Custom, Excise & Service Tax Tribunal
M/S. Mrf Ltd vs Central Excise And Service Tax on 10 February, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/42061 -42062/2014
(Arising out of Order-in-Appeal No. 89 & 90/2014 dated 12.06.2014 passed by the Commissioner of Central Excise & Service Tax, LTU, Chennai).
M/s. MRF Ltd. : Appellant
Vs.
Central Excise and Service Tax
Larger Tax Payer Unit Respondent
Appearance Shri S. Karthik , Advocate, for the Appellant Ms. Indira Sisupal, AC (AR), for the Respondent CORAM Honble Shri P. K. Choudhary, Judicial Member Date of Hearing :10/02/2016 Date of Pronouncement: 11/03/2016 FINAL ORDER No.: 40441-40442 / 2016 Since both the appeals are arising out of the common Order-in-Appeal, both are taken up together for disposal.
2. M/s. MRF Ltd., the appellant company is primarily engaged in the manufacture of Radial Tyres for passenger cars and trucks falling under Chapter 40 of the first schedule to the Central Excise Tariff Act, 1985 and are registered with the Central Excise. They have been availing CENVAT credit of duty paid on inputs, capital goods, service tax paid on input services and have been utilizing the same for their duty liability on the goods manufactured and cleared by them.
Appeal No. E/42061/2014
3. The appellant company had imported 34,814 kgs. of Steel Tyre Cord vide Bill of Entry No. 945622 dated 03.02.2009 from Malaysia and availed CENVAT credit of CVD to the tune of Rs.7,73,306/-. In the process of production it was found that the imported material had a defect and the appellant decided not to use the said steel tyre cord as inputs any further. By this time, 9336 kgs. of imported steel tyre cord was already consumed in the production process and the appellant decided to re-export the balance of 25478 kgs. to the supplier vide ARE-1 No. 0001 dated 27.07.2009. The department issued show cause notice alleging that the appellant assessee had contravened the provisions of Rule 3 (5) read with Rule 14 of the CENVAT credit Rules, 2004 and demanded an amount of Rs.5,65,930/- being CVD credit taken on the rejected inputs which were subsequently re-exported. Penalty was also proposed to be imposed as the department alleged that the appellant company had contravened the provisions under Section 11 A (1)/11 A (4) of the Central Excise Act, 1944. The adjudicating authority ordered reversal of Rs. 5,65,930/- along with interest and also imposed equal penalty. Being aggrieved, the appellant assessee preferred appeal before the Ld. Commissioner (Appeals), who rejected their appeal and upheld the Order-in-Original. Being aggrieved by the impugned order dated 12.06.2014, the appellant company is in appeal before this Tribunal.
Appeal No. E/42062/2014
4. The appellant assessee had imported X-ray Tube MCT-120-SN-9679 (hereinafter referred to X-ray Tube) vide Bill of Entry No. 5292786 dated 25.11.2011 from France and availed CENVAT credit on duty paid on such import amounting to Rs.1,63,097/-. The credit was taken in RG23A (part-II) Register. Subsequently, it was found that the x-ray tube was malfunctioning and the same became unusable and had to be replaced. On contacting the foreign supplier in France, they requested the appellant to re-export the capital goods as they were ready to replace the x-ray tube free of charge. The capital goods were returned by re-exporting the same under form ARE-1 No. 0006/11-12 dated 08.02.2012. The appellant assessee informed the department that the malfunctioning of x-ray tubes imported from France was being re-exported to the supplier and credit was not reversed while re-exporting the same as per Rule 19 of the Central Excise Rules, 2002. Show cause notice was issued alleging that the appellant assessee had contravened the provisions under Rule 3 (5) read with Rule 14 of CENVAT Credit Rules, 2004, and demanded an amount of Rs. 2,50,750/- and proposed to levy interest and penalty. The adjudicating authority ordered the reversal of Rs. 2,50,750/- along with interest and imposed penalty of Rs. 2,500/-. Being aggrieved, the appellant assessee preferred an appeal before the Ld. Commissioner (Appeals), who rejected their appeal and upheld the Order-in-Original. Being aggrieved by the impugned order dated 12.06.2014, the appellant company is in appeal before this Tribunal.
5. After hearing both the sides and on going through the records, I find that the present dispute is as to whether the appellant while clearing the imported inputs which were found to be defective and unusable and later re-exported from their premises, is required to pay an amount equal to the credit availed on such inputs as per Rule 3(5) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) has observed that the credit taken on the impugned defective imported inputs / capital goods are recoverable under Rule 3 (5) of the Cenvat Credit Rules at the time of re-export. That the reliance placed on the clarification given by the Board in para 8 of Circular No. 345 /2 /2000-TRU dated 29.08.2000 is inapplicable as the said circular did not clarify that the appellants are not required to reverse the credit when the inputs are exported as such; that the decision of the Tribunal in the case of M/s KCP Limited as affirmed by the Supreme Court reported in 2013 (295) ELT 353 (SC) would apply to the facts of the case; that para 3.4 of Chapter 5 of Central Excise Manual of CBECs instructions would not apply to the facts of the present case as Rule 5 does not apply to inputs exported as such; that reliance placed on the Tribunals rulings in the case of Zydex Industries Vs CCE reported in 2007 (219) ELT 602 (Tri-Ahmd); RFH Metal Castings P Ltd vs CCE, Jaipur reported in 2005 (184) ELT 194 (Tri-Del) and the clarification issued by the Board is inapplicable as the applicability of the said circulars in the context of the present legal position was not discussed in the said order; that in respect of one appeal, i.e Appeal No. E/42061/2014, the plea of limitation was also not accepted for the reason that there is nothing on record to show that the relevant facts were brought to the knowledge of the department, either during audit or otherwise, though they had intimated the re-export, they did not intimate the fact of non-reversal of input credit pertaining to the said removal.
6. The impugned order is liable to be set aside for the reason that in the Boards circular No.283/117/96 dated 31.12.1996 it has been clearly stated that the credit availed on inputs which are re-exported as such under Bond need not be reversed. The relevant portion of the said circular is culled out below:
5. Accordingly, it is clarified that the Modvat credit in RG23A Part-II account against the export of inputs as such under bond can be utilized in the same manner as it is provided for a final product under proviso to Rule 57F(4). Obviously, it follows from this that such inputs should be allowed to be exported under bond without any reversal of the credit.
7. The subsequent Circular No.345/2/2000-TRU dated 29.08.2000 in para-8 clarified that there is no bar if the inputs or capital goods are removed as such from the factory for export under bond which also finds reiteration in para 3.4 of Chapter 5 of CBECs Manual. This issue is no longer res integra as the same is covered by a plethora of decisions, the most relevant one being that of the Tribunal in the case of ZYDEX INDUSTRIES Versus COMMISSIONER OF C. EX., VADODARA ( Supra).
8. This case is identical inasmuch as the inputs which have been imported have been re-exported on quality consideration to the foreign based suppliers. Similar to the case cited above, the goods under dispute have been re-exported and naturally the benefit of drawback for re-export is available under Section 74. The Tribunal had relied upon the circulars dated 31.12.1996 and 29.8.2000 which are akin to the facts of the instant case. The Commissioner (Appeals) placed reliance on the judgment of the Honble Supreme Court in the case of M/s KCP Limited Vs CCE, Chennai - 2013 (295) ELT 353 (SC).
9. On a careful reading of the judgment of the Honble Supreme Court, the facts were on an entirely different footing and in that case the assessee who is a manufacturer of sugar and cement machinery and parts thereof, the objection of the department for denial of credit was on account of non-user of the inputs which were manufactured by other Manufacturers in their respective factory. In the instant case, the imported inputs were directly used and found to be defective and not upto the appellants quality parameters. The judgment of the Honble Supreme Court would therefore not apply to the facts of the present case.
10. The issue being covered by the judgment in the case of Zydex Industries cited surpa, the demand for the availment of cenvat credit which is alleged to be incorrect is unsustainable. In one of the appeals, ie., in Appeal No.42061/2014, there is a plea of limitation. Since the appeals are decided on merits, the aspect of limitation is not visited.
11. The impugned orders are set aside. When the duty implication is not there, the element of penalty gets obviated. Penalty imposed in the impugned orders is set aside.
12. The appeals are therefore allowed with consequential relief, if any.
(Order Pronounced in the open court on 11.03.2016) (P.K. CHOUDHARY) Judicial Member BB 1