Customs, Excise and Gold Tribunal - Tamil Nadu
Swaraj Paint Industries vs Collector Of Central Excise on 31 August, 1990
Equivalent citations: 1991(52)ELT594(TRI-CHENNAI)
ORDER V.P. Gulati, Member (T)
1. This is an appeal against the order of the Collector of Central Excise (Appeals), Madras. Brief facts of the case are that the appellants are manufacturing a number of item falling under Heading Nos. 32.12, 32.13, 34.04, 32.09, 27.15, 27.08 and 38.07. They cleared goods falling under Tariff Heading 3208 without payment of duty in terms of the exemption Notification 175/86 upto a limit of Rs. 15 lakhs and thereafter started paying duty on the goods falling under this Tariff Item and claimed the benefit of MODVAT Credit in terms of Rule 57A. They also cleared goods subsequently under different Tariff headings and claimed the benefit of Notification 175/86 in respect of those items upto the aggregate limit of Rs. 15 lakhs as envisaged in the said notification. The learned original authority, while upholding the claim of the appellants that they could claim the benefit of notification upto the aggregate value of Rs. 30 lakhs for the items which are covered by the said notification, held that inasmuch as the appellants have started availing of the MODVAT Credit in terms of sub-clause (a)(i) of Notification 175/86 they were required to pay a duty of 10%. The relevant portion of the learned lower authority's order is reproduced below for convenience of reference:
"The Notification 175/86 lends exemption subject to other conditions to first annual clearance of Rs. 30 lakhs with a clause that any one heading should not avail exempted first clearance of more than Rs. 15 lakhs.
Hence each heading can avail exemption upto Rs. 15 lakhs clearance independently so long as the aggregate clearance does not exceed Rs. 30 lakhs. I agree with the party's contention in this regard.
Another question to be examined here is whether modvat can be availed in respect of one commodity and full exemption for other commodity under Notification No. 175/86 as per sub-clause (i). The scheme of exemption under Notification No. 175/86 Central Excise provide for an integrated method of computation of value of clearance. As per the notification, if a manufacturer avails of modvat relief in respect of specified goods covered under Notification, then the concessional rate of normal duty dues 10% adv. would apply. Keeping in view, the legal position as above and fact that there is no one to one correlation between the inputs and final products under the modvat scheme, it would not be possible, to allow a manufacturer simultaneously to avail of modvat for some of the products and full exemption for others under the small scale exemption scheme."
The appellants were in terms of this order called upon to pay a duty of Rs. 2,262.45. Before the learned Collector (Appeals) the appellants pleaded that inasmuch as they had not claimed the benefit of MODVAT credit in respect of the goods other than those falling under Heading 32.08 no duty could be demanded in respect of the goods cleared under the exemption Notification 175/86 and in respect of which the appellants had not taken any MODVAT Credit of the duty paid on the inputs going into the manufacture of the same. The learned Collector (Appeals) did not accept their plea and held as under:
"Once appellant starts availing of credit of duty paid on inputs, for any one item, he cannot at the same time avail of duty-free clearances for other goods, within value limits of Rs. 15 lakhs. As such the appellants contention in the grounds of appeal that there is nothing in Notification No. 175/86 to stop them from availing exemption upto 15 lakhs, in respect of other goods, falling under different tariff head is not correct. Once appellants started availing modvat, they are eligible for Modvat for all goods cleared by them, if notified under Notfn. No. 177/87."
2. The learned Consultant for the appellants pleaded that the appellants have availed of the MODVAT credit in respect of one product and in respect of 7 other items they had not taken any MODVAT Credit. In this connection he referred to the decision of the Tribunal in the case of EL. P. EM. Industries v. Collector of Central Excise [1989 (43) ELT 599 (Tribunal)] and pleaded that the inputs in respect of which credit was taken were not used in the other items.
3. The learned SDR for the Department referred to the opening para of Notification 175/86 and pleaded that the benefit of Notification was relatable to a manufacturer and, therefore, in case a manufacturer availed of the MODVAT credit he would be hit by the provision of sub-clause (a)(i) of Notification 175/86 as held by the learned lower authorities.
4. The point that falls for consideration is whether in a case where a manufacturer availed of MODVAT Credit in respect of a particular item the provisions of subclause (a)(i) of Notification 175/86 will be attracted and he will be required to pay duty in terms of the said sub-clause in respect of all the items that he may be manufacturing. For convenience of reference the said opening para of Notification is reproduced below:
"In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 85/85-Central Excises, dated the 17th March, 1985, the Central Government hereby exempts the excisable goods of the description specified in the Annexure below and falling under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), (hereinafter referred to as the "specified goods"), and cleared for home consumption on or after the 1st day of April in any financial year, by a manufacturer from one or more factories, -
(a) in the case of first clearances of the specified goods upto an aggregate value not exceeding rupees thirty lakhs -
(i) in a case where a manufacturer avails of the credit of the duty paid on inputs used in the manufacture of the specified goods cleared for home consumption under Rule 57 A of the said Rules, from so much of the duty of excise leviable thereon which is specified in the said Schedule (read with any relevant notification issued under sub-rule (1) of Rule 8 of the said Rules and in force for the time being) as is equivalent to an amount calculated at the rate of 10% ad valorem:
(ii) in any other case from the whole of the duty of excise leviable thereon:
Provided that the aggregate value of clearances of the specified goods under sub-clause (ii) of this clause in respect of any one heading No. of the said Schedule, shall not exceed rupees fifteen lakhs;"
It is seen that the benefit of exemption in terms of this Notification is available in respect of specified goods and where the manufacturer avails of the credit of duty paid on inputs used in the manufacture of specified goods under Rule 57A is required to pay duty as is equivalent to an amount calculated at the rate of 75% of such duty or an amount calculated at the rate of 10% ad valorem whichever is higher. The appellants have urged that this provision will not apply to the goods which are specified in the Notification and in respect of which the input credit of duty under Rule 57A is not availed of, while the Revenue has argued otherwise. We observe that the exemption under Notification 175/86 has been made applicable to the goods specified in the said notification and the parameters under which the same can be availed of by a manufacturer have been set out in the said Notification. There is no dispute that the appellants as a manufacturer are covered by the said Notification 175/86. The dispute is in regard to the applicability of the provisions contained in sub-clause (a)(i) as set out above. A reading of the said subclause (a)(i) would show that where a manufacturer avails of the credit of duty paid on inputs used in the manufacture of specified goods he will not be entitled to full exemption. The point to be considered is whether in case a particular manufacturer avails of the MODVAT Credit in respect of a particular category of specified goods his eligibility for total exemption in respect of other specified goods in respect of which no MODVAT Credit is availed would be affected and all other specified goods also will come within the purview of subclause (a)(i) of the Notification. In our view, taking into consideration the provision of the Modvat Scheme Notification 175/86, there is no doubt that the concessions envisaged under these are in respect of finished goods cleared from a factory and which are chargeable to duty and the purpose of both these is to reduce the total impact of duty in respect of finished goods. Under the MODVAT Scheme in case a finished goods paid duty the duty to the extent paid on inputs and used for those finished goods is given as credit for being utilised for payment of duty. Under Notification 175/86 the benefit is available to individual specified goods as set-out in the Notification and what is envisaged in sub-clause (a)(i) is that the benefit available under this Notification is sought to be restricted to the lesser level where a manufacturer avails of MODVAT Scheme, for the reason that he is already benefitting by way of the credit he has taken on the inputs which have been utilised in the specified goods. He however, cannot be placed at a disadvantage in respect of those goods where the inputs relief by way of MODVAT Credit is not taken and it would in fact be placing an invidious burden on a manufacturer in case he takes the benefit of MODVAT Credit under Rule 57A for one item and he is called upon to pay the price for that by way of payment of higher rate of duty in terms of Notification 175/86 on goods in respect of which he is not claiming any MODVAT Credit. Sub-clause (a)(i), therefore, has to be read only in the context of the goods for which MODVAT Credit is availed of and not for other goods. In view of this we hold that since the appellant had not availed of the benefit of MODVAT Credit in respect of the inputs used in the goods other than those falling under Tariff Heading 32.08, they should be given the full benefit of the exemption as would be available otherwise as if the MODVAT Credit is not being availed of. There are no findings in the lower authority's order as to whether the inputs in respect of which MODVAT Credit was availed of have been used in the manufacture of the goods other than those falling under Tariff heading 32.08. In this regard, therefore, the learned lower authority should do necessary verification and allow the appellants the benefit as claimed by them, in case their plea as made before us is found to be correct. We clarify that in respect of a particular specified product if the appellants at any stage during a financial year availed of the MODVAT Credit, the provisions of sub-clause (a)(i) of the Notification 175/86 in respect of that commodity will get attracted. The provisions of sub-clause (a)(i) makes no distinction as to at what stage in a financial year manufacturer avails of the MODVAT Credit in respect of the specified goods. With these observations we allow the appellants' plea and remand the matter to the lower original authority as mentioned above. Accordingly the appeal is allowed by remand.