Customs, Excise and Gold Tribunal - Tamil Nadu
Srf Limited vs Commissioner Of Central Excise, ... on 11 October, 2001
Equivalent citations: 2002(79)ECC308
JUDGMENT
Jeet Ram Kait
1. This appeal has been filed by M/s SRF Limited against the order in Original No. 13/97 dated 27.4.97 passed by the Commissioner of Central Excise, Madras by which he has demanded duty of Rs 59,47,529/- from the appellants on the 2,51,627.88 Kgs of nylon yarn removed without payment of duty under Rule 9(2) of the CE Rules, read with Section 11A of the CE Act, 1944, Appellants are engaged in the manufacture of different deniers of Nylon Yarn, Nylon Tyre Cord Fabrics as well as Nylon Chips. In terms of Rule 191BB of the Central Excise Rules, 1944 an exporter may obtain intermediate goods without payment of excise duty. M/a MRF Ltd, Madras were permitted to obtain intermediate godds viz. Nylon Tyre Yaran/Cord/Wrap without payment of duty under Rule 191BB of the CE Rules, 1944 from the appellants herein by the Assistant Commissioner. The Assistant Commissioner, Central Excise, Madras III Division also permitted the appellants to clear Nylon Tyre Yarn/Warp sheet (Fabric) under rule 191BB without payment of duty vide C.No.IV/16/3/94-T(FS) dated 13.1.94. The appellants were clearing the above said goods without payment of duty in terms of the above order. The appellants submitted that the Assistant Commissioner Chennai III Division issued a show cause notice vide C. No. IV/16/118/94 Adj. Dated 10.8.94 demanding duty on Nylon Yarn to the tune of Rs 59,44,529/-, on the ground that during the course of manufacture of Nylon Tyre yarn which is not exempted from payment of duty either under the Notification for captive consumption or under any other provisions of the Central Excise Rules. Appellants had filed detailed reply dated 21.10.94 assailing the allegations contained in the show cause notice. The Commissioner Central Excise, Madras passed the order in original No. 13/97 dated 29.4.97 confirming the duty of Rs 59,47,529/-
2. Shri Arvind P.Datar, learned SR Counsel accompanied by Shri J. Sankararaman, learned Counsel submitted that the order of the Commissioner is not sustainable for the following reasons:
A. Whether clearances under Rule 191BB amounts to clearance of exempted goods?
The appellant clears NTCF under bond to tyre manufacturers for use in export of tyres. The clearance is under the Rule 191BB after execution of bond.
Department has contended that this amounts to clearance of exempted goods and therefore the duty will have to be paid on yarn. This is on the ground that under Notification No. 217/86 if the final product is exempt, duty has to be paid on intermediate product.
The issue is covered by the decision of the Tribunal in the case of Orissa Synthetics Ltd. v. CCE 1995 (77) ELT 350.
The Tribunal has categorically held that clearance under Rule 191 BB does not amount to clearance of exempted goods in Para 9 of the order after referring to a circular issued by the CBEC. The Board has issued a circular stating that the exempted goods means goods cleared under exemption Notification issued under Rule 8 (now Section 5A). The Tribunal also categorically held that the Notification No. 33/90-CE(NT) is not an exemption notification.
The relevant portion of the above order is reproduced below for convenience:
"7. We have considered the arguments advanced by both the sides. We have perused the record. The contention raised by Shri Gopal Prasad, learned Consultant for the Appellants that the actual scope of Rule 57C does not extend to cases of removal of goods without payment of duty in terms of a Notification issued under Rule 191BB of the Central Excise Rules is quite valid. The decision of the Honourable Delhi High Court in Hindustan Aluminium Corporation Limited v. Collector of Central Excise, reported in 1981 (8) 642 supports such a view. The relevant observations therein in this regard have been referred to supra. The learned counsel had also referred to the instructions issued by the Ministry of Finance, Department of Revenue and Insurance in a similar matter relating to admissibility of proforma credit under rule 56A even if the goods manufactured are cleared without payment of duty for export. It was clarified in the said instructions which were issued in the light of the advice received from the Ministry of Law that such clearances for export without payment of duty did not attract Clause (i) of the proviso to sub-rule (2) of Rule 56A which made proforma credit inapplicable in cases where the finished products are either exempted from the whole of duty or are chargeable to nil rate of duty. Para-6 of the letter F. No. 211/D2/73 - CX 6, dated 3-4-1975 (Circular No. 10/75 - CX 6) issued by the Ministry is extracted below:-
"6. The first point viz. whether the goods manufactured under Rule 56A ibid and exported in bond could be treated as exempted from payment of duty or chargeable to nil rate of duty was referred to the Ministry of Law how have advised that the goods exported in bond in such cases cannot be treated either as exempted from payment of duty or chargeable to nil rate of duty.
Consequently, the provisions of clause (i) of the first proviso to sub-rule (2) of Rule 56 A ibid would not apply to those cases where finished excisable goods are exported in bond. An extract of the advice of the Ministry of Law, Justice and Company Affairs is appended."
The provision so interpreted is similar to Rule 57C with which we are concerned and the instruction will apply equally well to the present case.
8. In this connection, we have to take not of the strong contention raised by Shri Mandal, learned Departmental Representative that the present case is not covered by the aforesaid instruction and the Delhi High Court judgment in Hindustan Aluminium Corporation Ltd. since the finished goods in such cases were themselves exported, whereas in the present case the goods manufactured by the Appellants were not exported but were cleared for home consumption to another manufacturer who used them in the manufacture of another product which was what was exported. Hence, it was pleaded by him that the Appellants would be hit by the provisions of rule 57C and the benefit of the interpretation contained in the Ministry's Circular letter referred to above will not be applicable. This argument is attractive but it is not acceptable. This is because we are concerned with the question as to what is the scope of the expression-
"exempt from the whole of the duty of excise or chargeable to nil rate of duty."
And whether that will cover removal of goods without payment of duty in terms of a Notification which is not an exemption Notification. The question whether such removals were for export directly from the factory where credit of duty paid on the inputs was taken or such goods wee first removed without payment of duty to another factory for manufacture of other goods which wee then exported is not material. Whatever be the disposal of the goods removed under a Notification from the factory availing the credit, the significant fact is that such removals are without payment of duty. Such removals are not to be equated with exemption for the goods removed from the whole of the duty of their chargeability to nil rate of duty. This view accords with the interpretation of the expression - removal without payment of duty - by the Honourable Delhi High Court in the case cited as well as the view of the Ministry of Finance themselves vide their Circular No. 10/75-CX 6 referred to above. We also agree with the submissions made by Shri Gopal Prasad, learned Consultant that the Collector fell in error in holding that since Rule 57C was specifically amended to provide for removal of goods to Units in Free Trade Zone or 100 per cent export-oriented Units, removals for export should also have similarly been included therein in order to escape the ban of the said Rule. As correctly pointed out by the learned Consultant, removals to units in Export Promotion Zone and 100 per cent export-oriented Units are exempted from duty and as such they had to be specifically provided for to escape the rigour of Rule 57C. Removals without payment of duty, on the strength of a Notification (not being an exemption Notification) not being construable as exempt from the whole of duty or chargeable to nil rate of duty, there was no need for their specific mention in the parenthetic exclusion in Rule 57C a la clearances to units in Free Trade Zone or to a 100 per cent Export Oriented Unit.
9. The interpretation adopted by us fully in line with the authoritative pronouncement of the Honourable Delhi High Court as well as the Circular instructions of the Ministry of Finance themselves would also avoid anomaly which will arise if the benefit is denied to goods cleared for export either directly or eventually after further manufacture. This is because the relevant Notification permitting removal without payment of duty does not confer any greater benefit than what would be derived by the concerned manufacturers if they clear the goods on payment of duty, except the hassles of payment of duty in the first instance which is to be claimed by them as rebate. If the goods manufactured by the manufacturer receiving the inputs are cleared on payment of duty, the product made therefrom would qualify for Modvat Credit subject to the provisions of Notification 177/86. If they are cleared for export after payment of duty, then the duty paid by them will be available as rebate to be claimed. The removal for export without payment of duty on bond should not place them at a disadvantage. This was the tenor of the advice received from the Ministry of Law, extracted below, which led to the issue of the Circular by the Ministry of Finance:-
Clause (i) of the proviso to sub-rule (2) of rule 56A, as "7. referred to above, refers to the inapplicability of proforma credit to finished products which are either exempted from the whole of duty or are chargeable to nil rate of duty.
The term exemption', as far as Central Excise duty is 8. concerned, has a definite connotation in that such exemption will have to be attributable to a notification by the Central Government, as contemplated in Rule 8 of the Central Excise Rules, 1944. Since the said rule empowers the authorisation of exemption of duty, the term 'exemption' as used in other provisions contained in the Rules will have to be taken to mean exemptions so granted by the Central Government under Rule 8.
Obviously enough, in the present case, the exports under bond 9. are duty-free not by virtue of any exemption notification issued under rule 8, and so the first prohibition contained in clause (i) of the proviso to sub-rule (2) of rule 56A does not come into play.
This leaves us with the second part of the prohibition i.e. whether the non-payment of duty in respect of goods exported under bond flows from the said goods being chargeable to nil rate of duty. In this connection, it would be relevant to note that rule 13, as its title indicates, refers to export under bond of goods on which duty has not been paid. The rule thus contemplates not goods on which duty is chargeable at nil rate, but goods on which duty ought to be paid, but has not been paid, then a claim for rebate would arise under rule 12. The manufacturer could, if he chooses so to do, export it in bond. Without first paying duty and thereafter claiming rebate. In the circumstances, it cannot be said that the goods are chargeable to nil rate of duty. They have further submitted that similar issue was considered by this Tribunal in their own case reported 2000(36) RLT (936) in the context of Modvat Credit and in the light of this judgment also, the order of the Commissioner (Appeals) is liable to be set aside. They have further submitted that Rule 191BB of the CE Rules, 1944, enables the exporter to obtain intermediate goods without payment of duty of excise and raw material could also be imported and supplied to manufacturers of intermediate products. The whole procedure has been devised to facilitate and encourage export of goods. They have also invited our attention to the Ministry's letter MF (DR) letter F.No. 209/57/57/88-CX,6 dated 7.2.99 wherein it has been clarified that any raw material ibid can be brought without payment of duty under Rule 191B and the said final product can be permitted to be used for manufacture of any other final product, if both these products are notified. This procedure can be continued till the ultimate product manufactured is exported and therefore no duty is payable on the intermediate product. They have also submitted that the clarification given above clearly applies to the facts of their case and therefore, the order of the Commissioner is contrary to the purpose for which the Rule 191BB was introduced. The above view is further strengthened by the provisions of Rule 191BB (4) of the Central Excise Rules, 1944. In terms of this provision, the Commissioner may permit removal of the goods for job work without payment of duty and bring them back without payment of duty. In other words, the appellant is free to send Nylon Yarn without payment of duty to a job worker and bring back Nylon Tyre Cord fabrics without payment of duty. When Nylon yarn can be cleared without payment of duty to a job worker then it is clear that duty cannot be demanded on Nylon yarn, if the same is used in the factory for further manufacture of Nylon Tyre Cord Fabrics. The learned Sr Counsel further submitted that the findings of the Commissioner in para 16 of the impugned order is beyond the scope of the Show cause notice and further the issue has been settled by a catena of decisions of the Tribunal. In the appellant's own case, the Tribunal in the case or CCE v. SRF Ld. Reported in 2000 (360) RLT 936(T) has held that Rule 57C will not come into play where the finished goods are cleared without payment of duty in terms of Rule 191B/191BB. Therefore, the findings of the Commissioner is contrary to the clearly settled position of law and the Boad's Circular cited supra. It was further argued that the learned Commissioner failed to see that order C.No. IV/16/3/94-T(FS) dated 13.1.94 of the Assistant Commissioner of Central Excise, Chennai-III Division has not been reviewed by the Commissioner and therefore it has attained finality. On this ground also, no duty can be demanded on the goods which were cleared during the disputed period. They have further submitted that even if duty is paid on the intermediate product or raw material which go into the manufacture of the finished product, they are entitled to rebate and therefore, it becomes revenue neutral and that is not the policy of the Govt. The Govt. have devised Rule 191BB to facilitate export without payment of duty to avoid unnecessary paper work.
3. The learned DR invited my attention to para 12 of the impugned order which is extracted herein below:
12. Admittedly the nylon yarn manufactured by SRF has been used captively in the manufacture of nylon fabrics cleared without payment of duty under Rule 191 BB read with notification No.33/90. Notification No.33/90 issued under Rule 191 BB refers that "the Central Government hereby specifies all excisable goods (hereafter in this notification referred to as "intermediate goods") as goods whose removal from the place of manufacture shall be permitted without payment of duty for supply to manufacturers of all articles (hereafter in this notification referred to as the 'resultant articles)." Condition (ii) of the notification stipulates that "the intermediate goods are supplied against an Advance Release Order to an ultimate exporter for use in the manufacture of resultant articles". The notification is explicitly clear that intermediate goods should be removed from the place of manufacturer for supply to manufacturer of resultant articles. What has been cleared as intermediate goods without payment of duty by SRF to MRF was nylon fabrics and not nylon yarn which was captively consumed in the manufacture of such nylon fabrics. Therefore, nylon yarn not being removed from the place of manufacturer for supply to manufacturer or resultant articles cannot be taken as intermediate goods within the meaning of the above said notification. Explanation to Rules 9 and 49 clearly provides that the removal of excisable goods if used as such within the factory shall be deemed to be a removal. However the notification No. 33/90 covered intermediate goods removed for supply to an ultimate exporter for use in the manufacture of resultant articles. Nylon yarn manufactured and captively consumed without payment of duty was therefore, neither covered by Rule 191 BB nor covered by Notification No.217/86 as amended, as the resultant fabrics were removed by the noticee free of duty.
4. We have considered the submissions made before us. We are of the considered opinion that no duty can be demanded on the intermediate product i.e. Nylon yarn used to make Nylon Tyre Cord fabrics which are cleared to M/s MRF Limited under Rule 191BB of the CE Rules, 1944 which have been exported by MRF Ltd and on which fact there is no dispute. We are also of the considered view that no duty can be demanded on the intermediate product i.e. Nylon yarn. Thus they are entitled for rebate on the said Nylon yaran which is contained in the finished product i.e. Nylon Tyre Cord Fabrics which would be Revenue neutral. To avoid unnecessary paper work, the Govt. of India has prescribed this procedure. We have already taken note of the judgment rendered by this Tribunal in the appellants' own case cited supra wherein it was held that since finished product is not exempted from payment of duty by virtue of Notification No.30 issued under Rule 5A(1) and Modvat Credit cannot be denied to them under Rule 57C in respect of the clearances made under Rule 191B/191BB and the appeal of the Revenue was rejected by this Bench in the order reported in 2000 (36) RLT (936) (CEGAT) in the matter of CCE, Chennai v. SRF Ltd. and in the case of Orissa Synthetics. Ltd. reported in 1995 (77) ELT 350 (Tribunal) it was held that if the goods are not completely exempt from payment of duty Rule 57C is not applicable to removals without payment of duty under Rule 191BB and Modvat Credit would be available in view of the Circular No. 10/75 CX.6 issued by the Ministry of Finance, Department of Revenue. We find that the learned Commissioner has misdirected himself and therefore the impugned order is required to be set aside and we set aside the same and allow the appeal with consequential relief, if any.
(Dictated and pronounced in open Court)