Custom, Excise & Service Tax Tribunal
M/S. Nicholas Piramel (I) Ltd vs Commissioner Of Central Excise, ... on 12 August, 2008
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I APPEAL NO. E/1405/05 (Arising out of Order-in-Original No. 01/SK-01/2005/Thane-I dt. 31.01.2005 passed by the Commissioner of Central Excise, Thane-I For approval and signature: Honble Ms. Jyoti Balasundaram, Vice President And Honble Mr. M.V. Ravindran, Member (Judicial) And Honble Mr. A.K. Srivastava, Member (Technical) ============================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
=============================================================
M/s. Nicholas Piramel (I) Ltd.
:
Appellant
VS
Commissioner of Central Excise, Thane-IV
Respondent
Appearance
Shri V. Sridharan Advocate with
Gajendra Jain Advocate and
Shri S.S. Gupta C.A. for Appellants
Shri B.K. Singh, Authorized Representative (Jt. CDR)
CORAM:
Honble Ms. Jyoti Balasundaram, Vice President
And
Honble Mr. M.V. Ravindran, Member (Judicial)
And
Honble Mr. A.K. Srivastava ,Member (Technical)
Date of Hearing : 8/8/2008, 11/08/2008, 12/08/2008
Date of decision :
ORDER NO.
Per : Mr. M.V. Ravindran, Member (Judicial) (For the Bench)
This matter is referred to the Larger Bench for resolving the following issue reproduced :-
Whether the provisions of Rule 6(3) (b) of the Cenvat Credit Rules, 2002 are applicable or not, when the amount equivalent to the Cenvat credit attributable to the inputs used in, or in relation to, the manufacture of the exempted final products has been paid prior to the removal of the exempted final product from the factory?.
2. Heard both sides and perused the records.
3. Shri V. Sriddharan Ld. Advocate appearing with Shri Gajendra Jain, Advocate and Shri S.S. Gupta C.A. for the appellant submit that the question which is referred in this case is whether the provisions of Rule 6(3)(b) of the Cenvat Credit Rules 2002 will come into force, despite the fact that assessee has reversed the cenvat credit attributable on the inputs used in the manufacture of exempted final products. It is the submission that the question involved in this case is regarding the cenvat credit availed by the assessee on the common inputs which are used for dutiable and exempted products. The Ld. Counsel draws our attention to the provisions of Rule 6 of the Cenvat Credit Rules 2002. It is his submission that Rule 6(1) disentitles the assessee to take credit on the inputs used for exempted products except in the circumstances mentioned in Sub-Rule (2). It is his submission that construction of this Rule is to be read in a broader prospective, so as to deny the Cenvat Credit on the inputs, which are used in the manufacture of exempted products. It is his submission that provisions of Rule 6 (2) mandate that the assessee/manufacturer shall maintain separate accounts of receipt, consumption and inventory of inputs meant for use in the manufacture of exempted goods and take cenvat credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. It is his submission, that exception is carved to Rule 6(2) by the Government under Rule 6(3). It is his submission that Rule 6(3) (b) would not be violated if the credit taken on the common inputs used in the manufacture of exempted product, is reversed by the manufacturer. It is his submission that Rule 6 of the Cenvat Credit Rules 2002 is a procedural law as it provides for estimation of reversal of credit and to achieve broader goal of Rule 6(1). It is his submission that the 1996 circular of the Central Board of Excise & Customs accepted the said principle and hence the law as has been settled by the Supreme Court in the case of Chandrapur Magnet Wires Vs. CCE [1996 (81) E.L.T. 3 (S.C.)] will squarely cover the issue. It is his submission that Cenvat Credit Rules, 2002 is not a charging section, but a benevolent legislation, which should not be curtailed, if otherwise broader goal is achieved. It is his submission that Rule 6(3) (a) & (b) are the methods to achieve the goal i.e. the credit of the duty paid on inputs used in exempted final products is not availed by the manufacturer. For this proposition, he relies upon the judgment of the Honble Supreme Court in the case of Ashok Leyland Ltd. Vs. State of Tamil Nadu And Another as reported at [2004 (3) 1 S.C.)] . It is his further submission that apportionment is an accepted principle in taxation, i.e. that once the credit of the common inputs which have gone into the manufacture of the exempted goods is reversed, it is an apportionment and it should be considered as non- availment of credit. For this proposition he relies upon the decision of the Supreme Court in the case of Union of India And Another, ETC. Vs. Sanyasi Rao & Ors. ETC [1996 (132) CTR (S.C. 81]. He draws our attention to the decision of the Tribunal in the case of Pepsico India Holdings Vs. CCE [2008 TIOL-59-CESTAT-MAD] after the recall of earlier order. He also takes us through the judgment of the Honble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. (Supra), and submits that the Honble Supreme Court in that case was considering more stringent provisions of exemption notification and still came to the conclusion, that reversal of the credit availed on inputs which are consumed for the manufacture of exempted goods is good enough to hold that credit is not availed on inputs so as to satisfy conditions of notifications. It is his submission that the law as settled by the Honble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd., has been followed by a series of judgments of the Tribunal in identical situations. It is the submission that contrary judgment of the Tribunal in the case of Commissioner of C.Ex. Jaipur-II Vs. Maa Kamakhya Marbles (P) Ltd. [2004 (170) E.L.T. 580 (Tri.-Del.)] and National Information Technologies Ltd. Vs. C.C.E.Bhopal [2005 (179) E.L.T. 404 (Tri.-Del.)] were delivered in the absence of reference to the decision in the case of Chandrapur Magnet Wires Pvt. Ltd., as it was not produced before the Bench. It is his submission that division bench of the Tribunal in the case of CCE, Mumbai IV Vs. Philips India Ltd. [2006 (200) E.L.T. (106) (Tri.Mumbai) clearly noting the fact that the judgment of Maa Kamakhya Marbles (P) Ltd. (Supra) was passed without considering the law as has been settled by the Honble Supreme Court, held that the order of Maa Kamakhya Marbles (P) Ltd., is incorrect.
4. Ld. Jt. CDR on the other hand would submit that prior to the decision of the Honble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd., provisions of Rule 57CC did not exist in the statute. It is his submission that the provisions of Rule 57CC came into statute after the decision of the Honble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd., He submits that the decision of the Honble Supreme Court is only on the facts of that case and the Court was not considering the provisions of law, obviously, since relevant provisions were not there, as they are in Rule 6 of the Cenvat Credit Rules 2002 today. It is his submission that there is no option available to an assessee who avails the credit of the duty paid on the common inputs, which are used for dutiable as well as exempted products, but to follow provisions of rule 6(3)(b). It is his submission that the strict interpretation of the rules is required, lest, it would give rise to undue benefit to an assessee He draws our attention to the decision of the Honble Bombay High Court in the case of Mohandas Issardas Vs. A.N Sattanathan, Collector of Customs [2000 (125) ELT 2006]. It is his further submission that Honble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd., was deciding the issue of an exemption notification and not interpreting the provisions of Rule 57CC of Central Excise Rules 1944 or Rule 6 of Cenvat Credit Rules 2002. For this proposition he relies upon the decision of the Honble Supreme Court in the case of Commissioner of Income Tax, Kerala Vs. Tara Agencies 2007 (214) E.L.T. 491 (S.C.)]. He draws our attention to the decision of the Honble Supreme Court in the case of Gujarat Travancore Agency Vs. Commissioner of Income Tax [1989 (42) E.L.T.350 (S.C.)] and Commissioner of Wealth-Tax Vs. Hashmatunissa Begum [1989 (40) ELT 239 (S.C.)]. It is his submission that whether it is a substantial law or a procedural law, once an assessee opts to avail the Cenvat Credit of the duty paid on common inputs, which are used for dutiable and exempted goods, he does not have an option to reverse the credit availed on the quantity of common inputs used in the manufacture of exempted goods and is perforce required to reverse 8% or 10% of the value of the exempted goods cleared, subject to the deductions allowed. It is his submission that benevolent legislation should be construed in a strict manner. It is his further submission that interpretation of a statute that will make other part of the law otiose, should be avoided. It is his submission that if Rule 6(3) (a) has been carved out by the legislature for specific entries, and mandate that plain reversal of credit in those exceptions are enough, that would indicate that there was an exception. If the assessee does not fall within the exception carved out in Rule 6 (3) (a), he cannot be allowed to reverse the credit availed on the common inputs availed, which are used in exempted products but has to perforce abide by the provisions of Rule 6 (3) (b) of the Cenvat Credit Rules. For this proposition, he relies upon Apex Courts decision in the case of Hind Plastics Vs. Collector of Customs, Bombay [1994(71) E.L.T. 325 (S.C.)], Commissioner of Income Tax, Jalpaiguri Vs. Om Prakash Mittal [2005 (184) E.L.T.3 (S.C.)] and Singh Enterprises Vs. Commissioner of Central Exicse, Jamshedpur [2008 (221)E.L.T. 163 (S.C.)]. It is his submission that any benefit to the assessee, should be allowed only in terms of provisions as enacted and can be claimed only in the manner prescribed under the statute. He submits that provisions of Rule 6 (3) (a) & (b) are substantive law and are the conditions to be followed. It is his submission that hardship is no ground for the wrong interpretation of the statute.
5. Learned Counsel in rejoinder, submits that the reversal of the credit on the common inputs used for the exempted goods is an accepted proposition of law by amendment to the statute by the budget of 2008. He submits that new provisions have been inserted to reverse the credit on the common inputs used in the manufacture of exempted goods by way of formula as provided in the Rule itself. It is his submission that, this itself is an indicator that reversal of the credit of the duty on the common inputs used in exempted final products is accepted by the Government. He draws our attention to the fact, that in the case before us, credit availed on inputs was reversed even before the utilization of the same. He submits that this law has been squarely settled by the Honble Supreme Court in the case of Commissioner of Central Excise Vs. Bombay Dyeing & Manufacturing as reported at [2007 (215) E.L.T. 3 (S.C.)]. It is his submission that once the credit availed on inputs that are used for the exempted products has been reversed, there is no violation of the Rule 6 (1) of the Cenvat Credit Rules,2002 , as reversal of credit is nothing but non availment of credit. It is his submission that Rule 6 is not a charging section and hence the provisions of Section 37 of the Central Excise Act, 1944 which empowers the Central Government to make rules does not cover Rule 6. It is his submission that reversal of 8% or 10%, of the value of the exempted goods is one of the methods of achieving the goal of disentitlement of Cenvat Credit on the inputs which are used for exempted products but is not the only method. It is his submission that the notes explaining important changes made in Excise during the Budget 1996-97, more specifically at paragraph 73.4, state that provisions of Rule 57CC are incorporated as the calculation of the duty of the credit taken on common inputs used in the exempted product is cumbersome and takes time, and in the absence of any input or output co-relation, it is difficult to determine whether the reversal of credit has been correct or not. It is his submission that if the calculation which is available is correct and can be relied upon, provisions of Rule 6(3) (b) need not be pressed into service. It is his submission that the language of the provisions of Rule 6 (3) (b) is plain but the effect of the same is disproportionate, that is to say for availing credit of Rs. 100/- on the common input, if an assessee is required to reverse 8% or 10% of the value of the exempted goods which would, hypothetically be Rs.1000/-, it would defeat the entire purpose. It is his submission that the provisions of Rule 6(1) do not militate against Rule 6 (2) or Rule 6 (3). He submits that the decision of the Honble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. was delivered in a more difficult situation, wherein exemption notification very specifically included bar of non-availment of credit on the inputs, but despite that, Honble Supreme Court held that plain reversal is enough. It is his submission that identical view has been expressed by the Honble Supreme Court in the case of Bombay Dyeing & Manufacturing, It is his submission that the position of the law got further affirmed in the case of Life Long Appliances Ltd. Vs. Commissioner of Central Excise, Delhi III [2000 (123) E.L.T. 1110 (Tribunal)] wherein the Tribunal took the same view relying upon the judgment of the Honble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. He submits that the Revenue being aggrieved by the said judgment moved the Honble Supreme Court in Civil Appeal and said Civil Appeal was dismissed by the Honble Supreme Court as reported at [2006 (196) E.L.T. A144 (S.C.)]. It is his submission that the decision of the Tribunal in the case of Life Long Appliances Ltd.] is squarely in respect of the provisions of Rule 57CC.
6. In rejoinder to the rejoinder, the Ld. Jt. CDR, would submit that reference to Larger Bench is not in an individual case. It is the submission that there is no question of absurdity or of inequity in the provisions of Rule 6(3), as it is known to the assessee at the first instance, as to what he has to do. It is his submission that the decision of the Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. will apply only in a case where conditions of notification are so, and will not apply in a case related to Rule 6 of Cenvat Credit Rules 2002.
7. We have considered the submissions made by both sides and perused the records. In order to appreciate the issue, it is necessary to reproduce Rule (6) of Cenvat Credit Rules 2002 in its entirety which is as under:-
Obligation of manufacturer of dutiable and exempted gods. (1) The CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in s (2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods.
(3) The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely:-
(a) If the exempted goods are-
(i) goods falling within heading No.22.04 of the First Schedule to the Tariff Act;
(ii) Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity;
(iii) Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer;
(iv) Tyres of a kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40 of the said First Schedule;
(v) Newsprint, in rolls or sheets, falling within heading No. 48.01 of the said First Schedule;
(vi) Final products falling within Chapters 50 to 63 of the said First Schedule, the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory; or
(b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to eight per cent, of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sales of such goods at the time of their clearance from the factory.
Explanation I.- The amount mentioned in condition (a) and (b) shall be paid by the manufacturer by debiting the CENVAT credit or otherwise.
Explanation II. - If the manufacturer fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 12, for recovery of CENVAT credit wrongly taken.
(4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.
(5) The provisions of sub-rule (1), sub-rule(2), sub-rule(3) and sub-rule (4) shall not be applicable in case the exempted goods are either-
(i) cleared to a unit in a free trade zone ; or
(ii) cleared to a unit in a special economic zone; or
(iii) cleared to a hundred per cent, export-oriented undertaking; or
(iv) cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or
(v) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excise, dated the 28th August, 1995, number GSR. 602 (E), dated the 28th August, 1995; or
(vi) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002.
A plain reading of the above said Rule clearly obligates manufacturer of dutiable and exempted goods to follow the procedure while availing cenvat credit on the inputs. The provisions of Rule 6(1), are, as correctly pointed out by the Ld. Counsel, for non-availment of the credit of the duty on the inputs which are used in the manufacture of exempted goods. The provisions of Rule 6(2) would indicate that, the manufacturer who avails Cenvat Credit in respect of common inputs, then he is required to maintain separate accounts. The provisions of rule 6(3) (a) & (b) further indicate how the manufacturer has to follow the procedure if he is not maintaining separate accounts. We are more concerned with the provisions of Rule 6(3) (b). On plain reading it would indicate that manufacturer who has availed Cenvat Credit on common inputs does not have any other option but to pay 8% or 10% of the total price of exempted final products, subject to exclusions as envisaged. We find that these provisions are pari materia to the provisions of Rule 57CC of the Central Excise Rules, 1944 which reads as under: -
RULE 57 CC.. Adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer. (1) Where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as in any other [final product which is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty] and the manufacturer takes credit of the specified duty on any inputs (other than inputs used as fuel) which is used or ordinarily used in or in relation to the manufacture of both the aforesaid categories of final products, whether directly or indirectly and whether contained in the said final products or not, the manufacturer shall, unless the provisions of sub-rule (9) are complied with, pay an amount equal to eight per cent of the price (excluding sales tax and other taxes, if any, payable on such goods) of the second category of final products charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.
(2) The amount mentioned in sub-rule (1) shall be paid by the manufacturer by adjustment in the credit account maintained under sub-rule (7) of Rule 57G or in the accounts maintained under rule 9 or sub-rule (1) of Rule 173G and if such adjustment is not possible for any reason, the amount shall be paid in cash by the manufacturer availing of credit under rule 57A.
(3) The provisions of sub-rule (1) shall also not apply to
(a) articles of plastic falling within Chapter 39;
(b) tyres of a kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40;
(c) Black and White television sets, falling within Chapter 85; and
(d) Newsprint, in rolls or sheets, falling within Chapter heading No.48.01;
Which are exempt form the whole of the duty of excise leviable theroen or chargeable to nil rate of duty.
(5) In the case of final products referred to in sub-rule (3) or sub-rule (4) and excluded from the provisions of sub-rule (1), the manufacturer shall pay an amount equivalent to the credit of duty attributable ti inputs contained in such final products at the time of their clearance from the factory.
(6) The provisions of sub-rule (1) shall also not apply to final products which are exported under bond in terms of the provisions of rule 13.
(7) The provisions of sub-rule (1) shall apply even if the inputs on which credit has been taken are not actually used or contained in any particular clearance of final products.
(8) If any goods are not sold by the manufacturer at the factory gate but are sold from a depot or from the premises of a consignment agent or from any other premises, the price (excluding sales tax and other taxes, if any, payable) at which such goods are ordinarily sold by the manufacturer from such depot or from the premises of a consignment agent or from any other premises shall be deemed to be the price for the purpose of sub-rule (1).
(9) In respect of inputs (other than inputs used as fuel), which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the aforesaid purpose and shall not take credit of the specified duty paid on such inputs.
It can be noticed from the above reproduced rule 57CC of the Central Excise Rules, 1944, and more specifically sub-rule(1), that the obligation cast upon the manufacturer in the current Rule 6 (3) (b) is pari materia unless the provisions of Sub-rule (9) are complied with. Combined reading of Rule 57CC (1) and 57CC (9) would indicate, that Rule 6(3) (b) has been carved out of a combination of the said sub-rule of Rule 57CC of Central Excise Rules, 1944. We find that the provisions of Rule 57CC as regards the reversal of the credit on the inputs were considered by the Tribunal in the case of Life Long Appliances Ltd. (Supra). The Tribunal came to the following conclusion at paragraph 4.
The present appellants case is identical. They were also producing exempted and dutiable goods from the same inputs which were procured and stored together. The exemption which they claimed was also subject to the same condition that Modvat Credit should not have been taken on the inputs used in the manufacture of the exempted goods. In order to satisfy these requirements they paid Central Excise Duty of 8% as fixed for such cases under Rule 57CC relates to adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer. This rule is specific to cases where adjustment of credit is required to be made as the inputs have gone into the production of exempted final products. Sub-rule (1) of this rule specifically provides that payment of duty at 8% may be done, if the manufacturer is not able to meet the requirement [under sub-rule (9)] of maintaining separate inventory and accounts of the receipt and use of inputs for the manufacture of goods on which exemption is claimed. Such payment of duty at 8% brings about the adjust (sic) of excess credit taken. In other words, it is equivalent to reversal of credit on inputs. Therefore, the appellant had satisfied the requirement of not taking Modvat Credit on the inputs used in the manufacture of exempted goods. Their case is specifically covered by Rule 57CC as well as the decision of Supreme Court with regard to not availing of Modvat Credit on inputs in the Chandrapur Magnet Wires (P) Ltd. case. The impugned order is, therefore, clearly erroneous. The same is accordingly, set aside and the appeal is allowed.
We also notice that the Civil Appeal filed by the Revenue against the said order of the Tribunal was dismissed by the Apex Court by observing as under:-
Heard the learned Senior Counsel for the appellant and the learned Counsel for the respondent. We have perused the order impugned in this appeal. The Tribunal as a matter of fact held that the appellant has satisfied the requirement of not taking Modvat credit on the inputs used in the manufacture of exempted goods and therefore their case is specifically covered by Rule 57CC as well as the decision in Chandrapur Magnet Wires (P) Ltd. V. Collector of C. Ex., Nagpur reported in 1996 (81) E.L.T. 3 (S.C.) with regard to not availing Modvat credit on inputs. The impugned order, therefore, is not liable to be interfered with at the instance of the Revenue. The appeal fails and stands dismissed. No costs.
Further, we notice that the Honble Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. was considering the provisions of exemption Notification No. 106/88 dt. 1.3.88 wherein the final products were exempted from payment of the whole of the duty subject to the condition that final products were manufactured from copper wire bars and also subject to the stipulation that (b) No credit of the duty paid on goods (a) (ii) above, used in their manufacture, has been taken under Rule 57 A of the said Rules. Honble Supreme Court clearly noted that there is no dispute that the inputs which were utilized in the manufacture of copper wires were duty paid and the appellants therein had availed the credit in the ledger maintained under the Excise rules. It is also noted by the Apex court that assessee had not maintained separate accounts or segregated the inputs utilized for manufacturing of dutiable and duty free goods as should have been done. Despite this, the Honble Supreme Court came to the conclusion that the appellant having reversed the amount of the duty before the removal of the exempted final goods, would amount to non availment of the credit on the inputs . We may reproduce the ratio :-
In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilized in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilized in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods.
Further we notice that the Honble Supreme Court in the case of Bombay Dyeing and Manufacturing (Supra) was considering an identical issue as was in the case of Chandrapur Magnet Wires Pvt. Ltd. The Apex Court in the case of Bombay Dyeing Manufacturing, following the decision of the Chandrapur Magnet Wires Pvt. Ltd. case and held as under:-
There is no merit in this civil appeal. Under the notification, mode of payment has not been prescribed. Further, exemption is given to the final products, namely, grey fabric under the Central Excise Act, 1944, levy is on manufacture but payment is at the time of clearance. Under the act, payment of duty on yarn had to be at the spindle stage. However, when we come to the Exemption Notification No.14/2002-C.E., the requirement was that exemption on grey fabrics was admissible subject to the assessee paying duty on yarn before claiming exemption and subject to the assessee not claiming CENVAT credit before claiming exemption. The question of exemption from payment of duty on grey fabrics on which exemption was claimed. Therefore, payment was made before the stage of exemption. Similarly, on payment of duty on the input (Yarn) the assessee got the credit which was never utilized. That before utilization, the entry has been reversed which amounts to not taking credit. Hence, in this case, both the conditions are satisfied. Hence item No.1 of the table to Notification No. 14/2002-CE would apply and accordingly the grey fabrics would attract nil rate of duty.
It is to be noticed that in the case of Bombay Dyeing & Manufacturing , the Revenue was in appeal against the decision of the Tribunal in holding that the reversal of input used in the exempted products would amount to non-availment of the Credit.
8. We find that the provisions of Rule 57AD of Central Excise Rules, 1944, are pari materia with erstwhile rule 57CC of Central Excise Rules, 1944 and are also pari materia with rule 6 of Cenvat Credit Rules 2002. The said rule is reproduced verbatim.
57AD. Obligation of manufacturer of dutiable and exempted goods. - (1) CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2).
(2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely :-
(a) if the exempted goods are, -
(i) final products falling under Chapters 50 to 63 of the Schedule to the Central Excise Tariff Act, 1985;
(ii) tyres of a kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40;
(iii) black and white television sets, falling within Chapter 85;
(iv) newsprint, in rolls or sheets, falling within Chapter heading No. 48.01, the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in or in relation to the manufacture of such final products at the time of their clearance from the factory, or
(b) if the exempted goods are other than those described in clause (a) above, the manufacturer shall pay an amount equal to eight per cent. of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.
Explanation. - The amount mentioned in (a) and (b) above shall be paid by the manufacturer by debiting the CENVAT credit or otherwise.
(3) No credit of the specified duty shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods (other than final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year).
(4) The provisions of sub-rule (1), sub-rule (2) and sub-rule (3) shall not be applicable in case the exempted goods are either, -
(i) cleared to a unit in a free trade zone; or
(ii) cleared to a hundred per cent. Export-oriented undertaking; or
(iii) cleared to a unit in an Electronic Hardware Technology Park or Software Technology Parks; or
(iv) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excises, dated 28th August, 1995; or
(v) cleared for export under bond in terms of the provisions of rule 13.
In the case of Concept Pharmaceuticals Ltd. Vs. CCE, Aurangabad [2006 (76) RLT 304 (CESTAT-Mum.)], Tribunal held as under:-
The Learned Advocate Shri Thawani for the appellant pleaded that the Central Board of Excise and Customs have issued a Circular No.232/66/96/EX. Dated 25.7.1996 [reported in 1996 (15) RLT M159] wherein the Board had clarified that credit of the duty paid on the common input is admissible when used in the manufacture of the final product once the said credit on duty paid inputs going into the exempted category of the final product is debited in the RG 23A Party-II account before the removal of the exempted final product on actual or pro rata basis. Reliance was also placed on the CESTAT decision in the case of Rochees Watches Ltd., [2003 (54) RLT 761 (CEGAT-Del.)] 2003 (152) ELT 420 wherein it was held that once the credit taken by the appellant on the inputs used in the manufacture of the exempted wrist watches reversed by them before clearances Demand in terms of Rule 57 AD (2) (b) of erstwhile Central Excise Rule, 1994 was not justified.
We have heard the submission. We find that the appellants case is fully covered by the Boards Circular referred to above and the CEGAT decision in the case of Rochees Watches Ltd., cited supra.
Revenue was aggrieved by the said decision and took up the matter in appeal before the Honble High Court of Judicature at Bombay. Their Lordships while dismissing the appeal held as under;_ So far as factual aspects are concerned, there is no dispute that although initially, the assessee company availed Modvat credit on the common inputs used, both in the manufacture of dutiable as well as exempted products, however, before issuance of the inputs for the use in the manufacture of exempted product, they had reversed the credit. In fact, even the Assessing Officer has observed in his order as follows :
When inputs are required for manufacture of exempted product, the assessee is issuing self invoice clearing the inputs to self by reversing the credit availed under Rule 57F(3) of Central Excise Rules, 1944, [now new Rule 3(4) of Cenvat Credit Rules, 2001]. Thereafter, assessee is reducing the stock of such inputs from stock ledger and same were entered in the Bin card/stock card batchwise. Thus, it is evident that the assessee-company was reversing the credits upon which Modvat credit was claimed before the inputs were put into process for production of exempted goods. May be in the form of Bin cards, these inputs were being separately entered and were being deleted from the common stock register. In view of these factual details, learned Members of Cenvat felt that the case of the assessee was squarely covered by circular issued by the Central Board of Excise and Customs No. 231/66/96/ES dated 25-7-1996 wherein the Board had clarified that the credit of the duty paid on the common input is admissible when used in the manufacture of the final product once the said credit on duty paid inputs going into the exempted category of the final product is debited in the RG 23A Part II account before removal of the exempted final product on actual or pro rata basis. From the narration of facts in the order of the Assessing Officer, it is evident that the credit was reversed and the input was deducted from RG 23A Part II at the stage where inputs were put in the process for production of exempted products and much before the clearance of exempted products. The Cestat was, therefore, justified in observing that the appellants case is fully covered by the Boards circular referred above. In fact, a copy of the circular is made available by Advocate Shri S.P. Deshmukh for our ready reference and para 3 of it reads thus :
Keeping in view of the decision of the Honble Supreme Court in the case of M/s. Chandrapur Magnet Wires Pvt. Ltd. v. C.C.E., Nagpur (Civil Appeal No. 7275 of 1995, dated 12-12-1995), it has been decided by the Board that credit of the duty paid on common inputs is admissible when used in the manufacture of the final product (exempted and dutiable) provided the said credit of duty paid on inputs going into the exempted category of the final product is debited in the RG 23A -Part II account before the removal of exempted final product on actual or pro rata (estimated) basis. ?We are unable to find any fault with the observations of learned Members of CESTAT for which they were inclined to allow the appeal of the assessee. No substantial question of law arises now for our consideration. The appeal of the department is therefore, summarily dismissed.
9. It can be noticed from the above reproduced judgments of the Honble Supreme Court and the Honble High Court, that it is the settled law that reversal of the credit taken on the inputs is as good as non-availment of the credit on the inputs.
10. To our mind, the decisions of the Honble Supreme Court in the case of Life Long Appliances (Supra), following the decision of Chandrapur Magnet Wires Ltd. (Supra) and the judgment of Honble Apex Court in the case of Bombay Dyeing Manufacturing, (Supra) and the judgment of the Honble High Court of Bombay in the case of Concept Pharmaceuticals Ltd. (Supra) squarely cover the issue in favour of the assessee.
11. We find that the contrary decision in the case of Maa Kamakhya Marbles (P) Ltd. and National Information Technologies Ltd. taking the view that reversal of input credit is not enough but 8% or 10% of the value of the exempted goods needs to be paid by the assessee, were delivered without noticing the decision of the Honble Apex Court in the case of Chandrapur Magnet Wires Pvt. Ltd. (Supra). We find that other submissions made and case laws referred by both the sides need not be gone into, as the issue before us, is squarely settled by ratio of the decisions of Apex Court and Honble High Court of Bombay.
12. In view of the above reasoning we answer reference as under:-
The provisions of Rule 6(3) (b) of the Cenvat Credit Rules 2002 are not applicable when the amount equivalent to the Cenvat Credit attributable to the common inputs used in, or in relation to, the manufacture of exempted final products has been paid prior to the removal of exempted final products from the factory.
(Pronounced in court on )
A.K. Srivastava
Member (Technical)
(M.V.Ravindran) Ms. Jyoti Balasundaram
Member (Judicial) Vice President
Sm
Majority Order
In view of the majority order, the reference is answered in favour of the assessee which is as under:-
The provisions of Rule 6(3) (b) of the Cenvat Credit Rules 2002 are not applicable when the amount equivalent to the Cenvat Credit attributable to the common inputs used in, or in relation to, the manufacture of exempted final products has been paid prior to the removal of exempted final products from the factory.
(Pronounced in court on .)
A.K. Srivastava
Member (Technical)
M.V. Ravindran Jyoti Balasundaram
Member (Judicial) Vice President
Sm.
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