Customs, Excise and Gold Tribunal - Mumbai
Gujarat Narmada Valley Fertilisers Co. ... vs C.C.E. And Cus. on 8 January, 1997
Equivalent citations: 1998(102)ELT499(TRI-MUMBAI)
ORDER K.S. Venkataramani, Member (T)
1. These two appeals have been filed against separate adjudication orders passed by Commissioner of Central Excise & Customs, Vadodara. By his order dated 13-10-1995 the Commissioner confirmed the demand of Rs. 4,28,87,437/- as Modvat on capital goods wrongly utilised by the appellants during the period May 1994 to February '95 under Rule 57U of Central Excise Rules (Appeal No. 975/95 Bom.). By the other order dated 14-5-1996 the Commissioner has similarly confirmed demand of Rs. 6,57,55,620/- for the period March 1995 to September '95 (Appeal No. 1408/96 Bom.).
2. The point at issue is whether duty credit on Capital goods permitted under Rule 57Q can be utilised for payment of duty only on those final product which have been manufactured out of such capital goods, or whether it can be utilised for payment of duty on any final product manufactured in the factory of manufacturer.
3. The relevant provisions in this regard are as follows :
SECTION "AAAA" OF CENTRAL EXCISE RULES: CREDIT OF DUTY PAID ON CAPITAL GOODS USED BY THE OF SPECIFIED GOODS:
Rule 57Q : Applicability. - (1) The provisions of this section shall apply to finished excisable goods of the description specified in the annexure below (hereinafter referred to as the "final products" for the purpose of allowing credit of specified duty paid on the capital goods used by the manufacturer in his factory and for utilising the credit so allowed towards payment of duty of excise leviable on the final products...."
Relevant extract of Rule 57S(2) is as follows :-
57S(2): "Credit of specified duty allowed in respect of any capital goods may be utilised towards payment of duty of excise.
(i) On any of the final products manufactured in the factory of the manufacturer in accordance with the declaration filed under Sub-rule (1) of Rule 57T...."
Rule 57S(2) was amended on 16-3-1995 to the effect that the words, "in accordance with the declaration filed under Sub-rule (1) of Rule 57T" were deleted.
4. In his adjudication order dated 13-10-1995 relating to appeal No. 975/95 Bom., the Commissioner found that the appellants filed declaration under Rule 57T for availing Modvat credit on certain capital goods for their Acetic Acid Plant and Hydrogen plant. But the Commissioner found that neither Acetic Acid nor Hydrogen was manufactured and cleared from the factory, yet the credit availed on such capital goods was utilised for paying duty on other final products. The Commissioner considered the appellants' declaration in this light of Rule 57S(2) before its amendment (which is relevant to this order) and found that they had specifically indicated the names of final product against each capital goods and hence concluded that credit can be utilised only for payment of duty on final product manufactured by using the declared Capital goods. The Commissioner further observed that the Capital goods for use in Acetic Acid and Hydrogen products had also not become operational for production work. Hence Commissioner ordered recovery of the Capital goods Modvat credit wrongly availed.
5. In the other adjudication order dated 14-5-1996, relating to the period after the amendment of Rule 57S(2), the Commissioner relied upon a Trade Notice No. 13/95 dated 9-2-1995 issued by the Commissionerate which clarified that where a factory was being established the manufacturer intending to avail of Modvat credit should file declaration, but that credit on Capital goods received at the time of establishment of such factory can be availed of only after the factory is registered with the Central Excise and commences production. The Commissioner found that in this case even though the factory of the appellants had been registered and had commenced production of other goods, the particular plant i.e. Acetic Acid plant for which credit had been taken had not commenced production, and yet the credit taken thereon had been utilised for payment of duty on other final products. Holding this to be not in accordance with Rule 57Q, the Commissioner confirmed the demand.
6. We have heard Shri Willingdon Christian ld. Counsel for the appellants and Shri D. Gurnard, ld. DR. The demand in these cases has arisen due to the finding by the Commissioner that the appellants had utilised Modvat credit earned on Capital goods meant for Acetic Acid plant and Hydrogen plant for payment of duty on final products other than Acetic Acid and Hydrogen in the manufacture of which the Capital goods in question had not been used. Ld. Counsel had urged that there is nothing irregular in this and points out that Rule 575(2) (already extracted above) allows utilisation of credit earned on any of the final products manufactured in the factory of the manufacturer and there is no dispute that appellants had included the other final products along with acetic acid in their declaration under Rule 57T. The further argument was that Rule 57S(2) is a specific provision which is clear on the point of utilisation of credit, and it should prevail over other provisions. In any case it was urged in these cases the entitlement to credit is not in dispute but only its utilisation. In this context it was submitted that since the Acetic Acid plant has since been commissioned and they have cleared it on payment of duty debiting PL account, the appellants will be entitled to use the credit in dispute for that purpose, and to that extent credit has to be restored in their RC 23C account simultaneously with this recovery of duty demanded. That such an adjustment has found favour with this Tribunal is shown by its decisions in the case of Mukesh Engg. Industries v. Collector - 1995 (79) E.L.T. 718 and Ipitron Tiles v. Collector - 1993 (21) ETR 380. It has also been submitted that in pursuance of this Tribunal's Stay Order as modified, this adjustment has already been made. As against this the ld. D.R. would argument in this case the basic requirement for taking Modvat credit under Rule 57Q of use of the capital goods in the factory has not taken place at all as the Acetic Acid plant at the material time had not commenced production ld. D.R. pointed out the declaration provision in Rule 57T which has twin requirements of declaration of particulars of capital goods to the Assistant Commissioner and also of an intimation of the receipt thereof to the jurisdictional Supdt. This would show the nexus required between credit earned on capital goods and payment of duty on final products for the manufacture of which these have been used in this factory of the manufacturer.
7. Examining the rival contentions, it is seen that initially in 1986 Mod-vat scheme as on input duty relief measure had covered only inputs which are used in or in relation to the manufacture of the final product. Machinery, appliances, tools and equipment had been excluded from the scope of the term 'input'. Subsequently in 1994 capital goods Modvat credit was introduced to make such machinery etc. also eligible for such credit, Rule 57Q setting out the facility has been extracted above. The question as to the scope of this provision is provided by some of the clarifications issued by the Central Board of Excise & Customs and Trade Notice which are usually based on Board's clarification. These can be looked into and taken note of by the Tribunal as an aid to its interpretation being in the nature of contemporaneous expositio of the understanding of the provision by the authorities who have framed the Rules and are also to implement it.
8. It is noted that in a Board's Circular No. 88/88/94, dated 26-12-1994 it has been clarified that credit of the duty paid on capital goods is admissible only when such capital goods enter into production and that credit availed can be allowed to be utilised only for payment of duty on goods manufactured and cleared by such a factory.
9. In another clarification contained in a Trade Notice No. 75/95, dated 18-7-1995 of Pune Commissionerate - 1995 (79) E.L.T. 60 it has been clarified "the new provisions of the capital goods Modvat scheme introduced under Section AAAA of Central Excise Rules are meant for providing "credit of duty paid on capital goods used by the manufacturers of specified goods". Rule 57Q which is the basic Rule making substantive provisions for both providing credit and the manner of its utilisation clearly indicate that for the final products...the capital goods Modvat scheme covered by the aforesaid section shall apply for the purpose of allowing credit of specified duty paid on the capital goods used by the manufacturer in his factory". In the same trade notice it is further stated "it appears Rule 57T is being interpreted to mean that once the intimations prescribed have been given and the capital goods have been received in the factory premises the manufacturer can go ahead and take the credit and utilise it. Such a reading is not proper inasmuch as the whole Modvat provisions for the capital goods, as indicated in Rule 57Q...has made provisions for permitting credit of specified duty paid on the capital goods when they are used by the manufacturer in his factory. Thus where the goods are received in the factory of production, but they have not been installed and taken up for production purposes, the conditions of basic Rule 57Q would not be satisfied and the assessee cannot claim credit of the duties paid on the capital goods received nor can he start utilising the same.
The industry is, therefore, advised that credit of the duties paid on capital goods received in the factory should be taken only when such capital goods enter into production process and not soon after their mere receipt in the factory...."
10. A plain reading of Rule 57Q would indicate that it lays down the applicability of the scheme set out in the "section" i.e. Section AAAA of Central Excise Rules as a whole and the heading of that Section is "credit of duty paid on capital goods used by the manufacturer of specified goods." User of the capital goods by the manufacturer in his factory is a requirement spelt out in Rule 57Q, for allowing credit and for utilising the credit so allowed. Therefore it is not possible to accept the argument that provisions of Rule 57S(2) are paramount for utilisation of credit and will override requirements of basic Rule 57Q which sets out the applicability of the Scheme. In this view of the matter the above referred clarifications of the Department acquire relevance and have to be considered for a harmonious interpretation of the provisions. So when the capital goods for the manufacture of acetic acid and hydrogen had not entered the production process at all, they did not satisfy the user criterion, and taking of the Modvat credit thereon and utilising such credit for payment of duty on other products was irregular and not in consonance with Rule 57Q. Further, the requirement for utilisation of credit under Rule 57S(2) prior to its amendment on 16-3-1995 was that it should be in accordance with declaration filed under Rule 57T(1). In the present case the declaration filed by appellants shows some items are specifically declared for manufacture of Acetic Acid indicating the stage and purpose of use. In such a context, for the period prior to March 1995 which is covered by Appeal No. 975/95 Bom. and Commissioner's Order dated 13-10-1995, the utilisation of credit cannot be considered to have been in accordance with the declaration when the Acetic Acid plant had not gone into production at all. For the subsequent period also, until the user condition came to be fulfilled, the same result should follow.
11. However when once the acetic acid and hydrogen plant are installed and go on stream and when final products are cleared, the eligibility to credit and the entitlement to its utilisation would follow. In such circumstances the ratio of Tribunal decisions in the Mukesh Engg. - goods and in Ipitron Tiles (supra) would come into play for restoration of credit in Modvat account simultaneously against payment of duty by PLA debit of ineligible credit. The Bench in its Order No. 3036/96 WRB, dated 13-9-1996 modifying the earlier Stay order, has duly recognised this position when it was submitted before it that the acetic acid plant has since been commissioned and appellants had cleared acetic acid on payment of duty on PLA. In the light of the two Tribunal decisions, the Bench had decided that on depositing of the entire duty amount (in the case of Commissioner's Order dated 14-5-1996) the appellants would be entitled to take corresponding credit in their capital goods Modvat account, which credit can be utilised for payment of duty towards acetic acid. The records show that the deposit as per direction has been made.
12. The same formula becomes applicable to the other demand also covered by the order of the Commissioner dated 13-10-1995 in view of the findings as above and on payment of the amount sought to be recovered, the appellants will be entitled to corresponding credit to their capital goods Modvat account subject to the fact that the hydrogen plant has also since gone into production and final products cleared on payment of duty on PLA.
The appeals are disposed of in the above terms.