Madras High Court
The Commissioner Of Customs vs M/S. Sri Kumaran Alloys (P) Ltd on 14 August, 2018
Author: T.S.Sivagnanam
Bench: T.S.Sivagnanam, V. Bhavani Subbaroyan
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 14.08.2018 CORAM THE HONOURABLE Mr.JUSTICE T.S.SIVAGNANAM AND THE HONOURABLE Mrs.JUSTICE V. BHAVANI SUBBAROYAN Civil Miscellaneous Appeal No.1543 of 2018 The Commissioner of Customs, Central Excise & Service Tax, Coimbatore-641 018 .. Appellant -vs- M/s. Sri Kumaran Alloys (P) Ltd., S.F.No.556/1-C, Paduiyanur, Chickkarampalayam Post, Karamadai, Coimbatore641 104. .. Respondent Civil Miscellaneous Appeal filed under Section 35G of the Central Excise Act, 1994 to set aside the Final Order No. 40126/2015 dated 06.02.2015 passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai. For Appellant : Mr.A.P. Srinivas, Senior Standing Counsel For Respondent : M/s.D.Naveena ****** JUDGMENT
[Delivered by T.S.Sivagnanam, J.] This appeal, by the Revenue, is directed against the order passed by the Customs, Excise and Service Tax appellate Tribunal (hereinafter referred to as the Tribunal), South Zonal Bench, Chennai, arising out of an Order-in-Appeal No.124/2014-CE, dated 23.04.2014 passed by the Commissioner of Central Excise (Appeals), Salem.
2.The appeal before the Tribunal was at the instance of the assessee, who had challenged the correctness of the order passed by the Commissioner (Appeals), confirming the order dated 20.11.2013. By the said order, the Adjudicating Authority while ordering invocation of extended period of limitation under proviso to Section 11A(1) of the Central Excise Act, 1944 (hereinafter referred to as the CEA, 1944), as it stood then, confirmed the demand of Rs.8,08,730/- being the Cenvat credit availed along with education cess in terms of proviso to Section 11A(1) of the CEA, 1944 read with Rule 14 of the Cenvat Credit Rules, 2004 (hereinafter referred to as the CCR, 2004) and the Adjudicating Authority demanded interest at an appropriate rate under Sections 11AB and 11AA of the CEA, 1944 read with Rule 14 of the CCR, 2004 and also imposed penalty of equivalent sum of Rs.8,08,730/-.
3.Before the Commissioner (Appeals), the assessee contended that they were availing S.S.I. exemption under Notification No.8/2003-CE as amended and had taken Cenvat credit on capital goods received from July 2008 to March 2009 and the Cenvat credit taken was kept in balance in their Cenvat credit account in March 2009 and carried over up to March 2011.
4.The assessee further submitted that during July 2011, the Department requested information of the credit availed by them. They provided necessary details and it was pointed out that depreciation of capital goods availed under Section 32 of the Income Tax Act, 1961 cannot be availed as Cenvat credit and therefore, the said amount should be reversed. This led to issuance of show cause notice by invoking the extended period of limitation.
5.The assessee contended that interest cannot be claimed for the reason that Cenvat credit has been wrongly taken as such availment itself does not create any liability of payment of excise duty.
6.The Commissioner (Appeals), after taking into consideration the contentions advanced, relied on the decision of the Hon'ble Supreme Court in the case of Union of India vs. Ind-Swift Laboratories Ltd. reported in 2012 (25) S.T.R. 184 (SC) and dismissed the appeal.
7.Before the Tribunal, the Revenue agreed that the assessee was an S.S.I. Unit and has not availed Cenvat credit. Further, the Revenue did not dispute the fact that capital goods credit only remained as book entry. While considering the correctness of the levy of interest on unutilized credit, the Tribunal referred to the decision of the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Mumbai-I vs. Bombay Dyeing & Manufacturing Co. Ltd. reported in 2007 (215) E.L.T. 3 (SC). Thus, taking into consideration the said decision and the practical difficulty, held that imposition of penalty of Rs.1,00,000/- will serve the interest of justice. Accordingly, the appeal stood disposed of on the above terms.
8.This Civil Miscellaneous Appeal has been filed by the Revenue raising the following substantial questions of law.
(i) Whether the Hon'ble Tribunal has committed substantial error in law by waivering the demand of interest under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11 AB of the Central Excise Act when the legal position is settled by the Hon'ble Supreme Court in the case of Union of India Versus Ind-Swift Laboratories Ltd. in Civil Appeal No.1976 of 2011 (2011 (265) E.L.T. 3 (S.C.)) dated 21.2.2011, that the word OR in between the expressions 'Taken or utilised wrongly or has been erroneously refunded as the word AND on the happening of any of the three circumstances such credit becomes recoverable along with interest'?
(ii) Whether the Hon'ble Tribunal has committed substantial error by waiving the penalty to the extent of Rs.1,00,000/- against the equal penalty amounting to Rs.8,08,730/- under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 on the ineligible credit availed on the capital goods in view of the judgment in the Hon'ble Supreme Court in the case of Union of India versus Rajasthan Spinning & Weaving Mills in Civil Appeal Nos.3527 and 3525 of 2009 decided on 12.05.2009 wherein it has been clarified that when the conditions spelled out under Section 11AC of the Central Excise Act, 1944 are fulfilled, there is no discretion to reduce the mandatory penalty equal to duty even though the duty is paid before the issue of Show Cause Notice?
9.We have heard Mr.A.P.Srinivas, learned Senior Standing Counsel for the appellant/Revenue and M/s.D.Naveena, learned counsel appearing for the respondent/assessee.
10.Before we venture to consider the legal position, more particularly, the effect of the decision in Bombay Dyeing & Manufacturing Co. Ltd. (supra), we have to point out that on facts, we are not inclined to interfere with the order passed by the Tribunal for more than one reason. Firstly, the Revenue did not dispute the fact that the assessee is an S.S.I. and has not availed the Cenvat credit and the credit remains as an entry in the books. Therefore, on facts, it will be a very hard case for the Court to reverse the decision of the Tribunal, especially when the Revenue does not dispute the factual position. Nevertheless, we are called upon to decide the substantial questions of law, which have been raised for consideration. We are inclined to do so. However, we are of the considered view that the second substantial question of law, as framed above, largely revolves around the factual aspect and in the light of our observation in the preceding paragraph that we are not inclined to upset the finding of the Tribunal with regard to the assessee and their conduct, we find the second question not to be a substantial question of law. Therefore, we refrain from going into the said aspect and leave the issue open.
11.So far as the first substantial question of law is concerned, we need to point out the correct legal position. The Tribunal has referred to the decision in the case of Bombay Dyeing & Manufacturing Co. Ltd. (supra). The said decision arose out of an exemption Notification No.14/2002-CE and the Court held that the payment was made by the assessee before stage of exemption and on payment of duty on input (yarn), the assessee got credit, which was never utilized and before utilization, entry has been reversed which amounts to not taking credit. Therefore, while interpreting the effect of the said notification, the decision was rendered. Therefore, the decision in Bombay Dyeing & Manufacturing Co. Ltd. (supra) cannot be applied to the facts and circumstances of the case.
12.The learned counsel appearing for the assessee referred to the decision in the case of Commissioner of C. Ex., Madruai vs. Strategic Engineering (P) Ltd. [2014 (310) E.L.T. 509 (Madras)]. The Hon'ble Division Bench of this Court (Madurai Bench) took note of the judgment of the Hon'ble Supreme Court in the case of Ind-Swift Laboratories Ltd. (supra), which interpreted the word or occurring in Rule 14 of the CCR, 2004. The operative portions of the judgment read as follows:-
"15.In order to appreciate the findings recorded by the High Court by way of reading down the provision of Rule 14, we deem it appropriate to extract the said Rule at this stage which is as follows:
14. Recovery of Cenvat credit wrongly taken or erroneously refunded:- Where the Cenvat credit has been taken or utilised wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of Sections 11-A and 11-AB of the Excise Act or Sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries. ..............................
19.A taxing statute must be interpreted in the light of what is clearly expressed. It is not permissible to import provisions in a taxing statute so as to supply any assumed deficiency. In support of the same we may refer to the decision of this Court in Commissioner Of Sales Tax, U.P v. Modi Sugar Mills Ltd. 1961 2 SCR 189 wherein this Court at AIR para 11 has observed as follows:
10. ........... In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency.
20.Therefore, the attempt of the High Court to read down the provision by way of substituting the word or by an and so as to give relief to the assessee is found to be erroneous. In that regard the submission of the counsel for the appellant is well founded that once the said credit is taken the beneficiary is at liberty to utilise the same, immediately thereafter, subject to the Credit rules."
13.In the light of the above decision, one cannot read down Rule 14 of the CCR, 2004 by way of substituting the word or by and. The Court gave relief to the assessee and such relief, granted by the High Court, was held to be erroneous by the Hon'ble Supreme Court.
14.In Strategic Engineering (P) Ltd. (supra),the Court though took note of the decision in the case of Ind-Swift Laboratories Ltd. (supra), also took note of the amendment to Rule 14 of the CCR, 2004, where the amendment substituted the word or with the word and and therefore, the Division Bench held that it is clear that mere taking itself would not compel the assessee to pay interest as well as penalty and the subsequent amendment has given befitting answers to all doubts, which existed earlier. We are unable to persuade ourselves to agree with the observations made in the case of Strategic Engineering (P) Ltd. (supra), as the amendment is not clarificatory to be held to be retrospective.
15.One more aspect, which prompts us to say so, is in the light of the decision of this Court in the case of Commissioner of Central Excise, Chennai-IV vs. Sundaram Fasteners Limited [2014 (304) E.L.T. 7 (Madras)], wherein one of us (TSSJ) was a party. Identical issue arose for consideration and the Court, after taking into consideration the decisions in the cases of
(i) Chandrapur Magnet Wires (P) Ltd. vs. Collector reported in 1996 (81) E.L.T. 3 (SC);
(ii) CIT vs. Poddar Cement (P) Ltd. reported in 226 ITR 625 (SC);
(iii) Commissioner vs. Bombay Dyeing and Mfg. Co. Ltd. reported in 2007 (215) E.L.T. 3 (SC); and
(iv) Pratibha Processors vs. Union of India reported in 1996 (88) E.L.T. 12 (SC), held as follows;-
"7. The next question which falls for consideration is as to whether the assessee is liable to pay interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944?
8. The said issue came up for consideration before the Hon'ble Supreme Court in the case of Union of India vs. Ind-Swift Laboratories Ltd., reported in 2011 (265) ELT 3 (SC). In the said case, the High Court read down the Rule to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable from the date the CENVAT credit has been utilized wrongly and interest should not be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. The assessee's case in this appeal is that the credit has been reversed. Therefore, mere wrong availment will not attract payment of interest as reversal of credit would amount to "no credit" being taken. The Hon'ble Supreme Court held that the High Court misread and misinterpreted Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. It further pointed out that a statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal and Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service and the issue is as to whether the aforesaid word "OR" appearing in Rule 14, twice, could be read as "AND" by way of reading it down as has been done by the said High Court. Further, the Hon'ble Supreme Court, reading the provision as a whole found that there was no reason to read the word "OR" in between the expressions 'taken' or 'utilized wrongly' or has been erroneously refunded as the word "AND". It was further held that on the happening of any of the three circumstances viz., credit taken or credit utilized wrongly or credit has been erroneously refunded, then such credit becomes recoverable along with interest. Further, the Hon'ble Supreme Court held that so far as Section 11 AB of the Act is concerned, the same becomes relevant and applicable for the purpose of making recovery of the amount due and payable. Therefore, it observed that the High Court in the said case erroneously held that the interest can be claimed from the date of wrongful availment of CENVAT Credit and it should only be payable from the date when CENVAT Credit is wrongly utilized.
9. The learned counsel appearing for the assesee sought to distinguish the decision of the Hon'ble Supreme Court in the case of IND-SWIFT LABORATORIES LTD. by stating that, that was a case where the CENVAT credit was taken and utilized and not a case where CENVAT credit has been reversed as that of the case of the assessee herein. It is his further submission that reversal of credit would amount to "no credit" being taken. In this regard, reliance has been placed on the decision of Allahabad High Court in the case of Hello Minerals Water (P) Ltd., vs. Union of India reported in 2004 (174) ELT 422 (All.), the decision of the Karnataka High Court in the case of Commissioner of C.Ex. & S.T., LTU. Bangalore vs. Bill Forge Pvt.Ltd reported in 2012 (279) ELT 209 (Kar.) and the decision of the Hon'ble Apex Court in the case of Chandrapur Magnet Wires (P) Ltd. vs. Collector of C.Excise, Nagpur reported in 1996 (81) ELT 3 (SC).
10. We do not agree with the submissions made by the learned counsel for the assessee, as the decisions rendered in the aforesaid cases by the Allahabad High Court as well as the Karnataka High Court as well as the Hon'be Supreme Court, arose out of a case where the assessee claimed benefit of an exemption notification. The question which fell for consideration in those cases is as to whether reversal of credit after the removal of the final product would entitle the assessee therein to the benefits of exemption notification, which states that the reversal of the credit should be done before the removal of the products. In such circumstances, the Courts considered the issue and said that for the purpose of extending the benefits of exemption notification, the time of reversal was not the material and reversal of the credit would amount to "no credit" being taken. In these decisions, rule 14 or section 11ab was not the subject matter for consideration. Therefore, these decisions relied upon by the learned counsel for the assessee are clearly distinguishable by facts, while read in the context of the facts and relevant notification which are applicable to the facts of the case.
....................
13. The learned counsel for the assessee submitted his notes on the contention that interest being compensatory and that question of payment of interest would arise only where the principal is due. To that contention, by placing reliance on the decision reported in 1996 (88) ELT 12 (SC) (Prathiba Processors vs. Union of India as well as the decision reported in 2007 (215) ELT 3 (CCE v s. Bombay Dyeing), the learned counsel for the assessee contended that, when credit has been reversed before utilization, the same did not amount to taking credit.
14. We reject the arguments of the assessee. In the said decisions, it has been no doubt held that interest is compensatory and the question arises only where principal is due. If one gets into the background of the scheme of Modvat Credit, his contention that the assessee has taken credit, does not merit consideration, particularly so, in the background of Rule 14. As it stands today, one has to go only by the provisions contained in Rule 14 and nothing beyond.
15. Further, the decision rendered in Bombay Dyeing case reported in 2007 (215) E.L.T. 3 (SC) is also distinguishable one, considering again the issue raised therein with reference to notification No.14/2002-C.E., granting exemption, a situation similar to the cases in Hello Minerals as well as Chandrapur Magnet."
16.The above referred decision in Sundaram Fasteners Limited (supra) was rendered on 30.01.2014 and it appears that the same was not placed before the Division Bench, while the decision was rendered in the case of Strategic Engineering (P) Ltd. (supra), which was rendered on 10.02.2014. As observed earlier, the amendment to the statute not being clarificatory cannot be retrospective. Thus, an amendment to a statue done prospectively cannot be interpreted to be an answer to doubts which had arisen earlier to the amendment. Thus, we are not persuaded to apply the decision in Strategic Engineering (P) Ltd. (supra).
17.It is submitted by the learned counsel for the assessee that the amendment to Rule 14 of CCR, 2004 was not placed before the Division Bench in Sundaram Fasteners Limited (supra). As pointed out earlier, the amendment can have no impact on the present proceedings, as admittedly, the period in question is between July, 2008 to March, 2009. In any event, as observed by us earlier, the amendment cannot be treated to have retrospective effect and an amendment to a statute, which has been given prospective effect, cannot be used as an aid to interpret the statutory provision, which existed prior to the amendment, unless and until it is held to be clarificatory. No such argument was advanced before us to state that the amendment to Rule 14 of the CCR, 2004 was clarificatory in nature.
18.For all the above reasons, the first substantial question of law, as framed above, is answered in favour of the Revenue and against the assessee. However, for the reasons assigned by us in the preceding paragraphs and the discussions contained therein, we dismiss the appeal of the Revenue and confirm the order of the Tribunal for the reasons stated therein and decide the question of law in favour of the Revenue. No costs.
[T.S.S., J] [V.B.S., J]
14.08.2018
abr
Index : Yes/No
Speaking/Non-speaking Order
To
The Customs, Excise and Service Tax Appellate Tribunal,
South Zonal Bench, Chennai.
T.S.SIVAGNANAM, J.
and
V.BHAVANI SUBBAROYAN, J.
abr
C.M.A.No.1543 of 2018
14.08.2018