Madras High Court
The Commissioner Of Central Excise vs M/S.Sundaram Fasteners Limited on 30 January, 2014
Author: Chitra Venkataraman
Bench: Chitra Venkataraman, T.S.Sivagnanam
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 30.01.2014 CORAM: THE HON'BLE MRS.JUSTICE CHITRA VENKATARAMAN AND THE HON'BLE MR.JUSTICE T.S.SIVAGNANAM C.M.A.NO.3477 OF 2010 The Commissioner of Central Excise, Chennai IV Commissionerate 692, MHU Complex, Nandanam, Chennai 600 035 ... Appellant .vs. M/s.Sundaram Fasteners Limited, Plant III, Autolec Division, No.47-2, Poonamallee High Road, Velappan Chavadi, Chennai 600 077. ... Respondent Prayer: C.M.A.No.3477 of 2010 is filed under Section 35G of Central Excise Act, 1944 against the Final Order No.574 of 2010 dated 21.05.2010 on the file of the Customs, Excise and Service Tax Appellate Tribunal, Chennai Bench. For Appellant : Mr.P.Mahaadevan Sr.Counsel for Customs & Excise & Service Tax For Respondent : Mr.P.R.Renganath for Mr.R.Raghavan J U D G M E N T
(Judgment of the Court was made by T.S.SIVAGNANAM,J) This appeal by the revenue is directed against the final order No.574 of 2010 passed by the Customs, Excise and Service Tax Appellate Tribunal (in short "the Tribunal") dated 21.5.2010 and the same has been admitted on the following substantial question of law:
"The Tribunal being creation of the Statute, whether it can traverse beyond the provisions of Cenvat Credit Rules, 2004, when the same has the force of a statute"
2. The respondent/ assessee was issued show cause notice dated 17.1.2006 calling upon them to show cause as to why the Cenvat credit availed on the inputs - CTD bars used for construction purpose should not be held as incorrect and liable to be reversed; the credit of Rs.50,818/- towards Cenvat Credit and Rs.1,015/- towards education cess so availed on CTD bars should not be demanded in terms of Rule 14 of Cenvat Credit Rules, 2004 read with sub section (1) of Section 11A of the Central Excise Act, 1944; and penalty under sub rule (1) of Rule 15 of the Cenvat Credit Rules, 2004 should not be imposed and the interest under Rule 14 of the Rules read with Section 11AB of the Act should not be collected from them.
3. The respondent in the written statement stated that the CTD bars were used in the factory for foundation of machinery base as the heavy machineries required strong platform to withstand heavy load and to do the machining operation and therefore the capital goods installed in the factory premises cannot function in the absence of foundation and the respondent claimed credit in terms of Rule 2(a)(A)(iii) and the CTD bars qualify for credit as they were used for foundation laid for machinery and would come within the scope of the word "accessories"as per the rule. Further, it was stated that there was sufficient balance in their Cenvat credit account from January 2005 to February 2005 and the credit of Rs.50,818/- availed has not been utilised. Therefore, it was contended that the credit availed has remained static and there can be no allegation of intention to avail unintended credit for payment of duty on final products and therefore there could be no levy of penalty.
4. The adjudicating authority held that the goods cannot be considered as "inputs" as per Rule 2(k) of the Cenvat Credit Rules, 2004 either directly or indirectly and the CTD bars used in civil construction cannot be considered as "input" for the said final product. Accordingly, the proposal made in the show cause notice was confirmed. The assessee preferred appeal before the Commissioner of Central Excise (Appeals) and reiterated the stand taken before the adjudicating authority. The first appellate authority rejected the appeal by Order dated 11.01.2007 stating that the case is not a case of short payment or non payment of duty by the respondent falling under Section 11A, but it is a case of wrongful availment of the Cenvat Credit on inputs recoverable under Rule 14 of the Cenvat Credit Rules, 2004 and the respondent having availed Cenvat Credit, the mere reversal of credit before issuance of show cause notice will not absolve them from the liability to pay penalty under Rule 14 read with Section 11AC of the Act and the penalty being mandatory there cannot be any exception to it. Aggrieved by such order, the assessee preferred appeal to the Tribunal. Before the Tribunal, the assessee fairly stated that on merits they do not have a case as the issue has been settled by the decision of the Larger Bench of Tribunal in the case of VANDANA GLOBAL LTD. VS. CCE, RAIPUR, (2010 (253) ELT 440 (Tri. - LB), however the assessee prayed before the Tribunal to interfere with the imposition of penalty and interest. After hearing the revenue, the Tribunal pointed out that the credit though taken was not utilised till its reversal and therefore deleted interest and penalty. Challenging the same, the revenue has preferred this appeal, which has been admitted on the question of law referred above.
5. We have heard the learned counsel for the parties and perused the material available on record.
6. Admittedly, in the instant case, though the assessee availed credit, they have not utilised the same. When a show cause notice was issued proposing to reverse the credit availed and proposing to impose penalty and interest, the assessee submitted their explanation stating that the CTD bars were used as foundation for the heavy machinery, without which the machinery cannot function and therefore claimed it to be inputs. Therefore, the assessees were under the bonafide belief that the CTD bars would qualify for availment of credit. Further, it is not in dispute that the credit availed was not utilised. Even at the time when the credit was taken, the assessee had sufficient balance in the Cenvat credit during January and February, 2005 and what ever credit availed on CTD bars remained static. Therefore, it cannot be taken to be a case where with an intention to evade payment of duty the assessee availed the credit. Though Rule 14 contemplates that Cenvat Credit taken shall be recovered from the manufacturer along with interest the facts of the present case are slightly different as there was no allegation that there was intention on the part of the assessee to evade payment of duty by wrongly availing the credit. Therefore, the provisions of Section 11AC of the Act could not have been invoked by the revenue for the purpose of levy of penalty. To that extent, the order of the Tribunal is confirmed.
7. The next question which falls for consideration is as to whether the assessee is liable to pay interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944?
8. The said issue came up for consideration before the Hon'ble Supreme Court in the case of Union of India vs. Ind-Swift Laboratories Ltd., reported in 2011 (265) ELT 3 (SC). In the said case, the High Court read down the Rule to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable from the date the CENVAT credit has been utilized wrongly and interest should not be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. The assessee's case in this appeal is that the credit has been reversed. Therefore, mere wrong availment will not attract payment of interest as reversal of credit would amount to "no credit" being taken. The Hon'ble Supreme Court held that the High Court misread and misinterpreted Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. It further pointed out that a statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal and Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service and the issue is as to whether the aforesaid word "OR" appearing in Rule 14, twice, could be read as "AND" by way of reading it down as has been done by the said High Court. Further, the Hon'ble Supreme Court, reading the provision as a whole found that there was no reason to read the word "OR" in between the expressions 'taken' or 'utilized wrongly' or has been erroneously refunded as the word "AND". It was further held that on the happening of any of the three circumstances viz., credit taken or credit utilized wrongly or credit has been erroneously refunded, then such credit becomes recoverable along with interest. Further, the Hon'ble Supreme Court held that so far as Section 11 AB of the Act is concerned, the same becomes relevant and applicable for the purpose of making recovery of the amount due and payable. Therefore, it observed that the High Court in the said case erroneously held that the interest can be claimed from the date of wrongful availment of CENVAT Credit and it should only be payable from the date when CENVAT Credit is wrongly utilized.
9. The learned counsel appearing for the assesee sought to distinguish the decision of the Hon'ble Supreme Court in the case of IND-SWIFT LABORATORIES LTD. by stating that, that was a case where the CENVAT credit was taken and utilized and not a case where CENVAT credit has been reversed as that of the case of the assessee herein. It is his further submission that reversal of credit would amount to "no credit" being taken. In this regard, reliance has been placed on the decision of Allahabad High Court in the case of Hello Minerals Water (P) Ltd., vs. Union of India reported in 2004 (174) ELT 422 (All.), the decision of the Karnataka High Court in the case of Commissioner of C.Ex. & S.T., LTU. Bangalore vs. Bill Forge Pvt.Ltd reported in 2012 (279) ELT 209 (Kar.) and the decision of the Hon'ble Apex Court in the case of Chandrapur Magnet Wires (P) Ltd. vs. Collector of C.Excise, Nagpur reported in 1996 (81) ELT 3 (SC).
10. We do not agree with the submissions made by the learned counsel for the assessee, as the decisions rendered in the aforesaid cases by the Allahabad High Court as well as the Karnataka High Court as well as the Hon'be Supreme Court, arose out of a case where the assessee claimed benefit of an exemption notification. The question which fell for consideration in those cases is as to whether reversal of credit after the removal of the final product would entitle the assessee therein to the benefits of exemption notification, which states that the reversal of the credit should be done before the removal of the products. In such circumstances, the Courts considered the issue and said that for the purpose of extending the benefits of exemption notification, the time of reversal was not the material and reversal of the credit would amount to "no credit" being taken. In these decisions, Rule 14 or Section 11AB was not the subject matter for consideration. Therefore, these decisions relied upon by the learned counsel for the assessee are clearly distinguishable by facts, while read in the context of the facts and relevant notification which are applicable to the facts of the case.
11. The one and only decision which concerns about Rule 14 is the decision reported in 2011 (265) ELT 3 (SC), where the Hon'ble Supreme Court in paragraph No.17 has clearly pointed out that on the happening of any of the three situations viz., credit taking credit, utilizing it wrongly or erroneously refunding the credit, becomes recoverable along with interest. In paragraph Nos.16 and 17 of the said Judgment, the Hon'ble Apex Court has observed as follows:-
"16.A bare reading of the said Rule would indicate that the manufacturer or the provider of the output service becomes liable to pay interest along with the duty where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded and that in the case of the aforesaid nature of provision of Section 11AB would apply for effecting such recovery.
17. We have very carefully read the impugned order and order of the High Court. The High Court proceeded by reading it down to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable from the date the CENVAT credit has been utilized wrongly for according to the High Court interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. Therefore, High Court on a conjoint reading of Section 11AB of the Act and Rules 3 & 4 of the Credit Rules proceeded to hold that the interest would be payable from the date CENVAT credit is wrongly utilized. In our considered opinion, the High Court misread and misinterpreted the aforesaid Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word "OR" appearing in Rule 14, twice, could be read as "AND" by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole, we find no reason to read the word "OR" in between the expressions 'taken' or 'utilized wrongly' or 'has been erroneously refunded' as the word "AND". On the happening of any of the three circumstances such credit becomes recoverable along with interest".
12. In the light of the above findings of the Hon'ble Apex Court, particularly with regard to Rule 14 of the Act, we do not find any justifiable ground to accept the plea of the assessee based on the decisions relied on by the assessee reported in 1996 (81) ELT 3 (SC), 2004 (174) ELT 422 (All.), and 2012 (279) ELT 209 (Kar.)
13. The learned counsel for the assessee submitted his notes on the contention that interest being compensatory and that question of payment of interest would arise only where the principal is due. To that contention, by placing reliance on the decision reported in 1996 (88) ELT 12 (SC) (Prathiba Processors vs. Union of India as well as the decision reported in 2007 (215) ELT 3 (CCE v s. Bombay Dyeing), the learned counsel for the assessee contended that, when credit has been reversed before utilization, the same did not amount to taking credit.
14. We reject the arguments of the assessee . In the said decisions, it has been no doubt held that interest is compensatory and the question arises only where principal is due. If one gets into the background of the scheme of Modvat Credit, his contention that the assessee has taken credit, does not merit consideration, particularly so, in the background of Rule 14. As it stands today, one has to go only by the provisions contained in Rule 14 and nothing beyond.
15. Further, the decision rendered in Bombay Dyeing case reported in 2007 (215) E.L.T. 3 (SC) is also distinguishable one, considering again the issue raised therein with reference to notification No.14/2002-C.E., granting exemption, a situation similar to the cases in Hello Minerals as well as Chandrapur Magnet .
16. The learned counsel has also placed reliance on the decision reported in 226 ITR 625 (SC) (CIT vs. Poddar Cement (P) Ltd.) to contend that when there are two possible interpretations of a particular section, the interpretation which is favourable to the assessee should be preferred. The said contention has no relevance at all to the issue score for the simple reason that the provision of Rule 14 read with Section 11 AB is clear and does not leave to any ambiguity in its understanding, more so, in the context of the decision of the Hon'ble Supreme Court reported in Ind-Swift Industries, we reject this contention too. Consequently, we hold that in the context of the decision in Ind-Swift Industries, irrespective of the utilization of the credit and going by the provisions as it stood during the relevant time, we accept the plea of the revenue that interest on the wrong credit is called for, as per Rule 14 read with Section 11AB and the circumstances on the aspect of leviable interest, we set aside the order of the Tribunal and allow the appeal.
17. The learned counsel for the assessee further pleaded that considering the smallness of the amount involved, as per the circular No.390/Misc./163/2010-JC dated 20th October 2010 , the appeal may be dismissed. We do not agree with the said submission. In the unreported decision in the case of Commissioner of Central Excise, Puducherry Commissionarate vs. CESTAT and anr., C.M.A.NOs.1308 of 2009 etc. batch dated 31.10.2013, a similar circular fixing monetary limit for filing appeals, in Circular dated 17.08.2011, was considered and it was held as follows:-
"38. As regards the circular dated 17.8.2011, wherein the Central Board of Excise and Customs prescribed monetary limit for filing of appeals before the Tribunal, High Court and Supreme Court in consonance with national policy on litigation, as far as filing of cases before the High Court is concerned, the same was fixed at Rs.10,00,000/-. As per the said circular, the revised monetary limits shall come into force from 1.9.2011.
39. Learned counsel for the assessee, by placing reliance on the Division Bench decision of the Karnataka High Court in the case of CIT, BANGALORE v. RANKA & RANKA reported in 2012 (284) ELT 185 (Kar.), submitted that the circular dated 17.8.2011, issued by the Central Board of Excise and Customs, should be made applicable to pending cases also and the Karnataka High Court has taken a view that the benefit to which the assessee is entitled to, should not be dependant on the date of decision, over which neither the assessee nor the Revenue has any control. In that context, the circular would be discriminatory, if it is held to be prospective only.
40. We find from the materials placed by the learned counsel for the Revenue that the said decision is the subject matter of Appeal before the Supreme Court in SLP (Civil) No.27468 of 2012, which is stated to be pending. That apart, in yet another case, in the appeal which arose from the High Court of Delhi in the case of COMMISSIONER OF INCOME TAX v. SURYA HERBAL LTD., while disposing of the Special Leave Petition in SLP (Civil) CC NO.13694 of 2011, by order dated 29.8.2011, the Honourable Supreme Court, pointing out that the Circular dated 09.02.2011 should not be applied ipso facto, particularly when the matter has a cascading effect, granted liberty to the Department to move the High Court.
41. Learned counsel appearing for the Revenue further submitted that in the Special Leave Petition filed against the decision of the Karnataka High Court in the case of BELLARY STEELS & ALLOYS LTD. and the decision of the Kerala High Court in the case of HIGHLAND PRODUCE CO. LTD., specific ground has been raised, stating that the Karnataka High Court did not consider the order passed by the Honourable Supreme Court in the case of SURYA HERBAL (referred supra).
42. Considering the order passed by the apex court in the case of SURYA HERBAL (Supra), we feel that the issue raised before this Court merits to be considered on the strength of the provisions of Sections 73, 71A and 68 of the Act and hence, we do not think that one need to consider the question as to whether the circular is retrospective or not. As pointed out by the Honourable Supreme Court, given the significance of the questions of law raised in this case, considering the merits of the issues raised, we reject the reliance placed by the assessee on the decision of the Karnataka High Court in the case of RANKA AND RANKA (Supra) and the Circular dated 17.8.2011, holding that irrespective of the monetary limit involved in such cases, if the substantial question of law raised demands consideration by this Court, such circular ought not to be interpreted or understood to stand in the way of this Court to consider the merits of the case. In the circumstances, we reject the plea of the assessees in this regard".
Therefore, the question of quantum of demand, should not be a going factor, more so, when a substantial question of law is involved in this appeal.
18. To conclude, while confirming the order of the Tribunal on the levy of penalty under Section 11AC, we reverse the order of the Tribunal on the question of interest, as per Rule 14 read with Section 11AB and restore the order of the adjudicating authority levying interest.
19. Hence, the Civil Miscellaneous Appeal is partly allowed. No costs.
(C.V.,J) (T.S.S.,J)
30.01.2014
Index: Yes/
Internet:Yes/
usk/rg
To
1. Customs, Excise & Service Tax Appellate Tribunal,
South Zonal Bench,
Shastri Bhavan Annexe,
Haddows Road,
Chennai 600 006.
CHITRA VENKATARAMAN, J.
and
T.S.SIVAGNANAM, J.
usk/rg
C.M.A.No.3477 of 2010
30.01.2014