Customs, Excise and Gold Tribunal - Mumbai
Sterlite Industries (I) Ltd. vs Commissioner Of Central Excise on 22 April, 2004
ORDER S.S. Sekhon, Member (T)
1. The appellants as job worker convert copper cathodes supplied by M/s. Crompton Greaves into copper rods. The Commissioner (A) in his order disallowed Modvat Credit of Rs. 3,57,003/- and imposed penalty of Rs. 35,000/-. The appellants during the mont of Feb. 1996 had not cleared any final product on payment of duty but had manufactured continuous cast copper rods under job work and cleared the same under provisions of Rule 57F(3) of the Central Excise Rules, 1944. They were issued a Show Cause Notice denying Modvat Credit of Rs. 3,57,002.75/- under 571 and it sought to impose penalty under Rule 173Q of the Central Excise Rules, 1944 as they were alleged to have contravened the following provisions:
"i) Rule 57C of the rule in as much as the assessee have used the inputs on which modvat under Rule 57A was availed in the manufacture of final product which were exempted form the payment of excise duty.
ii) Rule 57A of the CER 1944 in as much as assessee have raised and utilised irregular modvat credit on the nuts which are not utilised towards the manufacture of final products which exempted from the payment of duty.
iii) Rule 57F I(i) in as much as the assessee have not used the inputs in respect of which credit of duty has been raised towards the manufacture of their final product."
The lower authority confirmed the demands and imposed penalty. The Commissioner (A) after considering the issue came to the following conclusion :
"4. I have carefully gone through the submissions of the appellants written as well as oral made at the time of personal hearing. The facts of the case are that the appellants has under taken the jobwork of M/s. Crompton Greaves, Mumbai for manufacturing 300 MT of continuous cast copper rods. The appellants utilised 14 inputs as listed in the show cause notice for carrying out the job work on inputs received from M/s. Crompton Greaves, Bombay unit. The appellant has maintained RG 23 Pt. 1 Register for the job and produced evidence to show that these inputs have been used in the job work. In other words, the use of inputs have been used in the job work. In other words, the use of inputs on which modvat credit has been availed in the manufacture of continuous cast copper rods on job work basis, has been admitted. The appellants has however, contended that the final products i.e. continuous cast copper rods falling under 7407.11 of the Schedule to the Central Excise Tariff Act 1985 are neither exempt from duty nor attract nil rate of duty. In this connection, it may be pointed out that the manufacture of fully finished goods is strictly not covered under Rule 57F(3) in terms of which the goods manufactured under Rule 57F(3) should be such which are sent back to the original supplier in his factory and where certain processes to complete the manufacturing activity are to be carried out. In the appellants case, the fully finished goods were cleared without payment of duty. Therefore, the modvat credit availed on the 14 inputs used in such goods was required to be reversed.
5. It is also contended that contravention of Rule 57C is based on erroneous interpretation of Rule 57C and that the goods cleared under Rule 57F(3) cannot be said to be exempted or attracting nil rate of duty. It may be pointed out in this regard that provisions regarding 'exempt or NIL rate of duty' are applicable under Rule 57C in respect of inputs which are used in the manufacture of final product cleared in terms of Rule 9 and not Rule 57F(3). Since the goods were cleared under Rule 57F(3) without payment of duty, the modvat credit availed on the inputs is required to be reversed"
and passed the present order, which is now impugned before this Tribunal.
2. The appellants reiterated the following :
"18. (a) that under Rule 57C on credit of duty paid on inputs is admissible only in the following situations (i) when the final product is exempt from the whole of the excise duty leviable thereon: (ii) when the final product is chargeable to nil rate of duty and that appellant manufactured continuous cast copper rods falling under sub-heading 7407.11 of the CETA 1985 which were neither exempt under any notification issued under Section 5A of the Act nor chargeable to nil rate of duty under the Tariff and consequently provisions of Rule 57C were not applicable in the appellant's case.
(b) that without prejudice to the above contentions, the computation of demand confirmed by the Deputy Commissioner was completely erroneous as the actual quantity of inputs used in the manufacture of goods under Rule 57F(3) was much less than that alleged in the notice, and they had also submitted a statement showing the correct calculation which was not considered by the Deputy Commissioner.
(c) that the Deputy Commissioner violated the principles of natural justice as statement of Mr. Murali which had been relied upon in the notice was not furnished despite appellants' request for the same."
and rely upon the decision of this Tribunal in the case of Jindal Polymers {2001 (43) RLT 680} and XPRO India Ltd. {2003 (58) RLT 986} and Shakti Insulated Wires Ltd. {2002 (51) RLT 115} where the Civil Appeal filed by the Department has been dismissed by the Supreme Court. The perusal of these decisions reveal that credit would be permitted, if the final product manufactured out of the goods that the job workers made, were dutiable as Notification 214/86, Rule 57F and Rule 57C are to be read together.
3. The Ld. DR however, contends :
a) The copper was received by the appellants from a supplier. Rule 57F permitted the supplier who had availed credit to remove them for processing without reversal of the credit. However, it was contended, this rule did not provide for exemption of goods manufactured by the job worker and when reliance is placed on the decision of the Calcutta High Court in the case of Texmaco Ltd. {Vol. 59 ELT 522}, wherein the High Court had held that Modvat Rules cannot provide for an exemption of duty.
b) The decision in the case of Shakti Insulated Wires Ltd. {2002 (51) RLT 115} relies upon the decision in the case Jindal Polymers {2001 (43) RLT 680}. However, in the case of Jindal Polymers (Supra), the Tribunal adopted reasoning in the case of Bajaj Tempo Ltd. {1994 (69) ELT 122} and did not evaluate the issues and decided that Notification No. 214/86 was not on par with other notifications and stands on different footing for the purpose of Rule 57C. In the case of Bajaj Tempo Ltd. (Supra) the Tribunal dealt with only Notification No. 217/86 and concluded that the said Notification was not on par with the other exemption notifications and stands on a different footing for the purpose of Rule 57C and the bench was seized the fact that the proviso inserted to Notification 217/86 which allowed exemption to goods manufactured in one factory, if cleared for captive consumption to another factory of the same manufacturer subject to following the procedure prescribed under Chapter X of the CER 1944. The similarity between the wording of Modvat Rules and Notification 217/86 was noticed and noticing the years of issuance it was concluded that the Modvat Rules and Notification were complementary and place a special status to Notification 217/86 vis-a-vis Modvat. They applied the rule of "harmonious construction" and "the intention of the legislature". It was submitted by Ld. DR, that the proviso been dealt with therein was incorporated in Notification 217/86 only on 01.03.1989 vide Notification 97/89-CE and it was not a part of the Notification in 1986. It was further submitted the Board had clarified on the scope of this amendment by Circular No. 44/90 Cx. 8 dt. 06.07.1990 which categorically states that no credit under Rule 57A would be availed on clearances from one factory to another of the same manufacturer under Notification 217/86 as it is hit by Rule 57C. This Board circular was not placed before the Bench when it decided Bajaj Tempo (supra).
c) It was submitted that the above said material when noticed by the Tribunal, in the case of Alfa Laval (I) Ltd. {2001 (137) ELT 763}. The Interest departed from Bajaj Tempo (Supra) and considering that the Notification 217/86 was an exemption notification, like any other, decided that Notification 217/86 deserves no special status under the Modvat Scheme. It also submitted that the Ld DR authority which issued the Notification, having clarified the scope of the same there was no requirement to seek "the intention of the legislature" as in the case of Bajaj Tempo.
d) It was submitted that Dujodwala Resins Terpenes {1997 (93) ELT 451 (T)} and Kirloskar Oil Engineers Ltd. {1994 (73) ELT 835 (T-LB)} have laid down after considering the Proforma and Modvat credit schemes that the credit can be availed on inputs only if the final products pay duty. It was also held in case of Modi Rubber Ltd. {2001 (133) ELT 515} in respect of Proforma credit, that credit would be allowed if goods were cleared on the payment of duty. Therefore, it was pleaded that Bajaj Tempo and Jindal Polymers, which merely repeats and relies on the reasoning of Bajaj Tempo and did not take notice of the other relevant material was passed such silento & therein should not be followed.
e) In the present case, the appellant is a manufacturer and the copper rods manufactured are excisable goods chargeable to duty and there is no 'deferment of duty' payable and Chapter V Section AA of the CER 1944 and Modvat Rules 57A to 57J did not grant any exemption from duty or deferent of duty payable. The Modvat Scheme as held in Raghuvar India (Vol. 118 ELT 311) for special purpose cannot be a reason to grant exemption to goods made by job worker in absence of a notification under Section 5A. Since no duty has been paid on the goods cleared.
f) The decision in the case of Shakti Insulated Wires Ltd. {2002 (51) RLT 115} is not binding precedent inspite of the Civil Appeal of the department being dismissed as Hon'ble High Court of Mumbai in the case of Bussa Overseas and Properties (P) Ltd. {2003 (158) ELT 135} after considering the judgments of the Supreme Court in case of Kuhnyammed {2001 (129) ELT 11} and S.S. Nadar {2002 (8) SCC 361} concluded that mere dismissal does not lead to a Merger of the order of the Tribunal with that of the Apex Court and relying upon the Larger Bench decision in the case of Mira Silk Mills {2003 (153) ELT 686} wherein the Bench had held that "if there is conflict between law laid down by a High Court and the ratio of the decision of the Tribunal, whether a Larger Bench or not, the High Court decision will prevail over the Tribunal decision". Therefore the decision of the High Court in Bussa Overseas explaining the decision of the Supreme Court in Kunhyamed's case and Nadar's case would lead to a proposition that in the case of S. Kumar's Ltd. {Vol. 153 ELT 217 (LB)} should not be followed and this appeal should not be allowed on grounds merger thing advanced by the appellants.
4. On considering the submissions as made by the Ld. DR, the question whether Notification No. 217/86 and/or 214/86 could be placed in a special category of notifications and the conflict in the decisions of the Benches as in the case of Jindal Polymers and Alfa Laval (I) Ltd. would require an answer on this aspect by a reference to a Larger Bench. Therefore, this matter may be placed before Hon'ble President to place the following question before the Larger Bench:
5. The question is -
Whether the law settled by Jindal Polymer (2001 (43) RLT 680 following Bajaj Tempo (1994 (69) ELT 122) should be followed or the interpretation as arrived at by Alfa Lavam (2001 (132) ELT 763 should prevail.
(Pronounced in Court on 22.4.2004)