Customs, Excise and Gold Tribunal - Bangalore
Tafe Limited (Tractor Division) vs The Commissioner Of Central Excise on 23 November, 2006
Equivalent citations: 2006(109)ECC420, 2006ECR420(TRI.-BANGALORE), 2007(210)ELT571(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. We are taking up this appeal consequent to remand of the matter by the Hon'ble High Court of Karnataka in its CEA No. 26/2006 dated 29th August, 2006.
2. The issue relates to the availment of modvat credit in respect of the closing stock of inputs, consequent to issue of exemption notification. The Hon'ble High Court has made the following observations;
4. The Tribunal, unfortunately, has not chosen to discuss the facts with reference to case laws and the statute for the purpose of allowing the appeal in the case on hand. There are no acceptable findings with regard to facts in the light of the case laws in terms of the impugned order. In the circumstances, we are satisfied that a second look is necessary by the Tribunal in the light of non consideration of material on the statute and the case laws. Hence, we deem it proper to set aside the order without answering the questions of law for re-decision by the Tribunal.
5. Accordingly, the appeal is allowed. Impugned order is set aside. Parties are to appear before the Tribunal without waiting for any notice on 28-9-2006. Liberty is reserved to both parties to file such case laws or such additional material as may be necessary before the Tribunal. The Tribunal is directed to consider the existing material plus additional material and thereafter proceed to pass appropriate order in accordance with law without in any way being influenced by its earlier order or by this order. No opinion is expressed on the merits of the matter. The Tribunal is directed to complete the proceedings on or before 31-12-2006. Ordered accordingly. No costs.
3. The facts of the case and the submissions of the learned Advocate were furnished in the Final Order No. 1463/2005 dated 24.08.2005. They are reproduced below:
2. The facts of the case are as follows. With effect from 09-07-2004, Tractors were exempted from payment of duty. As on 08-07-2004, the appellant had a closing stock of finished goods, namely, tractors of 319 numbers, which were manufactured using the inputs on which credit of duty was availed. On the same day, the appellant also had a closing stock of inputs on which credit was availed. The credit involved in the said 319 tractors was Rs. 90,77,881/- and credit availed on inputs as such in stock was Rs. 1,19,06,475/-.
3. Revenue proceeded against the appellant on the ground that they have not reversed the credit availed on the inputs lying in stock, and relating to those used in the manufacturer of tractors lying in stock. The Commissioner, in the impugned order, ordered recovery of Rs. 2,09,84,356/- being the Cenvat credit involved. He demanded interest under Section 11AB of the Central Excise Act, 1944. Further, he imposed a penalty of Rs 20,00,000/- on the appellants under Rule 13 of the Cenvat Credit Rules, 2002. The appellants are aggrieved over the impugned order of the Commissioner. Hence, they have approached this Tribunal for relief.
4. Mr. Rajesh Chander Kumar, the learned Advocate appeared for the appellants and Mr. Ganesh Havanur, the learned SDR appeared for Revenue.
5. The learned Advocate adduced the following arguments.
(a) Once the credit is validly taken, then the benefit is available to the manufacturer without any limitation in time.
(b) The above principle was enunciated by the Apex Court in the case of Dai Ichi Karkaria Ltd.
(c) The High Court of Kerala has held that availment and utilisation of the credit are two aspects. Rule 57C, which is similar to Rule 6 of the Cenvat Credit Rules applies to situation only at the time of taking of the credit on the inputs when the final product is exempt.
(d) The adjudicating authority failed to appreciate that the decision of the Tribunal in the case of Ashok Iron & Steel Fabricators, was rendered by the Larger bench and, therefore, the same was required to be applied as against the decision of the Tribunal in the case of Albert David, which was rendered by a two member bench.
(e) The adjudicating authority failed to appreciate that only such decisions of the Supreme Court were binding, which declared law. For a declaration of law under Article 141 of the Constitution by the Supreme Court, a speaking order is necessary as held in the case of S. Shanmugavel Nadar v. State of Tamil Nadu.
(f) The adjudicating authority erred in applying the decisions of the Tribunal in the case of Albert David and Explicit Trading & Marketing (P) Ltd. The said decision was per incurium and the Tribunal had failed to apply the decision of the Supreme Court rendered in the case of Dai Ichi Karkaria.
(g) The adjudicating authority was not correct in relying upon the Circular dated 28 July 2004 issued by the Board. As a quasi-judicial authority, he is not bound by the instructions of the board.
(h) In view of the above, the penalty imposed is not at all justified.
7. The learned departmental representative urged the contentions in the Order-in-original.
4. In view of the Hon'ble Karnataka High Court's observations, we are giving our findings.
4(a). Consequent to the order dated 29th August 2006 of the Hon'ble High Court of Karnataka, hearing was accorded to both sides today. During the hearing, the learned Advocate, apart from reiterating his earlier contentions, stated that the Apex Court dismissed the Civil Appeal filed by M/s. Albert David Ltd. against the CEGAT order without a speaking or reasoned order. Therefore, the doctrine of merger would not apply as the Supreme Court, in the case of Kunhayammed v. State of Kerala , has held that if the petition to the Supreme Court is dismissed (or dismissed on merits), at the stage of special leave without a speaking or reasoned order, there is no res judicata no merger of the lower order and the petitioner retains the statutory right, if available of seeking relief in review jurisdiction of the High Court. In these circumstances, it cannot be said that the decision relied on by the Revenue in Albert David case is a declaration of law under Article 141 of the Constitution.
4(b) The learned JDR reiterated the impugned Order.
5. On a careful consideration of the submissions made by both the parties, we give our findings as below:
5.1. The appellants availed CENVAT credit on inputs. In the Scheme of CENVAT, the credit is normally used for payment of duty on final products. The point is if the final product is not liable to duty, there is no point in giving credit of duty paid on the inputs. Therefore, when the final product is exempted, no input credit can be taken. This Rule was introduced right from the inception of the Modvat scheme. At various times, there were so many changes with different numbering of the Rules. However, the fact remains that CENVAT credit shall not be allowed on such quantity of inputs, which is used in the manufacture of exempted goods. In such a scheme, if an assessee uses certain inputs in the manufacture of some product and then avails CENVAT credit, then it is illegal. However, there are situations when credit on input is taken at a time when the final product is dutiable. This is perfectly legal. But, at some point of time, the final product may be exempted by way of notification. On the date on which the exemption notification is issued, the assessee would have accumulated input credit. This credit can always be used for payment of duty on a dutiable final product. There is no one-to-one correlation. It is not necessary that the input credit should be used only to pay duty on the final product in which such inputs have been used. The question is whether the assessee is required to reverse the credit legally and validly taken when the final product is exempted. This question has been dealt with in many judicial decisions.
5.2 The appellant has relied on the decision of the Larger Bench in the case of CCE, Rajkot v. Ashok Iron & Steel Fabricators . The issue was referred to the Larger Bench in view of conflicting decisions of two High Courts viz. Allahabad High Court and Kerala High Court. The Kerala High Court rendered a decision following a decision of the Apex Court in CCE, Pune v. Dai Ichi Karkaria Ltd. . A 5-Members Bench considered the issue in the Ashok Iron case. In the said case, the respondent was manufacturing both Kerosene Wick Stove as well as parts of kerosene Wick Stove. The Kerosene Wick stove was wholly exempted by a Notification dated 01.03.1994. But, the parts which were also end products of the respondent were not granted exemption. Subsequently, the parts captively consumed were exempted under Notification No. 10/96-CE dated 23.07.1996. The respondent had obtained Central Excise licence since parts of the stove were not exempted prior to 23.07.1996. The respondent worked out the stock of inputs lying with them aggregating to 12,17,473/- as on 22/23.07.1996 and accordingly reversed an amount of Rs. 2,01,261/- vide RG 23A, Part-II Entry dated on 09.08.1996 and an amount of Rs. 10,16,2127- vide PLA Entry dated 09.08.1996. Later, they realized that they were not required to reverse the credit of the inputs already utilized by them before 23.07.1996 and they filed a refund claim for refund of Rs. 10,16,212/-before the competent authority. The claim was rejected by the Adjudicating Authority holding that availing of credit in anticipation of the use of the inputs in the manufacture of dutiable products become irregular once the finished products become exempt from duty. The finished products loosing their dutiable character would have its effect on the credit of duty taken and utilized already. If such credit had been taken and also utilized already, then such utilization was irregular and had to be recovered. The Commissioner (Appeals) took a different view holding that there is no provision in law to recover the credit of duty on inputs which has been availed and utilized at the material time in the clearance of the final product.
5.3. In Super Cassettes Industries Ltd. case, the Allahabad High Court held that Modvat credit under Rule 57A is available for utilizing the credit for payment of excise duty on the final products and there can be no finalized credit unless the inputs are used in accordance with Rule 57A and 57F and either Excise Duty on the final product is paid or the inputs are either disposed of for home consumption or export, etc. Till such events occur, the modvat credit is only provisional and cannot be said to be final and irrevocable. It was further held that inputs which have been used in the manufacture of final products, which have become exempt from excise duty, the modvat credit in respect of such inputs becomes inadmissible and will have to be reversed. But, the Kerala High Court in Premier Tyres Ltd. case held the view that if, at the time of taking the Modvat credit, the final products are not exempted, it is not necessary to reverse the entry in the light of a subsequent exemption notification relating to the end product. The Court relied on the Supreme Court's decision in Dai Ichi Karkaria Ltd. The Apex Court did not agree with the decision in the case of Super Cassettes Industries Ltd. which was placed before the Apex Court in the Dai Ichi case. The observations of the Apex Court have been quoted by the Tribunal in the Ashok Iron & Steel Fabricators case. Those observations of the Apex Court are reproduced below:
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.
The Larger Bench observed that in view of the Apex Court's decision in the Dai Ichi Karkaria Ltd. case, they are bound by the dictum laid down in that case. With those observations, they dismissed the appeal of the Revenue. The above decision of the Larger Bench was appealed against by the Revenue. The Apex Court dismissed the petition for Special Leave appealed to by the Revenue against the said decision of the Large Bench as reported in 2003 (156) ELT A212(SC).
5.4. The Adjudicating Authority relies on the decision of the Tribunal in the case of Albert David Ltd. v. CCE, Meerut . In this case, it has been held that appellants are required to reverse the credit when the final products which were chargeable to duty subsequently are exempted from duty. In the said decision, in para 5, the Tribunal has observed that the decision in Premier Ltd. and Ashok Iron & Steel case are not applicable, as those decisions were passed on the ground that there was no provision for reversal of credit. It has been further stated 'Now, there is a specific provision in Rule 57AD which clearly provides that "CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods.'" We are afraid that the above observations of the Tribunal are contrary to the Supreme Court dictum in Dai Ichi Karkaria case. We want to emphasize that the Supreme Court has stated that when the credit is validly taken, 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. Moreover, Rule 57AD does not say that the credit validly taken should be reversed when the final product is exempted. The proper interpretation of Rule 57AD is that when the final product is exempted, no credit can be taken at all. But, the present case is distinguishable. The credit has already been taken validly when the final product was dutiable. Such a situation is not covered by the Rule 57AD. We are bound by the dictum of the Apex Court in the Dai Ichi Karkaria case as held by the Larger Bench in the Ashok Iron case. The learned Advocate pointed out that the decision of the Supreme Court in the Dai Ichi Karkaria case is the law laid down by the Supreme Court under Article 141 of the Constitution.
5.5. The learned Advocate drew our attention to the decision of Kunhayammed v. State of Kerala (cited supra) wherein on the question of the Doctrine of merger and the character of a binding precedent under Article 141 of the Constitution of India, it has been held that if the petition to the Supreme Court is dismissed (or dismissed on merits), at the stage of special leave without a speaking or reasoned order, there is no res judicata, no merger of the lower order and the petitioner retains the statutory right, if available of seeking relief in review jurisdiction of the High Court. He wanted to emphasise the point that in the case of the Civil Appeal filed by Albert David Ltd. against the CEGAT order, the Apex Court dismissed the same in view of the fact that the dismissal is without a speaking or reasoned order. There is no merger and it cannot be said that the decision in Albert David case is a declaration of law under Article 141 of the Constitution. In the above circumstances, we hold that the demand for reversal of modvat credit legally taken is not correct and contrary to the dictum of the Supreme Court in the Dai Ichi Karkaria case. In the result, we allow the appeal.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)