Custom, Excise & Service Tax Tribunal
M/S. H.M.T. & Ors vs Cce, Panchkula on 12 August, 2008
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI
PRINCIPAL BENCH NEW DELHI
In Excise Appeals Nos.3521, 1632 & 1788 of 2006
M/s. H.M.T. & Ors. Appellants
[Rep. by Shri A.R. Madhav Rao, Advocate &
Shri R.K. Hasija, Advocate]
Vs.
CCE, Panchkula Respondent
[Rep. by Shri H.K. Thapar, Jt. CDR] Date of Hearing:12.08.2008 Date of Pronouncement:
CORAM: Honble Mr. Justice S.N. Jha, President Honble Mr. M. Veeraiyan, Member (Technical) Honble Mr. P.K. Das, Member (Judicial) Order No/Dated:
Per P.K. Das:
These appeals have been placed before the Larger Bench for determination of the following questions:-
(I) Whether the Order dated 23.11.2006 passed by the CESTAT, Bangalore enunciates the correct position of law and hence the input credit taken, when the final product was dutiable, need not be reversed on the final product becoming exempt from payment of duty w.e.f. 9.7.2004 ?
OR (II) Whether the Order dated 1.2.2007 passed by the CESTAT, Chennai enunciates the correct position of law and hence the input credit taken in respect of inputs in stock or in process or contained in the final product in stock on 9.7.2004 is to be reversed and is to be recovered if adequate credit is not in balance ?
2. There is conflicting decisions rendered by the CESTAT, Bangalore Bench and Chennai Bench. The Bangalore Bench in the case of TAFE Ltd. (Tractor Division) Vs. CCE, Bangalore 2007 (79) RLT 706 (T-Bangalore) held that the input credit legally taken, when the final product was dutiable need not to be reversed on final product becoming exempt from payment of duty w.e.f. 9.7.2004. On the other hand, the Chennai Bench in the case of Tractors & Farm Equipments Ltd. Vs. CCE 2007 (79) RLT 384 (T-Chennai) held that the credit taken on input in stock or in process or contained in the final product in stock on 9.7.2004, is liable to be reversed if unutilised and to be recovered if adequate credit is not in balance. In view of the conflicting decisions by the two Benches of the Tribunal, the matters have been referred to the Larger Bench.
3. The relevant facts of the case, in brief, are that the Appellants are engaged in the manufacture of Tractors, Tractors Parts and Engines classifiable under Heading Nos.87.01, 87.08 and 84.08 of the First Schedule to the Central Excise Tariff Act, 1985. The Appellants were availing Cenvat Credit on inputs and capital goods under Cenvat Credit Rules, 2002 (in short Rules 2002). By Notification No.23/2004-CE dated 9.7.2004, Tractors under Heading No.87.01 of the Tariff were exempted from payment of whole of excise duty. Show cause notices were issued to the Appellants alleging that they are liable to reverse the proportionate Cenvat Credit in respect of inputs lying in stock as such or contained in finished product on 9.7.2004 while availing the exemption benefit under Notification No.23/2004-CE dated 9.7.2004 on the finished goods viz. Tractors. It has been alleged that the Appellants contravened the provisions of Rule 6 of Cenvat Credit Rules, 2002. The Adjudicating Authority confirmed the demand of duty and imposed penalties for intentional violation of the provisions of Rule 6(1) of Rules, 2002. In Appeal No.E/3521 of 2006, the Adjudicating Authority confiscated the inputs lying in stock as on 9.7.2004. We are concerned with deciding above issues. So, there is no need to go in detail of demand of duty, penalty, etc.
4. Heard both sides and perused the records.
5. The main contention of the Revenue is that Rule 6(1) of Rules 2002 provides that the Cenvat Credit shall not be allowed on such quantity of inputs or input service, which is used in the manufacture of exempted final products or exempted service, except in the circumstances mentioned in sub-rule (2). The Appellants violated Rule 6(1) of Rules, 2002 as the final goods were exempted on 9.7.2004 by Notification No.23/2004-CE dated 9.7.2004 and the Appellants failed to reverse the credit on such quantity of inputs, which were lying un-utilised and used in the manufacture of exempted final products. It was proposed to recover the credit from the Appellants under Rule 12 of Rules 2002 read with Section 11 A of Central excise Act, 1944 alongwith penalty, interest, etc. 6. It may be stated that the similar issue under erstwhile Central Excise Rules, 1944 (in short Rules 1944) is as to whether the credit availed and utilised under the Modvat Scheme during the period (i.e. 1996) when the final products were dutiable is required to be reversed when subsequently the final product was exempted from duty, was placed before the Five Members Bench of the Tribunal in the case of Commissioner of Central Excise, Rajkot Vs. Ashok Iron and Steel Fabricators as reported in 2002 (140) ELT 277 (T-LB), in view of the conflicting decisions of two High Courts, viz. Super Cassettes Industries Vs. Union of India - 1997 (94) ELT 302 of Allahabad High Court and Collector of Central Excise & Customs, Cochin Vs. Premier Tyres Ltd. - 2001 (130) ELT 451 of Kerala High Court. The Larger Bench of the Tribunal followed the decision of Kerala High Court in the case of Premier Tyres Ltd. (supra), wherein it has been held that if at the time of taking the Modvat Credit, final products are not exempted, it is not necessary to reverse the credit in the light of subsequent exemption notification relating to the final product. It has followed the decision of the Honble Supreme Court in the case of Collector Vs. Dai Ichi Karkaria Ltd. 1999 (112) ELT 353 (SC). The Larger Bench dismissed the appeal filed by the Revenue against order of Commissioner (Appeals). In that case, the Commissioner (Appeals) took the view that there was no provisions under Rules 1944 to recover such credit on inputs, which has been lawfully taken and utilised at that material time in the clearance of dutiable final product. Revenue filed appeal against the order of the Larger Bench of the Tribunal in the case of Ashok Iron &Steel Fabricators (supra), which was dismissed by the Honble Supreme Court as reported in 2003 (156) ELT A-212 (SC).
7. Subsequently a Division Bench of the Tribunal in the case of Albert David Ltd. Vs. Commissioner of Central Excise 2003 (151) ELT 443 (T-Delhi) on the identical issue held that the decision of the Ashok Iron & Steel Fabricators (supra) was passed on the ground that there was no provision for reversal of credit. It has been held that now there is a specific provision in Rule 57AB of Rules 1944, which provides that Cenvat Credit shall not be allowed on such quantity of inputs, which is used in the manufacture of exempted goods. Rule 57AH of Rules 1944 contains the provisions for the recovery of the Cenvat Credit utilised wrongly. The assessee filed appeal against the order of the Tribunal before the Honble Supreme Court, which was dismissed, as reported in 2003 (157) ELT A 81 (SC).
8. The Bangalore Bench of the Tribunal in the case of TAFE Ltd. (supra) following the decision of the Honble Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra) and the Larger Bench decision of the Tribunal in the case of Ashok Iron & Steel Fabricators (supra) held that any input credit legally taken when final product was dutiable need not be reversed on final product being exempted. The Bangalore Bench considered the decision of Tribunal in the case of Albert David Ltd. (supra) and observed that the Honble Supreme Court dismissed the appeal filed by the assessee in the case of Albert David Ltd. (supra) without speaking or reason order and the decision in the case of Albert David Ltd. (supra) cannot be said to be a declaration of law under Article 141 of Constitution of India.
9. Thereafter, Chennai Bench of the Tribunal in the case of Tractors and Farm Equipments Ltd. (supra) following the decision of the Tribunal in the case of Albert David Ltd. as well as the decision of the Honble Supreme Court in the case of Dai Ichi Karkaria Ltd. Ltd. (supra) held that input credit taken in respect of inputs in stock or in process or contained in final product in stock on 9.7.2004 liable to be reversed and to be recovered if adequate credit is not in balance. It has been held that Rule 57AH of the Rules, 1944 is for recovery of such duty. It has considered the decision of Bangalore Bench.
10. Ld. Advocate on behalf of the Appellants submits that the Honble Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra) held that there is no provisions in the Rules, 1944 for reversal of credit by the Revenue except it has been taken in irregular or illegal manner. He drew the attention of changes of MODVAT/CENVAT Credit Rules time to time. He submits that by Notification No.10/2007-CE (NT) dated 1st March, 2007, Sub-Rule (3) was inserted in Rule 11 of Cenvat Credit Rules, 2004 for reversal of credit in such situation. He submits that the Notification indicates that the said notification shall come into force on the date of their publication in the Official Gazette. So, there is no provision to reverse the credit prior to Notification dated 1st March, 2007. It is also contended that the Appellants utilised credit lawfully, when the final product was dutiable. There is no violation of Rule 6(1) of Rules 2002 and recovery of credit under Rule 12 of Rules 2002 cannot be invoked. Ld. Advocate submits that on the similar issue demand was raised under Rule 12 of Rules 2002 for violation of Rule 6 of the said Rules, the Tribunal in the case of Commissioner of Central Excise, Chandigarh Vs. C.N.C. Commercial Ltd. 2006 (206) ELT 874 (Tri.-Delhi) rejected the appeal of Revenue. The Honble High Court of Punjab & Haryana also rejected the appeal filed by the Revenue against the decision of the Tribunal and upheld the decision of the Tribunal following the decision of the Honble Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra) as reported in 2008 (224) ELT 239 (P&H). He also relied upon the decisions of the Tribunal as under:-
(i) Swastik Textile Engineers Ltd. Vs. CCE, Ahmedabad 2007 (214) ELT 198 (Tribunal-Ahmedabad)
(ii) CCE, Chandigarh Vs. Saboo Alloys Pvt. Ltd.
2008 (87) RLT 179 (CESTAT-Delhi).
(iii) E.S.L. Ltd. Vs. CCE, Vishakhapattanam 2007 (214) ELT 238 (Tribunal-Bangalore).
He further relied upon the decisions of the Honble Supreme Court in support of his contention that Notification No.10/2007-CE (NT ) (supra) can not be given retrospective effect.
11. Ld. Jt. CDR on behalf of the Revenue submits that there is no dispute that the Appellants used the duty paid inputs in the manufacture of the final products, which were exempted on 9.7.2004 by exemption Notification and it is hit by Rule 6 (1) of Rules, 2002. He submits that the Appellant used the duty paid inputs wrongly on exempted products and CENVAT credit is recoverable under Rule 57I of Rules, 1944. He also submits that Rule 57I of Rules 1944 as amended by Notification No.11/2000-CE (NT) dated 1.3.2000 corresponding to Rule 12 of Rules 2002 is a specific provision for recovery of such credit. He also drew the Bench CBEC Circular No.591/28/2001-CX dated 16.10.2001. He also submits that Sub-Rule (3) of Rule 11 of Rule 2004 is transitional provision. It is seen that Appellants contravened Rule 6 (1) of the Rules 2002 and such wrongly utilised credit is recoverable under such Rule 12 of Rules, 2002. Therefore, Rule 11 (3) of Cenvat Credit Rules, 2004 has no relevancy. In other words, Notification No.10/2007-CE (NT) is clarificatory nature.
12. It is significant to note that Five Members Bench, Bangalore and Chennai Bench of Tribunal passed the decisions following the observation of the Honble Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra). For the purpose of proper appreciation of the case, the relevant portion in the case of Dai Ichi Karkaria Ltd. (supra) is reproduced below:-
17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilised, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available.
13. On perusal of the decision of the Honble Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra), Five Members Bench decision in the case of Ashok Iron and Steel Fabricators (supra) and Division Bench in the case of Albert David Ltd. (supra) and the conflicting decisions of the two Benches, we find that the limited issue is before us to decide as to whether there was any provision in the Rules for reversal of input credit taken and legally utilised, when the final product was dutiable, subsequently, becoming exempt.
14. In this context, it is proper to look into various changes of provisions of MODVAT/CENVAT Credit Rules during the relevant period. It appears that from 1st April, 2000, Rules 57AA to 57AK were substituted in place of Rules 57 A to 57J of Rules, 1944 for availing Modvat/Cenvat credit benefit. Further, from 1st July, 2001, CENVAT Credit Rules, 2001 (in short, Rules 2001) was introduced. Again, by Notification No.5/2002-CE (NT) dated 1.3.2002 CENVAT Credit Rules, 2002 (in short Rules 2002) came into force. Then, by Notification No.23/2004-CE (NT) dated 10.09.2004, CENVAT Credit Rules, 2004 (in short Rules 2004) was introduced, which is still in force. In the present appeals, the case of Revenue is that the Appellants contravened Rule 6 of Rules 2002 and credit is recoverable under Rule 12 of the said Rules. Rule 6 of Rules 2002 is corresponding to Rule 57C and 57CC of Rules 1944, upto 31.3.2000, Rule 57 AC of Rules 1944, Rule 6 of Rules 2001 and 2004. Similarly, Rule 12 of Rules 2002 is corresponding to Rules 57I of Rules 1944 upto 31.3.2000 and 57 AH of Rules 1944, Rule 12 of Rules 2001 and Rule 14 of Rules 2004.
15. The ld. Jt. CDR in order to justify the correctness of the decision of Albert David Ltd. (supra) and the Chennai Bench decision strongly relied upon the amended Rule 57I of Rules 1944 by Notification No.11/2000-CE (NT) dated 1.3.2000, which is the specific provision for recovery of credit utilised by the Appellants in such situation. Sub-rule (1) of Rule 57 I as amended is reproduced below:-
57-I. Recovery of credit wrongly taken(1) Where the CENVAT credit has been taken or utilised wrongly, the same along with interest shall be recovered from the manufacturer and the provisions of sections 11A, 11AA and 11AB of the Act shall apply mutatis mutandis for affecting such recoveries.
16. We may observe that Rule 57I of Rules 1944 equivalent to Rule 57AH and Rule 12 would apply where the Cenvat Credit has been taken or utilised wrongly. In the present case, there is no objection of the Revenue whatsoever credit taken by the Appellants and its utilisation at the clearance of the dutiable final products. So, the taking of credit and its utilisation were correct. The Honble Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra) decided that when the credit was legally taken and utilised, cannot demanded unless there is specific provision. It is settled that there is no one to one co-relation of utilisation of credit and use of inputs in the Modvat/Cenvat Scheme. So, it cannot be said that that the Appellants utilised the credit wrongly and the provisions of Rule 12 of Rules 2002 equivalent to Rule 57I, Rule 57AH of Rules 1944 would not apply. The Board Circular dated 16.10.2001 as relied upon by the ld. Joint C.D.R. clarified that Rule 12 of Rules 2002 is the provision for recovery of credit taken incorrectly, in violation of Rule 6 of the said Rules. We have already stated that the Appellants had legally taken and utilised credit. So, Board circular is not applicable here. Hence, we do not find any merit in the submission of the ld. Jt. CDR.
17. It is also contended that the Appellants violated Rule 6(1) of Rules 2002, which provides that the CENVAT Credit shall not be allowed on such quantity of inputs, which is used in the manufacture of exempted goods, except certain circumstances as specified in the sub-rule (2) of the said Rule. Rule 6 (1) of Rules 2002 is corresponding to Rule 57C and 57AD (1) of Rules 1944, Rule 6 (1) of Rules 2001 and Rules 2004.
18. In MODVAT/CENVAT scheme, Rule 57C of Rules 1944 and the corresponding rules time to time restricted the availing of credit on such quantity of inputs, which are used in the manufacture of final products, which are exempted from the whole of duty of excise or chargeable to Nil rate of duty. Rule 57CC of Rules, 1944 was introduced in 1996 for adjustment of credit in inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer. Rule 57 CC of Rules, 1944 is corresponding to Rule 57AD (2), Rule 6(2) of Rules 2001, Rule 2002 and Rules 2004.
19. The Honble Rajasthan High Court in the case of Hindustan Zinc Ltd. Vs. Union of India reported in 2008 (223) 149 (Raj.), while dealing with Rule 57 C and Rule 57 CC of Rules 1944 relying on the decision of Supreme Court in the case of Dai Ichi Karkaria Ltd. (supra) and Kerala High Court decision in the case of Premier Tyres Ltd. (supra) held that if on the date of entitlement, there is no illegality or invalidity in taking credit of such Modvat/Cenvat credit, right to utilisation such credit against further liability towards duty become indefeasible and is not liable to be recovered in such contingency. The relevant portion of the said decision is reproduced below:-
39. Upshot of this discussion in that prohibition against claiming Modvat credit on exempted goods or subject to nil rate of duty applies in case where such exemption from payment of Duty or nil rate of Duty on end product is predictably known at the time the recipient of inputs is entitled to take credit of duties paid on such inputs. The fact that due to subsequent notification or on contingency that may arise in future, the end product is cleared without payment of duty due to exemption or nil rate of duty does not affect the availing of Modvat credit on the date of entitlement. If on the date of entitlement, there is no illegality or invalidity in taking credit of such Modvat/Cenvat credit, the right to utilise such credit against future liability towards duty become indefeasible and it is not liable to be reversed in the contingency discussed above.
20. On perusal of the Rule 6 of Rules 2002 and the corresponding Rules, as mentioned above, we are of the view that the Appellants had correctly taken the credit and utilised, when the final product was dutiable and there is no requirement to reverse the credit on final product becoming exempt and such credit cannot be recovered under Rule 12 of Rules 2002 corresponding to Rule 57I, 57AH of Rules 1944.
21. We find that the different benches of the Tribunal have taken the similar view in the cases of C.N.C. Commercial Ltd. (supra) upheld by the High Court, Saboo Alloys Pvt. Ltd. (supra), Swastik Textile Engineers Ltd. (supra) and E.S.L. Ltd. (supra). We agree with the views expressed in the said decisions.
22. In view of the above discussions, we hold that when the input-credit legally taken and utilised on the dutiable final products, need not be reversed on the final product becoming exempt subsequently w.e.f. 9.7.2004. The decision of the Bangalore Bench in the case of TAFE Ltd. (Tractor Division) Vs. CCE, Bangalore 2007 (79) RLT (Tribunal-Bangalore) enunciated the correct position of the law. The issue is thus, answered in favour of the assessee and against the Revenue.
23. Before we part, we observe that this order is passed without going into the submission of the ld. Advocate that the Notification No.10/2007-CE(NT) dated 1.3.2007 inserted sub-rule (3) to Rule 11 of Rules 2004, is a specific provision for reversal of credit because such issue was not in the referral order.
24. The reference having thus been answered, the records may be placed before the Regular Bench for final disposal of the appeals.
( Justice S.N. Jha ) President ( M. Veeraiyan ) Member (Technical) ( P.K. Das ) Member (Judicial) Ckp.