Customs, Excise and Gold Tribunal - Bangalore
Kirloskar Electric Co. Ltd. vs Commissioner Of C. Ex., Bangalore on 1 January, 2002
Equivalent citations: 2002(141)ELT224(TRI-BANG)
ORDER
1. This appeal arises out of and is directed against the Order-in-Appeal No. 296/97, dated 24-7-97 passed by the Commissioner of Customs and Central Excise (Appeals), Bangalore.
2. Facts of the case in brief are that the appellants are manufacturers of electric goods including electric motors falling under Chapter heading 8501. They availed Modvat credit in terms of Rule 57A of Central Excise Rules, 1944 on the inputs used in the manufacture of electric motors. On 15-9-94, 3 Nos. electric of motors which had become unmarketable due to reasons of obsolescence was destroyed after duty intimating the Department and following the required procedure of destroying electric motors by hammering and dismantling. The Department issued a show cause notice demanding duty of excise on the motors destroyed on the ground that no prior permission for destruction was obtained and also demanding reversal of Modvat credit on the inputs used in the manufacture of the said motors. Duty was paid under protest. On adjudication, the Deputy Commissioner of Central Excise, Bangalore allowed refund of the duty paid under protest, but held that Modvat credit on the inputs used in the manufacture of said motors is inadmissible in terms of Rule 57C of Central Excise Rules. He rejected on the ground that the motors manufactured by the appellants have not suffered duty. According to him in the event of final product not having suffered duty, the appellants are not eligible to avail Modvat credit on inputs used in the manufacture of the same, in terms of Rule 57C of Central Excise Rules. While dismissing the appeal, the Commissioner (Appeals) held that in terms of Rule 57C of Central Excise Rules, the appellants are not eligible to avail Modvat credit on inputs used in the manufacture of goods which have not suffered the Central excise duty. Since they have become unsuccessful before the Commissioner (Appeals), they have come before us by way of this appeal.
3. Shri R. Nagaraja Sharma, Deputy Senior Manager, appearing for the appellants submitted that the motors were destroyed after duly intimating the Department and following the required procedure for destroying motors since they were unmarketable. He submitted that both the authorities below erred in holding that the case is covered under Rule 57C and therefore the Modvat credit on inputs become inadmissible. He said that remission of duty cannot be equated to exemption of duty. Remission of duty would connote pre-payment of duty and therefore the Modvat credit would become clearly admissible on applying the very principle. He referred to the decision of the Tribunal in the case of Inalsa Limited v. CCE, New Delhi reported in 1997 (90) E.L.T. 417 wherein it was held that remission of duty granted under Rule 49 of Central Excise Rules, 1944 not to be equated to general exemption from duty on goods being charged to nil rate of duty. In that case, inputs had been put to intended use of the manufacture of their final product but since the final product was destroyed by fire duty thereon has been remitted under Rule 49. The final product has not suffered duty only as a result of remission of duty given on fulfilling the condition therefore under Rule 49 which is not to be equated to a general exemption from duty on the goods being charged to nil rate of duty. It was observed therein that invoking Rule 57C is not sus-tainable. Accordingly, it was held that assessee entitled to Modvat credit on inputs used in the manufacture of final product destroyed by fire accident on which remission of duty has been granted by the Department.
4. Smt. Radha Arun, Id. Departmental Representative appearing for the Revenue conceded that motors were destroyed after following the proper procedure. But nevertheless, Modvat credit is not permissible since the final product has not suffered the duly. She said that Modvat scheme provides for credit to be taken of duty paid on inputs used in the manufacture of the final product, which is cleared on payment of duty. This is provided in the very structure of the scheme, which does not allow credits on inputs for goods cleared at nil rate of duty. She said that Rule 57D is only an exception to Rule 57C and the case on hand is not covered even under Rule 57D. She read the Rule 57D which is as under : -
"Credit of duty not to be denied or varied in certain circumstances -
(1) Credit of specified duty shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by-product arising during the manufacture of the final product, or that the inputs have become waste during the course of manufacture of the final product, whether or not such waste or refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty or is not specified as a final product under Rule 57A.
(2) Credit of specified duty shall also not be denied or varied in case any intermediate products have come into existence during the course of manufacture of final products or the inputs are used in the manufacture of capital goods as defined in Rule 57Q and such intermediate products or capital goods are not chargeable to duty of excise."
5. In support of her contention she also referred to the decision of the High Court, Chennai in the case of CCE, Madras v. Union Carbide Ltd., reported in 2001 (129) E.L.T. 40. Particularly she drew my attention to the observation made therein while answering the question in the reference application filed by the Revenue. The observation is as under : -
"The extent to which Modvat credit can be retained on inputs which are not ultimately cleared as part of the final product on which duty is paid is set out in Rule 57D which provides that the credit of specified duty shall not be denied or varied on the ground that part of the inputs contained in any waste, refuse or by-product arising during the manufacture of the final product or that the inputs have become waste during the course of manufacture of the final product....."
6. She submits that following the ratio of the aforesaid decision, credit on inputs contained in goods that are destroyed by the manufacturer is not permissible. It was also argued on behalf of the Revenue that the facts of the case of Inalsa cited by the appellants are different, as in that case the destruction came about by a fire accident, and can be treated as covered under Rule 57D. In the instant case, the goods were willfully destroyed by the manufacturer as unmarketable which is not a situation covered as inputs becoming waste, or waste or refuse occurring during the manufacturing process as specified under Rule 57D.
7. I have carefully considered the matter. The short point to be considered in this case is whether the appellants are eligible to utilize the credit availed on inputs contained in the destroyed 3 Nos. of motors. Admittedly, the motors have been destroyed after following the required procedure. It was the contention of the party from the beginning that products as such could not be cleared as they were unmarketable and after obtaining the permission from the Department, they had to destroy the motors as there was no other alternative. This factual position is not in dispute.
8. Rule 49 of the Central Excise Rules specifies that the proper officer may not demand duty due on any goods claimed by the manufacturer as unfit for consumption or for marketing subject to such conditions as may be imposed by the Commissioner by order in writing. In the instant case, the permission was granted for destruction of the goods by remitting the duty due on such goods. Reliance placed by the DR in the case of Union Carbide Ltd. is not applicable to the facts of this case. Reference answered by the High Court was in a different context with reference to Rule 57D. Similarly, deci sion in the case of Commissioner of Central Excise, Raipur v. Orissa Concrete and Allied Industries reported in 2001 (127) E.L.T. 178 referred to by the DR is also not on the point at issue. In that case, it was held that since the cubes after test became non-excisable, being non-marketable, proportionate credit availed on the cement used in making them revisable. Remission of duty or permission in terms of Rule 49 was not an issue. In that case, neither permis sion was granted nor the goods were destroyed on obtaining permission from the Department. On the other hand, the decision relied upon by the party in the case of Inalsa Ltd. (supra) is squarely applicable to the facts of this case.
9. The Tribunal in the case of Inalsa Ltd. held that party is entitled to Modvat credit on inputs used in the manufacture of final product destroyed by fire accident on which remission of duty had been granted by the Department. The finding portion therein is in Para 4 of the said Order which is as under: -
"4. The question is whether the conclusion of the lower authorities, that the final product was destroyed by fire, and therefore was not chargeable to any duty, and as such no credit on admissible in terms of Rule 57C Central Excise Rules, is correct. That Rule says that no credit shall be allowed if the final product is exempt from whole of the duty of excise 'leviable' thereon or is chargeable to 'nil' rate of duty. In this case the inputs had been put to the intended use of manufacture of their final product. But since the final product was destroyed by fire, duty thereon has been remitted under Rule 49 of Central Excise Rules, which lays down that the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specified in the Rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in the approved store room or other approved premises. In this case the remission of duty has evidently been granted. The point is whether such remission of duty on the fire destroyed finished goods will be covered by the (sic) Modvat Rule 57C. In this connection the appellants rely upon the Tribunal decision in the case of Reliance Industries v. Commissioner of Central Excise - 1995 (78) E.L.T. 595 (T). In that decision Modvat credit was sought to be denied on inputs used in manufacture of final goods exported under bond without payment of duty invoking Rule 57C. The Tribunal set aside the demand by following the decision of Calcutta Bench of the Tribunal in the case of Orissa Synthetics v. Commissioner of Central Excise, Order No. A/447/Cal/1994, dated 30-5-1994 and the Bombay Bench decision in Commissioner of Central Excise v. Indian Aluminium, Order Nos. 668-69/92-WRB, dated 29-4-1992. In the Calcutta Bench decision the Bench overruled the department's contention that Rule 57C is attracted in such case by relying upon the decision of Delhi High Court in Hindustan Aluminium Corporation Ltd. v. Superintendent, Central Excise, Mirzapur and Ors., reported in 1981 (8) E.L.T. 642 (Del). Wherein it was held by the High Court that the facility of removal for export under bond without payment of duty could not be equated with general exemption from payment of duty of excise. The Calcutta Bench also took note of a clarification issued by the Central Board of Excise and Customs in consultation with the Ministry of Law about the scope of proviso (1) to Sub-rule (2) of Rule 56A (analogous to Rule 57C). In that clarification it was stated that the proviso to Rule 56A(2) would not be attracted where the final product were exported under bond, since such removals could neither be construed to be exempted nor be regarded as goods charged to nil rate of duty. Similar view was taken by the Bombay Bench of the Tribunal to hold that Rule 57C is inapplicable in such situation. In the present case also the final product has not suffered duty only as a result of remission of duty given on fulfilling the conditions, therefore under Rule 49 which is not to be equated to a general exemption from duty on the goods being charged to nil rate of duty, in the light of the above precedents. Hence invoking Rule 57C, on the facts and in the circumstances of this case, is not sustainable. It is also to be noted that there is no dispute that the inputs have been put to the intended use in the manufacture of the declared final product. Even the department instructions in Bangalore Collectorate Trade Notice dated 19-9-1998 [1988 (37) E.L.T. 23] related only to raw materials on which Modvat credit has been availed, being destroyed in fire accident before they are used in the manufacture of final product and goes on to say that in such cases no Modvat credit is admissible. In the present case that stage is definitely past, the inputs having admittedly been used in the manufacture of final product and hence on a better footing. In the result, for the foregoing reasons, we hold that the appellants are entitled to Modvat credit on inputs used in the manufacture of final product destroyed by fire accident on which remission of duty had been granted by the department. The impugned order is set aside and appeal allowed."
10. In the instant case also remission of duty had been granted by the Department, I am not in agreement with the plea taken by the Department that goods were willfully destroyed. As can be seen from the records they had to destroy the goods since they were not marketable and destroyed only on obtaining permission. I am not convinced with the arguments advanced on behalf of the Revenue that Inalsa Ltd. referred to above is covered by Rule 57D. Nowhere it was said that the appellant is entitled to take credit in terms of Rule 57D in that case. It was held therein that since the inputs have been put to the intended use in the manufacture of the declared final product and the final product was destroyed by fire, party is entitled to take credit on inputs used therein. In that case, the goods were destroyed by fire whereas in the present case, the goods were destroyed with the permission since the goods were being unmarketable. One is an act of god (vis-mejur) another is act of impossibility due to circumstances. Both the situations are on same footing and deserves to receive same treatment. Under the general principles of contract if there was a contract to deliver particular goods (object) and if that object was destroyed due to natural causes or otherwise, promisee cannot compel the promisor to perform that contract or to enforce the contract to deliver the very object. Similarly, even if it is impossible to perform the contract, contract as such cannot be enforced. In my view principle laid down on the admissibility of the Modvat credit with reference to poods destroyed due to fire would be equally applicable to the facts of this case. Whether the goods were destroyed either by fire or otherwise that too with the prior permission such goods should be treated as cleared on payment of duty of excise thereon. Hence, it cannot be said that situation herein is covered either under Rule 57C or under Rule 57D. Since the goods were destroyed with the prior permission and remission of duty has been granted there was no reason to disallow Modvat credit on such inputs which were used in the manufacture of the final product. As it was held in the case of Inalsa, in the present case also the final product has not suffered duty only as a result of remission of duty given on fulfilling the conditions, therefore under Rule 49, which is not to be equated to a general exemption from duty on the goods being charged to nil rate of duty. Hence, invoking Rule 57C on the facts and in the circumstances of this case, is not sustainable. In the view I have taken, I hold that the appellants are entitled to Modvat credit on inputs used in the manufacture of the final product destroyed due to circumstances beyond their control on which remission of the duty had been granted by the Department. In the result, appeal is allowed.
11. Ordered accordingly.