Customs, Excise and Gold Tribunal - Tamil Nadu
Collector Of Central Excise Customs vs Premier Tyres Ltd. on 21 April, 1994
Equivalent citations: 1994(54)ECR283(TRI.-CHENNAI)
ORDER
V.P. Gulati, Member
1. This Reference Application arises out of the Order of the Tribunal dt. 3.2.1992 bearing No. 90/1992. The issue before the Tribunal in the above Order was whether MODVAT Credit had been correctly taken and correctly utilised in respect of inputs which had been utilised for manufacture of the finished excisable goods specified for MODVAT purposes under Rule 57A, when a part of the finished product was cleared on payment of duty and a portion of the same was cleared without payment of duty for a specified use and for that reason the proportionate MODVAT Credit in respect of the inputs used in that portion of the finished goods which was cleared free of duty should be reversed. The Tribunal in the Order has taken the view that at the time when the MODVAT Credit was taken the same was correctly taken in terms of Rule 57A read with Rule 57G and the Credit taken was correctly utilised in terms of Rule 57F for payment of duty towards the finished excisable goods and, therefore, the question of reversal of the MODVAT Credit would not arise as there is no specific provision in the MODVAT Rules providing for reversal of MODVAT Credit in such a contingency. Under Rule 57F(2) the MODVAT Credit taken can be utilised for payment of duty on the finished notified goods under Rule 57A and this was what was done by the assessee and therefore, legally no fault can be found in respect of the use of the MODVAT Credit also. It is pertinent to note that there is no one-to-one correlation provided in the MODVAT Rules for the use of particular inputs for a particular batch of finished product and this appears to be a deliberate omission to facilitate the use of the MODVAT Credit avoiding disputes in respect of the quantum of inputs contained in any given batch of finished product.
2. The Revenue has urged the following question of law under Section 35G(1) of the Central Excises & Salt Act, 1944 for reference to the Hon'ble High Court:
Whether the Tribunal is right in holding that the Respondent is eligible to take Modvat Credit on that part of inputs used in the manufacture of finished goods cleared at NIL rate of duty under the provisions of Rule 57C
3. The Revenue has pressed the ruling of the East Regional Bench in the case of East India Pharmaceutical Works Ltd. v. C.C.E. . The Ld. SDR for the Deptt. referred us to para 8 of this ruling, which is for convenience of reference reproduced below:
8. We feel the clue to the present problem lies in Rule 57F(3) relating to the utilization of the Credit followed. This provides that Credit of specified duty allowed in respect of any inputs may be utilised towards payment of duty on any of the final products in or in relation to the manufacture of which SUCH (emphasis added) inputs are intended to be used in accordance with the declaration filed under Sub-rule (1) of Rule 57G. The word-such-used before the expression "inputs" in Rule 57F(3) is very significant. As the utilisation of credit is for payment of duty on the final products in the manufacture of which such inputs are to be used, the scope of the expression-"such inputs"-will be traced to the inputs which have already been referred to in the said provision. The said reference is to inputs, duty paid on which, is to be utilised for payment of duty on the final products made therefrom. Thus, this points to a link between the duty paid inputs and the final products made therefrom. In other words, the credit of duty from a certain quantity or lot of inputs can be utilised only for payment of duty for the final products manufactured from that lot and not for those manufactured from different lots, say previous lots. This may appear to bring the Modvat scheme on a part with the set-off procedure with its strict correlation between input and final product which had been dispensed with by executive instructions. But the executive instructions and procedural relaxations cannot go beyond the statutory stipulations. The latter are represented by Rules 57F(3) and 57C. There is no doubt that, going by Rule 57C, no credit of duty will be permissible if the inputs are used in the manufacture of wholly exempted goods. Thus, if a manufacturer has got unutilised inputs and also unutilised credits, the latter has to be disallowed if the final products become exempt. There is no escape from that, in terms of Rule 57C. Simply because another manufacturer has, with alacrity, utilised the credit before utilising the inputs themselves he cannot be given a more favoured treatment, unless the law allows him the same. It is here that the strict construction of the relevant provisions comes into play. In view of our discussion of Rule 57F(3), we feel the strict apportionment of credit of duty paid on inputs for utilisation for payment of duty on the final product arising from them is inherent therein. The liberal treatment of allowing the credit to be not only taken immediately on receipt of the inputs, but also to be utilised without looking into whether the inputs have been taken up for manufacture and whether the final products are made from that lot of the inputs is an extra-legal working arrangement based on executive instructions without statutory backing. The restriction imposed by Rule 57C will become otiose if a liberal construction is given to Rule 57F(3). The latter has got to be read down in the manner indicated by us to make the functioning of Rule 57C meaningful. The allowing of credit on receipt of the inputs is in anticipation of their use in the manufacture of the dutiable final products. The latter losing their dutiable status will have its effect on the credit of duty taken and utilised already. If such credit had been taken and also utilised already, then such utilisation is irregular and has got to be recovered. It has been argued by the Appellants that the taking of credit and the utilisation of credit were in order as the finished products at that time were dutiable and the matter cannot be reopened and the credit disallowed on the ground that the finished products have become exempt from duty. For the reasons discussed above, we do not agree with this contention. The credit becomes inadmissible in such a case, in view of the specific provisions of Rule 57C. The availment of credit in anticipation of the use of the inputs in the manufacture of dutiable products becomes irregular once the finished products become exempt from duty and it is a case of mis-utilisation of credit which has got to be regularised by issue of demand. The liberal treatment in regard to the utilisation of credit for payment of duty on the final products without insisting on strict correlation of input and output will not offend Rule 57C as long as the final products remain dutiable but, as stated above, if they become wholly exempt it will go against the said Rule if the credit is permitted to be utilised. Merely because the credit has been already utilised the operation of Rule 57C cannot be thwarted.
4. We observe that provisions similar to provisions regarding Modvat Credit under Rule 57A to 571 exist in the Central Excise Rules under Rule 56A. The basic difference is that under Rule 56A the proforma credit can be taken and utilised when the inputs and the finished product fall under the same Tariff heading while in the case of MODVAT provisions the inputs and the final product need not fall under the same Tariff Heading but the same are required to be specified in the Notfn. issued under Rule 57A. The procedure regarding taking of the Modvat Credit and utilisation of the same is also similar. In a similar case arising in the context of Rule 56A in the case of Collector of Central Excise, Bangalore v. Wipro Information Technology the question raised and the facts before the Tribunal were-
Whether the Asstt. Collector was right in demanding the amount of Rs. 72,825/- of which proforma credit was taken by the respondents under Rule 56A, and subsequently utilised by them against payment of duty on the computers manufactured by them. The situation was created by the fact that on 17.3.1985 Government issued Notfn. No. 67/85 exempting computers from duty. Consequently, the benefit of Rule 56A became inapplicable to component parts to be used in the manufacture of computers.
and the Tribunal has held as under:
With reference to point (5), it has been clarified that proforma credit of the duty paid on inputs accrues to the manufacturer immediately on receipt of the inputs in his factory. This necessarily means that the credit is available for utilisation (which naturally should be consistent with the provisions of the Rule) immediately on receipt of the inputs. The clarification further states that the requirement of strict input/output correlation has been dispensed with. This would mean that in utilising the credit the question of correlation, in the manner relevant where there is a provision for "set-off," would not arise. According to our understanding, it is standard practice in such cases that the amount of duty available through proforma credit could be fully utilised against the duty payable on the finished goods, provided that as a genues, they are the goods in the manufacture of which the inputs are utilised. This we think is how the Central Excise Deptt. in general would have understood the clarifications of the Board, and also how the provisions of Rule 56A were being interpreted and applied. If the view put forward by Shri Bhatia is correct, utilisation of the credit would have to be rationed out, by providing that against the clearance of each computer only that much of the credit which could be attributed to the duty content of the inputs utilised in the manufacture of that computer, could be utilised. This would reduce the procedure to one of "set-off. As far as we are aware, Rule 56A has not been interpreted or applied in this manner. Certainly if the Central Excise Authorities felt that this kind of correlation or "rationing" of utilisation of credit was required, in terms of Rule 56A, they should have raised an objection much earlier to the manner in which the respondents were operating under Rule 56A, since the necessary information was available to them from the excise records and returns of the Respondents.
20. It is not necessary to elaborate the point further, because it is abundantly clear, as we stated at the outset, that both at the time of taking credit and at the time of utilising it, the Respondents were doing what both they and the Deptt. felt to be authorised under Rule 56A. The question then is whether there is anything in Rule 56A which authorised the Deptt. to take back the duty credit on the ground that the Respondents became disentitled to it because of the subsequent exemption from duty granted in respect of computers.
21. It appears to us that in such a situation, where the assessee was acting in good faith and where what he did was not at the time he did it illegal or unauthorised, any action which would impose a liability on him should be something clearly authorised by law. We have, therefore, to see whether there is anything in Rule 56A which authorised the Deptt. to demand back the duty amount in a case like this. It is obvious that, although Rule 56A covers more than seven printed pages, and includes a mass of detail, it does not specifically provide for a case of this nature.
However, since the East Regional Bench in the context of Modvat Credit has taken a divergent view in the case of East India Pharmaceutical Works Ltd., quoted supra, and the scope of Rule 57C requires to be interpreted in the context of the other provisions viz. Rule 57A and Rule 57F, we hold that a question of law does arise for reference as pleaded by the Revenue. We, therefore, refer the following question of law to the Hon'ble High Court of Kerala under Section 35G(1) of the Central Excises & Salt Act, 1944:
Whether the Tribunal is right in holding that the credit taken in respect of the inputs contained in that portion of the goods which were cleared without payment of duty does not require to be reversed, as the credit was correctly taken when the inputs were brought into the factory, and the same were correctly utilised in terms of Rule 57F and that the provisions of Rule 57C in the facts of this case would not apply.