received the credit taken gets added to a pool from which it can be drawn for payment of duty on the finished products as and when the same are cleared. No correspondence is provided for in regard to the quantum of inputs used in the finished product and the credit available in respect of the inputs going into a batch of the final product cleared on payment of duty. The Rules appear to have been deliberately worded so as to ensure that such questions of correlation do not arise and the purpose of providing for MOD VAT credit or proforma credit facilities is not defeated by each clearance becoming an issue regarding the quantum of credit that can be taken. The Rules as are worded clearly provide for the utilisation of the credit taken in respect of the inputs for payment of duty towards the final product irrespective of when the final product is cleared and whether a particular batch of inputs have gone into that particular batch of the final product. In the Rules, it is seen, so far as an event of taking credit is concerned that is provided for separately under Rule 57A and the event of utilisation of the credit has been provided for separately under Rule 57F and if the credit has been wrongly taken, the same can be reversed or recovered within a period of six months or 5 years as provided for under Rule 571. The same would apply in case the said credit has been wrongly utilised. But each event will have to be dealt with separately. In the present case we observe there is no dispute in regard to the taking of the credit and since we have held that the credit has been correctly utilised, the respondents cannot be called upon to pay back the credit utilised as pleaded by the Revenue. The Appeal of the Revenue is, therefore, dismissed.