Customs, Excise and Gold Tribunal - Tamil Nadu
M.R.F. Ltd. vs Commissioner Of Central Excise on 25 November, 2003
Equivalent citations: 2004(164)ELT202(TRI-CHENNAI)
ORDER Jeet Ram Kait, Member (T)
1. These two appeals are filed by M/s. MRF Ltd., the appellants herein against two separate orders-in-appeal against the Orders in Appeal No. 89/99 (M-I), dated 31-8-99 and No. 78/2000 (M-I), dated 31-7-2000 by both the Commissioners (Appeals) held that the assessee cannot avail credit of AED when there is no levy of AED on the final product. Since the law and facts involved in both these appeals are identical they were taken up and heard together and are disposed of by this common order.
2. The brief facts of the case are that the appellants are engaged in the manufacture of tyres. They procure grey nylon tyre cord fabric and use them in the manufacture of dipped tyre cord warp sheet and rubberised tyre cord warp sheet (TCWS). Both are captively used in the manufacture of tyres. During the period from 2-6-98 to 31-3-1999, they took Modvat credit of additional excise duty (AED) paid on grey tyre cord fabric. Since the final product TCWS did not attract any levy of AED, in terms of Notification 11/98, dated 2-6-98, the department was of the view that taking credit of AED on the input - unprocessed fabric was not correct and accordingly show causes were issued denying the credit and after considering the reply furnished by the appellants, and after granting personal hearing, the lower authority confirmed the demands and directed the appellant to expunge the credit. The appellants thereupon reversed the credit. Aggrieved by the said order, they have filed appeal before the Commissioner (Appeals) and the Commissioner (Appeals) by the orders impugned rejected the appeals and hence these appeals before the Tribunal.
3. Shri S. Ignatius, learned Counsel for the appellant submitted that in terms of Notification No. 5/94-C.E. (NT), dated 1-3-94 credit of AED paid on the inputs viz. grey tyre cord warp sheet can be utilised only for the purpose of paying additional excise duty on finished products and there was no additional excise duty (AED) payable on the finished product viz. tyres. He has also submitted that by Notification No. 11/98, dated 2-6-98 processed fabrics manufactured out of unprocessed fabrics on which duty had already been paid was exempted. According to him, the additional excise duty credit came to be accumulated without any utilisation as regards the manufacturers of tyres and cord warp sheets (TCWS). He has submitted that in similar facts and circumstances, the Tribunal has allowed the appeals of the appellants therein. He invited our attention to the following case laws in support of his plea for allowing the appeal:
(1) Coats Viyella India Ltd. v. CCE, reported in 1999 (111) E.L.T. 90 (Tribunal) wherein it was held that additional duty of excise being an excise duty only, deposits made against it to be considered towards adjustment to liability against the basic duty of excise.
(2) Modi Rubber Ltd. & Others reported in 2000 (126) E.L.T. 1222 (T) = 2000 (39) RLT 830, wherein it was held that in view of enacting clause of Rule 57F(12) and notwithstanding the provisions of Rule 57A and Notification No. 5/94-C.E. (N.T.), issued under Rule 57A, credit earned on tyre cord fabrics can be utilised for paying duty on tubes, though the fabrics have not been used in the manufacture of the tubes. Para (1) of Rule 57A, Para (a) of Notification 5/94 stipulates as to how these duties can be taken. He has also referred to the show cause dated 2-12-98 wherein it is mentioned that MRF have taken a total credit of Rs. 1,02,38,707/- being the duty of excise levied under the AED Act and the duty levied under the Customs Tatiff Act, in lieu of duty under the AED Act. He has further submitted that a sum in the other appeal, a sum of Rs. 1,07,62,000/-has been allowed as refund relating to Appeal No. E/1722/99 arising out of Order-in-Appeal No. 78/2000 (M-I), dated 31-7-2000. He submits that nothing stops the assessee from taking the benefit of Modvat credit. He has also referred to Board's Circular No. 701/17/2003-CX., dated 12-3-2003 which clarifies that (sic) He has also referred to Notification No. 13/2003 according to which (sic).
(3) SRF Ltd. v. CCE, Chennai, reported in 2002 (49) RLT 579 wherein it was held that credit of Additional Excise Duty (AED) paid on unprocessed tyre cord fabrics used in the manufacture of dipped/processed tyre cord fabrics which is exempt from AED can be utilised for payment of Basic Excise duty or AED on any final product.
(4) Madura Coats Ltd. v. CCE, reported in 2001 (44) RLT 191 wherein it was held that credit of additional excise duty taken can be utilised for payment of Basic Excise duty.
(5) Beaver Automotive Pvt. Ltd. v. CCE, reported in 2002 (82) ECC 621 wherein it was held that AED availed on input can be utilised for payment of BED.
(6) CCE, Vadodara v. Steelco Gujarat Ltd., reported in 2000 (121) E.L.T. 557 wherein it has been held that goods in respect of which input credit has been taken when cleared under Chapter X Procedure to a manufacturer of export goods cannot be treated as goods exempt from the whole of duty of excise or as a goods chargeable to nil rate of duty within the Rule 55CC(1) of the Central Excise Rules, 1944.
The learned Counsel also submitted that the issue involved in both the appeals are common except that in respect of Appeal No. E/1243/2000 the lower authority while disallowing the total credit of Rs. 1,07,62,274/- has also rejected refund claims for Rs. 1,03,44,44,539/- being the AED credit contained in tyres exported under bond. He has also submitted that the contention of the Revenue that in view of Notification No. 11/98-C.E., dated 2-6-98 AED credit cannot be taken from 2-6-98 is not correct inasmuch as Nylon Tyre Cord warp sheets produced by them is used in the manufacture of tyres and processed Nylon Tyre Cord Warp Sheet (TCWS) is only an intermediate product which arises during the course of manufacture of tyres and the appellants did not sell the processed Nylon Tyre Cord Warp sheet and it is only used for captive consumption. Further, the final product is tyre which is not exempted from payment of duty. Rule 57C envisages that Modvat credit cannot be allowed in case the final products are exempt from duty and inasmuch as in their case the final product viz. tyre is not exempted from duty, the benefit has to be allowed.
4. Smt. R. Bhgya Devi, learned SDR, appearing on behalf of the Revenue on the other hand reiterated the view taken by the lower authorities. She has also submitted written submission wherein inter alia it is stated that :
(a) In the instant case AED availed on the inputs viz. grey nylon tyre cord fabric which is used in the manufacture of dipped tyre cord warp sheet and rubberised tyre cord warp sheet and both of these items are captively consumed in the manufacture of tyres. In some cases captively consumed goods were also cleared to other units without payment of AED.
(b) Notification No. 5/94 vide proviso to Clause (2) thereto stipulates that credit on AED shall be utilised only for payment of AED on the final product. Hence, the question of taking credit on AED when the final products are exempted from AED does not arise.
(c) Rule 57F(13) which envisages that where any inputs are used in the intermediate products cleared for export in accordance with Sub-rule (4), the credit of specified duty in respect of the inputs so used shall be allowed to be utilised by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund...., can be invoked only when the assessee is not in a position to utilise the input credit. But here is a case where the assessee is not eligible to avail the input credit and hence the question of claiming the benefit under Rule 57F(13) does not arise.
(d) Board's Circular No. 701/17/2003, dated 12-3-2003 referred to by the appellants was issued with reference to fabrics used in the manufacture and export of ready-made garments. Moreover as per Para 2 of the Board's Circular, it is categorically stated that Notification No. 13/2003 has removed the restriction of utilisation of credit on AED (GSI) and hence refund of unutilised credit is admissible. This circular appears to be in the context of garments. In terms of Notification No. 5/94 the restriction fur utilisation of AED credit was applicable to the assessee at the relevant time.
(e) In the instant case the issue is not as to whether AED credit can be utilised for payment of other duties, but AED credit can be refunded when the assessee was not eligible to avail AED credit.
(f) In the case of CCE v. Gontermann Piepers (I) Ltd., reported in 2002 (147) E.L.T. 2000, the Tribunal while referring to Notification No. 5/94 has observed that credit of AED can be utilised for purpose of paying AED which means credit of BED cannot be utilised for payment of AED.
(g) As mentioned in Circular No. 751/67/2003-CX., dated 30-9-2003, the Board has now referred the matter to the Ministry of Law for their opinion as to whether credit of AED (GSI) accumulated prior to 1-3-2003 can be utilised for payment of Cenvat duty as well as AED (GSI) on or after 1-3-2003.
5. We have carefully considered the rival submissions and gone through the case records and perused the various case laws and the notifications cited. The issue that is centre staged in both these appeals is whether the appellants are eligible for availing Modvat credit of the additional excise duty (AED) paid on the grey tyre cord fabric (unprocessed fabrics), when TCWS is exempted from payment of duty. We note that in the instant case, both dipped Tyre Cord Warp Sheet and rubberised tyre cord warp sheet (TCWS) are intermediate product and are captively used in the manufacture of tyres. TCWS is used only for captive consumption in the manufacture of tyres is not disputed by the Revenue. The final product of the appellants is tyres and not TCWS. We further note that what Rule 57C envisages is that credit of duty is not to be allowed in case the final product is exempt from payment of duty. It is not the case of the Revenue that the final product, viz. tyres is exempt from payment of duty. It is also not the case of the Revenue that the input viz. grey nylon cord fabric used in the manufacture of dipped and rubberised tyre cord warp sheets are not captively consumed in the manufacture of their final product tyres. Their objection is that AED paid on the unprocessed grey tyre cord fabric shall be utilised only for payment of AED on the final product as according to the Revenue TCWS is a final product and which is exempt from AED, vide Notification No. 11/98-C.E., dated 2-6-1998 and hence credit of AED on the input cannot be availed. We note that the question whether AED paid can be adjusted towards liability against Basic Duty of Excise (BED) on the final product, has been elaborately dealt with by the Tribunal in the case of Coats Viyella India Ltd. v. CCE, Madurai reported in 1999 (111) E.L.T. 90 wherein it is held that the Additional Duty of Excise is in fact not only a duty of Excise but it is in addition to the Basic Duty and therefore annexed to the Basic Duty at the point of time and place when the basic duty is also required to be assessed. Paras 5 and 6 of the said order are extracted hereunder.
"5. We have carefully considered the arguments of both sides as well as the records of the case. The short point for our consideration is whether Basic Duty of Excise and Additional Duty of Excise (GSI) are so integrally connected with each other in law, that deposits made against one can be considered towards adjustment to liability against the other on a request being made by the assessee, so that the assessee necessarily does not have to resort to the procedure of obtaining refund on one hand and paying exactly the same amount again to Government on the other hand. We find that the quantum sought for adjustment, that is Rs. 23,51,200/- is not disputed by either side. It is also not disputed that the assessment of the fabrics would correctly attract duty under Chapter 59 as Basic Excise Duty at 15% ad valorem. It is also not disputed that the differential amount of Rs. 11,75,601/- has already been paid under the head Basic Excise duty. The only issue under dispute is whether the amount of Rs. 23,51,200/- erroneously paid by the appellant as Additional Duty of Excise (GSI) can in fact be deemed to be paid as Basic Excise Duty and the matter regularised. On a careful consideration we find that it is also not disputed that both the duties are collected under Section 3 of the Central Excise Act though the levy or imposition of the Additional Excise Duty is under the statute of 1978. In view of the decision of the Delhi High Court and Gujarat High Court (supra), the principle emerging therefrom is that the Additional Excise Duty (GSI) is also a duty of Excise. In the case of Maheshwari Mills Ltd. (supra), the Hon'ble Gujarat High Court has further held as noted above, that the Additional Excise Duty is in fact not only a duty of Excise but it is in addition to the Basic Duty and therefore is annexed to the Basic duty at the point of time and place when the basic duty is also required to be assessed. In view of this legal position obtaining, it is our considered opinion that a mere administrative mechanism designed to account receipts under Basic Excise Duties and Additional Excise Duties under separate heads of account, by Government, by itself should not come in the way of allowing such an adjustment. This is also in line with the fluidity now available under Rule 57F(12) of the Central Excise Rules wherein the credit on Additional Excise duty on an input can even be used towards payment of Basic Excise duty or any output under the Modvat Scheme. When Revenue has conceded by way of subordinate legislation, such an adjustment between these two kinds of Excise duties, then it would be too harsh to not allow the prayer of the appellants merely on the ground that there are two duty heads of accounts for procedural purposes.
6. In view of the aforesaid findings, and also keeping in view that by an earlier Order-in-Original the Collector of Central Excise had allowed these very appellants such an adjustment which was not challenged by Revenue in appeal, we find merit in the said appeal. We therefore set aside the Order-in-original impugned and allow the request of the appellants for the amount of Rs. 23,51,200/- paid as Additional Duty of Excise (GSI) to be adjusted towards the payment of Basic Excise Duty for the clearances of these fabrics under Chapter 59 on payment of duty at the rate of 15% ad valorem. Having done so, we find that there is no further need for the appellants to pay any more Basic Duty of Excise on this count only. The appeal succeeds accordingly."
5.1. Similar view has been taken in various other cases also as cited under Para 3 above. We also note that vide Board's Circular No. 751/67/2003-CD, dated 30-9-2003, the Board has clarified that credit of Additional duty (GSI) accrued prior to 1-3-2003 can be used for payment of Cenvat duty. We, further, note that vide Explanation to Notification 13/2003-C.E. (N.T.), dated 1st March, 2003, the Board has clarified that credit of AED leviable under Section 3 of the AED (GSI) Act, 1957 may be utilised towards payment of duty of excise (BED).
6. Coming to the plea of the learned SDK that the Board's Circular No. 701/17/2003, dated 12-3-2003 appears to be issued in the context of garments, we have gone through the Circular and we find that the said Circular has also referred to Notification No. 13/2003-C.E. (N.T.), dated 1st March, 2003 by which it has already been clarified that credit of AED leviable under Section 3 of the AED (GSI) may be utilised towards payment of BED. Further, the said Circular vide Para 3 has also clarified that refund of AED shall be allowed under Cenvat Rules, 2002 regardless of the fact that the said duty is not leviable on the finished product. Therefore, the plea of the learned SDK has no merits. The final product of. the appellants is tyres which is cleared on payment of duty. Rule 57C envisages, denial of Modvat credit in case the final product is exempted. The case law in the matter of CCE, Chandigarah v. Gontermann Peipers (I) Ltd. reported in 2002 (147) 200 also does not come to the rescue of the Revenue inasmuch as what the Tribunal has held in that case was that credit of BED cannot be utilised for payment of AED, whereas in the present case, the point is whether credit of AED can be utilised for payment of BED. The further ground taken by the Revenue is that since the matter has been referred to the Ministry of Law, the issue of eligibility of the assessee to take Modvat credit on AED as in this case has to be reconsidered. Merely because the Revenue has referred the matter to the Ministry of Law seeking opinion on the issue, that by itself cannot be a ground to deny the benefit to the assessee, more particularly when in similar matters, the benefit has been extended and in view of the clarification issued in terms of Notification No. 13/2000-C.E. (NT.), dated 1-3-2003 (supra).
7. In view of our discussion and finding as noted above, respectfully following the decisions cited supra, we are of the considered opinion that the appellants are eligible for the benefit of Modvat credit in respect of the AED paid on the unprocessed fabrics, for the purpose of payment of BED on the final product viz. tyres and they are allowed to restore the credit of AED of Rs. 1,02,38,707/- for the period from 2-6-98 to 31-10-98 and another sum of Rs. 1,07,62,274/- for the period from 1-11-98 to 31-3-99.
8. As regards, rejection of refund claim for a sum of Rs. 1,03,44,539/-being the AED credit contained in tyres exported under Bond, they were taking credit of AED only for the purpose of claiming refunds in terms of the procedure outlined in Notification No. 85/87-C.E., dated 1-3-97 issued in terms of Rule 57F(13) which envisages that if Modvat credit availed cannot be used for payment of duty on final products cleared for home consumption or for export, on payment of duty, and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such un-utilised amount of credit. In other words, credit contained in finished products exported under bond can be utilised towards payment of excise of any other final product cleared for home consumption or for export and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of credit. We observe that it is not the case of the department that the unprocessed fabrics have not suffered duty, and have been received with proper documents. The contention of the assessee that the refund claimed amounting to Rs. 1,03,44,539/- is for the AED credit contained in the tyres exported under bond is also not controverted by the department. Further, C.B.E. & C. Circular No. 701/17/2003-CX., dated 12-3-2003 has vide Para 3 has also clarified that refund of AED (GSI) shall be allowed under Rule 5 of the Cenvat Rules 2002, regardless of the fact that the said duty is not leviable on the finished product. The Department's contention is that the assessee is not eligible for the credit of AED and when they are not entitled to the credit, the question of refund does not arise. We have held above, that the assessee is entitled to take credit of AED paid on the inputs which have admittedly suffered duty and were received with proper documents. Therefore, the contention of the department that they are not eligible to utilise such credit cannot be accepted. In view of our above discussion, we hold that the appellants are entitled to the refund as claimed and the rejection of the refund was not legal and proper. We, therefore, order refund of the claims for Rs. 1,03,44,539/- for the period from 6/98 to 6/99 being the AED credit contained in the tyres exported under bond, in terms of Rule 57F(13) of the Central Excise Rules and direct the Department to refund the amount within a period of three months from the date of receipt of this order. In the result, both the appeals of the assessee are allowed with consequential benefits.