Customs, Excise and Gold Tribunal - Delhi
Vikram Ispat vs Commissioner Of Central Excise on 9 August, 2000
Equivalent citations: 2000(120)ELT800(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. In these appeals filed by M/s. Vikram Ispat (A Unit of M/s. Grasim Industries Ltd.) and M/s. Kundalia Industries, references have been made to the Larger Bench on the question of quantum of Modvat credit of the duty paid on inputs available to them under Rule 57A of the Central Excise Rules read with Notification No. 5/94-CE., dated 1-3-1994.
2. Briefly stated the facts are that M/s. Vikram Ispat manufacture H.P. sponge Iron and avail of Modvat credit of the duty paid on inputs under Rule 57A of the Central Excise Rules. One of the inputs is Iron Ore Pellets which is either imported, procured from domestic manufacturer or procured from 100% Export Oriented Undertakings (100% E.O.U.). Notification No. 2/95-C.E., dated 4-1-1995 provides the effective rate of duty of excise on goods manufactured in a 100% E.O.U. and cleared to the Domestic Tariff Area (D.T.A.). According to Notification the duty payable under Section 3 of the Central Excise Act will be 50% of each of the duties of Customs leviable under Section 12 of the Customs Act read with any other notification for the time being in force provided that the amount of duty payable shall not be less than the duty of excise leviable on the like goods manufactured by a manufacturer in DTA. In case of procuring of Pellets from 100% E.O.U., the quantum of Modvat credit is determined in terms of Notification No. 5/94.
2.2 According to the Department, duty paid under Notification No. 2/95 comprises of two elements-basic customs duty and Additional duty of Customs - and the entitlement for Modvat credit is required to be restricted to the component of additional duty of customs. On the other hand, the contention of the Appellants is that the 100% E.O.U.s pay duty of excise under Central Excise Act and Notification No. 2/95-C.E. only determines the quantum of such excise duty required to be paid; that the entitlement has to be seen in the light of Notification No. 5/94-C.E. which provides for availment of credit of duty of excise which has been paid by a 100% E.O.U. subject to the restriction that the credit shall not exceed the additional duty leviable on like goods; that, therefore, one has to ascertain the additional duty leviable and then to allow the Modvat credit to the extent to which it has been actually paid subject to the ceiling of additional duty leviable.
2.4 The Referring Bench has observed that two different Benches of the Appellate Tribunal have taken diametrically opposing views in the following cases :-
(i) Weston Electronics Ltd. v. C.C.E., New Delhi, Final Order No. A/766/94-NRB dated 24.8.94 (hereinafter referred to as First Weston case)
(ii) C.C.E., Meerut v. Weston Electronics Ltd., -1997 (95) E.L.T. 624 (T) (hereinafter referred to as Second Weston case) 2.5 Similarly M/s. Kundalia Industries received their inputs from a 100% E.O.U. which discharged the duty liability in accordance with the Notification No. 97/91-CE. The Northern Regional Bench has also referred the matter to the Larger Bench, noticing the contrary judgment of the Tribunal in Weston Electronics cases.
3.1 Shri C.S. Lodha, learned Advocate for M/s. Vikram Ispat submitted that Notification No. 18/94-Cus, dated 1-3-94 provides a concessional rate of duty @ 5% on Iron Ore Pellets falling under Heading 26.01 of the First Schedule to the Central Excise Tariff Act; that these pellets are also chargeable to additional customs duty of 10%, equivalent to the duty of excise for the time being leviable in India on like goods; that for clearance of goods to DTA by 100% E.O.Us., they are liable to pay duty of Excise under Section 3 of the Central Excise Act, and what is paid by 100% E.O.Us, is, therefore, duty of Central Excise; that vide Notification No. 2/95-C.E. dated 4-1-95, the duty chargeable on all excisable goods manufactured by 100% E.O.Us, is 50% of each of the duties of customs which would be leviable under Section 12 of the Customs Act; that thus the excise duty payable on iron ore pellets will be 2.5% plus 5% ad valorem (fifty percent of basic customs duty and Additional customs duty); that, however, proviso to Notification No. 2/95 mandates that duty shall not be less than the duty of excise leviable on the like goods manufactured outside the 100% E.O.U.; that since excise is leviable @ 10% ad valorem when like goods are produced in India, the effective rate of excise duty leviable on these goods when cleared from 100% E.O.U. would also be 10% ad valorem; that by this Proviso, the Central Government has put 100% E.O.U. at par with a domestic manufacturer in so far as payment of excise duty is concerned; that while the proviso ensures that a 100% E.O.U. shall not pay less than the duty payable by a manufacturer in DTA, it provides for levy of a higher rate of duty on the goods in cases where the rate of customs duty happens to be higher.
3.2 The learned Counsel, further, submitted that under the Modvat Scheme, a recepient manufacturer is entitled to the credit of duty paid by manufacturer of inputs; that when goods are received from 100% E.O.U., there is a restrictive clause in Notification No. 5/94-C.E. (N.T.) which provides as under :-
"Credit of specified duty in respect of any inputs produced or manufactured -
(a) ... (b) by a hundred percent export oriented undertaking ... and used in the manufacture of final products in any place in India, shall be restricted to the extent of duty which is equal to the additional duty leviable on the goods under section 3 of the Customs Tariff Act, 1975 [51 of 1975], [equivalent to the duties of excise specified under (i) and (ii) above] paid on such inputs;" The duties of excise specified under (i) and (ii) in the Notification are : (i) the duty of excise under the Central Excise Act, 1944. (ii) the additional duty of excise under section 3 of the Additional Duty of Excise (Textiles and Textile Article) Act, 1978.
4. The learned Counsel emphasised that under Section 3 of the Central Excise Act, the nature of levy is excise duty whereas the measure of duty is under Customs Act; that the Revenue wants to restrict the quantum of Modvat credit to the constituent of Additional Customs duty which is part of the excise duty paid by an 100% E.O.U. while removing the goods to DTA. He contended that while prescribing the effective rate of duty, it is open to the Legislature/Government to adopt any measure for quantification of the exemption; that such measures should not be confused with the nature of levy which remains the levy of excise. Reliance was placed by him on the decision in D.G. Cause v. State of Kerala, AIR 1980 S.C. 271; Union of India v. Bombay Tyres International. -1983 (14) E.L.T. 1896 and Ujagar Prints v. U.O.I. -1988 (38) E.L.T. 535. He, further, mentioned that Notification No. 2/95-C.E. prescribes as a measure duty of customs and additional duty of customs which is of no consequence in so far as grant of Modvat credit is concerned because what is paid by an E.O.U. is duty of excise and not any other duty; that the Commissioner confused the mechanism provided for determination of the measure with the nature of duty paid by 100% E.O.U. resulting in wrong interpretation of Rule 57A and Notification No. 5/94-C.E. (N.T.). The learned Counsel further submitted that Section 3 of the Customs Tariff Act applies only when there is an incidence of import; that this is evident from Section 3(1) of the Customs Tariff Act which mandates that the Countervailing duty will be equal to the excise duty for the time being leviable on a like article if produced or manufactured in India; that while determining such duty, as held in Thermax Private Ltd. v. C.C., -1992 (61) E.L.T. 352 (S.C.), "We have to forget that the goods are imported, imagine that the importer had manufactured the goods in India and determine the amount of excise duty that he would have been called upon to pay in that event." He also relied upon the decision in Hyderabad Industries v. U.O.I., - 1999 (108) E.L.T. 321 (S.C.).
5. Shri Lodha, learned Advocate, said that likewise, proviso to Notification No. 5/94 has to be interpreted; that it has to be ascertained as to what is the extent of additional duty of customs leviable and paid on like goods when imported into India and restrict the modvat credit to that extent; that in other words, it is to be imagined that like goods are being imported and ascertain the extent of additional duty of customs which will be required to be paid on such goods and restrict the credit to that extent; that proviso to Notification 5/94-C.E. (N.T.) uses the expressions 'leviable' and 'paid'; that this is so because what is leviable need not required to be paid. He relied upon the decision in the case of Modi Rubber Ltd. v. U.O.I., -1996 (84) E.L.T. 173 (S.C.) wherein it was held that "where Section 4(4)(d)(ii) lays down that Value' does not include the amount of duty of excise, if any, payable on such goods, an enquiry will have to be made as to the amount of effective duty of excise, which is actually payable on the goods and not merely leviable in accordance with the rates prescribed in the Schedule.... The entire amount which is otherwise leviable under the Central Excise Act will not be payable because of the exemption from duty granted in the notification." He contended that the use of the expression "paid" is, therefore, with a view to ensure that exemption notification, if any, is also taken into account. He finally submitted that since no additional duty of customs can be required to be paid by E.O.U., there is no question of any component of excise duty being regarded as "additional duty paid on inputs"; that there is no such legal concept as "demand import"; that when clearances are made under proviso to Notification No. 2/95, there is no reference even to the measure; that in such a case, how does one ascertain the component of additional duty of customs as the Department is contending; that in Second Weston case, the Tribunal has rightly held that "It is nowhere laid down that the additional duty should be paid or should have been paid. We have before us only the Central Excise duty so in that duty we have to find out as to what should be the quantum of presumed additional duty in the total quantity of central excise duty paid by a 100% E.O.U. Once it is known, we have to allow credit to the extent of additional duty leviable on the goods. The department has mixed up the two issues. They have contended that as no additional duty of customs equivalent to duty has been paid by the manufacturer the assessee will not be entitled to any Modvat credit. On careful reading of two notifications referred to above [177/86 and 97/91-both C.E.] and Section 3 of the Central Excise Act, 1944, we find that credit of additional duties of customs has been permitted only for the purpose of bringing in equity in the case where the inputs were imported on payment of additional duties of customs. In the instant case we do not see any connection between the actual payment of additional duty by a 100% E.O.U. because what is paid by an 100% E.O.U. is Central Excise duty.... We have to read the Notification for measuring the quantum of credit that can be taken out of the total central excise duty paid on such goods." The learned Counsel also mentioned that in First Weston case, additional duty was fully exempted which is not so in the present case as the goods in question are liable to additional duty at the time of its import.
7.1 Shri V. Sridharan, learned Advocate for M/s. Kundalia Industries, submitted, in addition to the submissions made by Shri C.S. Lodha, that Notification No. 5/94-C.E. (N.T.) is a self contained or integrated code in itself for determining the amount of Modvat credit available and Modvat credit has to be allowed in terms of the said Notification; that three steps to be adopted for determining the amount of Modvat credit available to a unit purchasing inputs from an E.O.U. in terms of Notification 5/94 or 177/86, would be as under:
(a) Take a notional import from abroad of the very goods made by a 100% E.O.U.; work out the additional duty of customs payable on such import.
(b) Take the total amount of excise duty actually paid by the 100% E.O.U. under Section 3(1) of the Central Excise Act read with any applicable exemption notification.
(c) If excise duty paid as per (b) above is more than the additional duty of customs payable as per (a) above, credit would be restricted to (a) above; If the excise duty as per (b) above is less than the amount as per (a) above, it will be restricted to (b) above.
7.2 He also mentioned that proviso to Notification does not require the department to ascertain the additional duty of customs portion of the total excise duty paid on the inputs by 100% E.O.U.; that the use of expression like 'additional duty of customs leviable' and reference to the word 'on Like goods' in the proviso are significant; that they necessarily imply that one has to work out the additional duty of customs leviable on 'like goods' and they do not and cannot refer to the very inputs in question; that the words "paid on such inputs" appearing at the end of proviso does not refer to the additional duty of customs component paid by the E.O.U. in the excise duty; that these words should occur immediately after the words "restricted to the extent of duty"; that accordingly the Department cannot dissect the additional duty of customs portion from and out of the excise duty paid by 100% E.O.U. 7.3 The learned Counsel referred to Notification No. 293/88-C.E., dated 9-12-88 which provided that excisable goods produced or manufactured by 100% E.O.U. would be liable to excise duty equal to 100% of the excise duty leviable thereon read with any Notification for the time being in force; that in such a situation Revenue's theory of dissecting the excise duty paid by 100% E.O.U. cannot apply. He also mentioned that there are instances where excise duty is payable whereas on import of like goods, no additional duty of customs may be payable because of an exemption notification issued under Section 25 (1) of the Customs Act read with Section 3(5) of the Customs Tarif Act; that in such a situation no Modvat credit would be available in respect of goods received from 100% E.O.U. since the additional duty of customs is nil; that nil Modvat credit is being extended not by dissecting the additional duty component built into the excise duty paid by the 100% E.O.U., but by looking at the additional duty leviable on physical import of like goods.
8. Opposing the submissions, Shri M.M. Dubey, learned D.R., along-with Shri R.D. Negi, learned SDR, submitted that as per proviso to Section 3(1) of the Central Excise Act, measure for charging duty is the customs duty and as such the nature and character of the duty is different: that the additional duty of custom is levied under Section 3 of the Customs Tariff Act which shall be equal to the excise duty for the time being leviable on a like article if manufactured in India; that as per Explanation to Section 3 of C.T.A., the expression "the excise duty leviable" means the excise duty for the time being in force which would be leviable on a like article; that leviable duty means the effective duty. He relied upon the decision in the case of Motiram Tolaram v. U.O.I., -1999 (112) E.L.T. 749 (S.C.) wherein it was held that on the correct interpretation of Section 3 of the Customs Tariff Act, the rate of duty would be only that which an Indian Manufacturer would pay under the Excise Act on a like article. The learned D.R. then mentioned that it is thus appearant that the expressions leviable' and 'payable' mean the same thing. Learned JDR explained that 100% E.O.Us are being promoted for increasing the export of the Indian goods; that these units are like Islands created in the country; that according to para 106 of the Import Export Policy, 1992-97 supplies from DTA to E.O.Us, is regarded as deemed exports and will be eligible for the refund of excise duty, CST and duty draw back, exemption from payment of central excise duty on capital goods, components and raw materials and discharge of export obligation, if any, on the supplier; that similarly supply from 100% E.O.U. to DTA should be regarded as deemed imports. He further submitted that when a 100% E.O.U. imports any material from abroad the payment of customs duty is deferred and when they are allowed to clear the goods to DTA, the deferred duty is collected from them and as such the duty paid by them is only customs duty. He emphasised that it is apparant from the use of words "Paid on such inputs" in proviso to Notification No. 5/94-C.E. (N.T.) that the Modvat credit will be available to a manufacturer in DTA on receipt of goods from 100% E.O.U. only to the extent of additional customs duty payable; that it refers only to additional duty of customs paid by 100% E.O.U. on imports; that while interpreting the proviso the spirit of the Notification has to be kept in consideration. The learned D.R. referred to form AR-1A under which the goods are cleared by 100% E.O.U. and pointed out that column 6 of AR-1A mentions 'description of goods and classification as per First Schedule of the Customs Tariff Act and separately classification as per Schedule to the Customs Tariff Act for the purpose of additional duty (customs); similarly column 9 has been divided for indicating separately rate and amount of duty for basic customs, auxilliary duty and any other customs duty and contended that this shows that different components of the duty paid by the 100% E.O.Us at the time of clearance of goods to DTA; that column 11 of AR-1A form also bifurcates customs duty equal to the additional customs duty into various components such as basic excise duty, special excise duty, additional excise duty, CESS and any other duty of excise. He also submitted that the words "paid in proviso to Notification No. 5/94" signifies the duty paid as additional customs duty. Referring to the arguments of the learned Advocate for the appellants regarding nature and measure of duty, the learned D.R. mentioned that measure of duty for the purpose of Modvat credit is very relevant, both for collection of duty and for the purpose of availment of Modvat credit; that Notification No. 2/95-C.E. provides for collection of 50% of each of the duties of Customs and as AR-1A form contains separate columns 9 & 11 for indicating components of duty paid and if the appellants have availed of the Modvat credit of the entire duty paid by 100% E.O.U. it means that they are availing of the Modvat credit of the basic customs duty which is not permissible under the Modvat credit Scheme. Modvat credit availment is to be restricted to the actual payment of additional customs duty paid on the inputs.
9. Refering to decision in Weston cases, the learned D.R. submitted that the facts in both Weston cases are similar; that the department's view was that since no countervailing duty was paid by 100% E.O.U. no credit should be available to the units in DTA; that in first Weston case, the Appellate Tribunal held that notification No. 97/91-C.E. was relevant for interpreting application of notification No. 177/86-C.E.; that similarly in the present matters Notification No. 2/95-C.E. is relevant for interpreting and application of notification No. 5/94; that secondly it is mandatory for the purpose of availing of Modvat credit that the duty is paid on inputs; if no duty is paid, the question of availing of any Modvat credit cannot arise under Rule 57A; that thirdly even the Bench, which referred the case of Vikram Ispat, did not agree with the decision in Second Weston case that "it is nowhere laid down that the additional duty should be paid or should have been paid." Bench while referring the matter observed that this view is a wrong statement as it has been specifically mentioned in Notification No. 5/94 that ... shall be restricted to the extent...paid on such inputs." Refering to referal order in the case of Kundalia Industries, learned D.R. mentioned that the Bench was inclined to agree with the findings of the Adjudicating authority who has followed the decision in First Weston case. Finally, he submitted that both the referal orders clearly say that duty should be paid before the Modvat credit can be availed of; that Notification No. 5/94 cannot be read along with Notification No. 2/95 and the spirit of the Modvat Scheme has to be taken into consideration while interpreting the Notification. In respect of Collector's findings in Vikram Ispat case that the gate passes issued under Rule 100E of Central Excise Rules have not been specified as duty paying documents in Rule 57G(2), the learned D.R. referred to the Board's Circular No. 286/2/97-CX, dated 13-1-97 wherein it was mentioned that with a view to resolve the difficulties the Board had prescribed the gate passes, issued under Rule 100E for the period 1-4-94 to 10-8-94 and invoices issued for the period 11-8-94 to 12-2-96 as a document for the purpose of allowing the credit to manufacturers in exercise of powers under Rule 57H(4); that the Tribunal, however, in the case of C.C.E., Chandigarh v. Raj Fibre Pvt. Ltd., 1999 (33) RLT 532, has held that credit is not available on the basis of invoices issued by 100% E.O.U. under Rule 100E as it was not a prescribed document at the relevant time. In respect of appeal No. E/1333/97-Bombay filed by M/s. Vikram Ispat, learned Advocate has also submitted the arguments regarding quantification of amount of Modvat credit. Learned D.R. submitted that this point needs to be remanded to the Commissioner for reconsideration.
10. Shri P.D. Lele, Advisor of Ferro Alloys Corporation Ltd. intervened in the matter with the permission of the Bench. Shri Lele adopted the arguments made by Shri C.S. Lodha, learned Advocate. Shri Lodha, in reply, submitted that the Notification No. 5/94 itself provides answer to the question regarding the quantum of credit available in respect of goods received from 100% E.O.U.; that one has to ascertain the extent of additional customs duty leviable on like goods, if imported under Section 3 of the Customs Tariff Act and to that extent Modvat credit will be available to a unit in DTA, on receipt of goods from 100% E.O.U. that this additional customs duty payable satisfy the phrase "paid on such inputs". He also mentioned that the clearances from 100% E.O.U. to DTA cannot be termed as deemed export as nowhere any such fiction has been provided in any law. The learned Advocate explained his submissions by giving various examples. Two such examples are as under :-
Example I A. Rate of Duty
(a) Exiseduty 10%
(b) Customs duty 5%
(c) Add. Customs duty 10% B. Excise Duty Payable by 100% E.O.U. for clearance
(a) Get exemption to the extent of 50% of Customs duty (2.5%) and 50% of Add. Customs duty (5%) and pay remainder = 7.625%
(b) But payment cannot be less than domestic excise duty = 10% Hence payment of excise duty = 10% C. Modvat Availment by Manufacturer = 10% Example II A. Rate of Duty -
(a) Excise duty 10% (b) Customs duty 50% (c) Add. Customs duty 10% B. Excise Duty Payable by 100% E.O.U. for clearance to DTA
(a) Get exemption to the extent of 50% of Customs (25%) and 50% of Additional Customs (5%) and pay remainder = 31.25% C. MODVAT Entitlement of Manufacturer Max. outer limit i.e. Add. Duty leviable = 10%
11. He finally submitted that such a case where different interpretations were given by the Appellate Tribunal itself and the matter has referred to the Larger Bench the question of imposing any penalty on the appellants does not arise.
12. We have considered the submissions of all the sides. The concept of 100% E.O.U. was brought with an idea to increase the export from the country. These units were provided facilities, among other things, of importing capital goods raw materials, components, etc. without payment of customs duty and also to obtain similar goods from domestic market without payment of central excise duty. These units have also been provided a facility to sell a specified quantity of their product in Domestic Tariff Area in India. In respect of excisable goods manufactured by them, Section 3(1) of the Central Excise Act provides that the duty of excise shall be an amount equal to the aggregate of the duties of customs on like goods produced or manufactured outside India, if imported into India. There is substance in the submissions of the learned Advocates for the appellants that the nature of the duty levied on the goods manufactured by 100% E.O.Us, is central excise duty whereas the measure of collection of duty is customs. The measure of collection of duty does not change the nature of duty. In support of their contention the learned Advocate has relied upon the decision in the case of D.G. Cause & Co. Pvt. Ltd. v. State of Kerala supra, wherein it was held that a tax has two elements: subject of a tax and the measure of a tax and decided cases establish a clear distinction between the subject matter of a tax and the standard by which the tax is measured. In this case a tax imposed by State Government on buildings on the basis of capital value of the Assets was held to be valid by the Supreme Court holding that for the purpose of levying tax under Entry No. 49, List II of the Seventh Schedule to the Constitution, the State Legislature may adopt annual or capital value of the building and this will not make it a tax falling within the scope of Entry 86 of List I of the Seventh Schedule. Similar views were held by the Supreme Court in the case of Himgir - Rampur Coal Co. Ltd. v. State of Orissa, AIR 1961 SC 459 wherein it was held that the method in which the fee is recovered is a matter of convenience and by itself it cannot fix upon the levy the character of the duty of excise. In this case a fee was levied by the State of Orissa on the basis of 5% of the value of the minerals at the pits mouth.-It was challenged that the CESS was in the nature of duty of excise. The Supreme Court did not agree with this contention holding that "it is difficult to appreciate how the method adopted by the Legislature in recovering the impost can alter its character.... In our opinion, the mere fact that the levy imposed by the impugned Act had adopted the method of determining the rate of levy by reference to the minerals produced by the mines would not by itself make the levy a duty of excise. Again the Supreme Court in the case of U.O.I. v. Bombay Tyre International, supra, held that Section 3 of the Central Excise Act creates the charge and defines the nature of the charge that it is a levy on excisable goods, produced or manufactured in India. "The levy of tax is defined by its nature, while the measure of the tax may be assessed by its own standard". The Supreme Court held that "When enacting a measure to serve as standard assessing the levy the Legislature need not contour it along lines which spell out the character of the levy itself." In this case the Supreme Court did not accept the contention that because levy of excise is a levy on goods manufactured, the value of excisable goods must be limited to the manufacturing cost plus the manufacturing profit. We are, thus, in agreement with the learned Advocates that the duty which is levied on the goods manufactured and cleared by 100% E.O.Us to the Domestic Tariff Area is a duty of Excise and not a duty of Customs on account of a measure being the Customs duty provided in proviso to Section 3(1) of the Central Excise Act.
13. With the intent to remove the cascading effect of the central excise duty on the finished products, the scheme of Modvat Credit of the duty paid on inputs was introduced in 1986. Rule 57A of the Central Excise Rules provides that a manufacturer may take the Modvat credit of the specified duty paid on the inputs which are used in or in relation to the manufacture of the final products which have been specified by a Notification. In exercise of power conferred by Rule 57A the Central Government issued Notification No. 5/94-C.E. (N.T.), dated 1-3-94. The relevant portion of which is extracted below :-
"NOTIFICATIONS UNDER RULE 57A In exercise of the powers conferred by rule 57A of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 177/86-Central Excise, dated the 1st March, 1986, the Central Government hereby specifies the final products described in column (3) of the Table hereto annexed and in respect of which, -
(i) the duty of excise under the Central Excise and Salt Act, 1944 (1 of 1944);
(ii) the additional duty of excise under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978); and (iii) the additional duty under section 3 of the Customs Tariff Act, 1975 (51 of 1975), equivalent to, (a) the duty of excise specified under (1) above; and (b) the duty of excise specified under (ii) above,
(hereinafter referred to as 'specified duty') paid on inputs, described in the corresponding entry in column (2) of the said Table, shall be allowed as credit when used in or in relation to the manufacture of the said final products and the credit of duty so allowed shall be utilised for payment of duty leviable on the said final products, or as the case may be, on such inputs, if such inputs have been permitted to be cleared under rule 57F of the said Rules :
Provided that, -
(i) credit of specified duty in respect of any inputs produced or manufactured -
(a) in a free trade zone and used in the manufacture of final products in any other place in India; or
(b) by a hundred percent export-oriented undertaking or by a unit in an Electronic Hardware Technology Park and used in the manufacture of final products in any place in India, shall be restricted to the extent of duty which is equal to the additional duty leviable on like goods under section 3 of the Customs Tariff Act, 1975 (51 of 1975), equivalent to the duties of excise specified under (i) and (ii) above paid on such inputs;"
14. A perusal of this notification reveals that a manufacturer is eligible to avail of the credit of the entire duty of excise paid under the Central Excise Act on inputs which are used in or in relation to the manufacture of the final products. However, the first proviso to the Notification provides that in case the goods are manufactured by a 100% E.O.U. and are used in the manufacture of the final products in any place in India, credit of the specified duty shall be restricted to the extent of duty which is equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, equivalent to the duties of Excise specified under (i) & (ii) above paid on such inputs. This proviso has been the subject matter of interpretation by this Tribunal in two cases pertaining to Weston Electronics Ltd. In first Weston case vide order No. A/766/94-NRB, dated 24-8-94, the Tribunal held that proviso restricts the Modvat credit of specified duty to the extent of duty which is equal to the additional duty leviable on like goods under section 3 of the Customs Tariff Act, paid on such inputs. The Tribunal took note of the repeated emphasis on the words "Paid on inputs" and held that since the payment of additional duty was exempted in respect of goods manufactured and cleared by 100% E.O.U. to DTA under Notification No. 127/84 no Modvat credit would be available. However, the Appellate Tribunal in second Weston case, reported in - 1997 (95) E.L.T. 624 held as under :-
"A careful reading of this notification (177/86-C.E.) shows that the duty collected is central excise duty and out of this central excise duty, only that portion will be eligible for credit which is equal to the additional duty leviable on like goods under section 3 of the C.T.A. 1975. Now the issue which needs clarification is whether the credit amount should be arrived at after aportioning the quantum of duty on different components namely, basic excise duty, auxilliary duty and additional duty. We observe that the notification is very clear; that we will have to find out the components of additional duty presuming that the goods were imported.... We have before us only the central excise duty so in that duty we have to find out as to what should be the quantum of presumed additional duty in the total quantum of central excise duty paid by a 100% E.O.U. Once it is known, we have to allow credit to the extent of additional duty leviable on the goods. The department has mixed up the two issues. They have contended that as no additional duty of customs equivalent to duty has been paid by the manufacturer, the Assessee will not be entitled to any Modvat credit. On careful reading of two notifications referred to above and Section 3 of the Central Excise Act, 1944, we find that credit of additional duty of customs has been permitted only for the purpose of bringing in equity in the case where the inputs were imported on payment of additional duty of customs. In the instant case we do not see any connection between actual payment of additional duty by a 100% E.O.U. because what is paid by a 100% E.O.U. is central excise duty. If any central excise duty has been paid by a 100% E.O.U. while selling the goods in Domestic Tariff Area, customer becomes entitled to take Modvat credit and the extent of Modvat credit is determined by notification No. 177/86. So we have to read notification for measuring the quantum of credit that can be taken out of total central excise duty paid on such goods."
15. The referal Bench in the case of Kundalia Industries was inclined to agree with the views taken in the First Weston case. The referal Bench in the case of Vikram Ispat has made a reference to the Larger Bench as two judgments of the Tribunal were in opposite directions. The Bench, however, was of the view that the observations in the second Weston case that "it is nowhere laid down that the additional duty should be paid or should have been paid" is a wrong statement.
16. Notification No. 2/95-C.E., dated 4-1-95 provides that the goods manufactured and cleared by a 100% E.O.U. to DTA will be exempted from so much of duty of excise as is in excess of the amount calculated at the rate of 50% of each of duty of customs leviable read with any other notification for the time being in force on the like goods produced or manufactured outside India, if imported into India provided that the amount of duty payable shall not be less than the duty of excise leviable on like goods produced or manufactured by the units in Domestic Tariff Area read with any relevant notification. It is, thus apparant that notification No. 2/95 provides a minimum limit of the rate of duty which has to be paid by the 100% E.O.U. while clearing the goods to DTA and this limit is provided by the duty of excise leviable on like good manufactured outside 100% E.O.U. However, if the aggregate of duty customs leviable on goods cleared by 100% E.O.U. is more than the duty of excise leviable on like goods, a 100% E.O.U. has to pay more duty. The Revenue wants to restrict the availment of Modvat credit to the components of additional duty of customs paid under Section 3 of the Customs Tariff Act by bringing the fiction that 100% E.O.U. is a place which is not in India and the sale therefrom within India is akin to import into India. We do not find any substance in this view of the Revenue. The clearance of the goods by 100% E.O.U. are not import in the terms in which it has been defined under Section 2 (23) of the Customs Act, according to which import, with its gramatical and cognet expression means bringing into India from a place outside India. This is also apparant from the fact that when the goods are cleared from 100% E.O.U. to any place in India, central excise duty under Section 3(1) of the Central Excise Act is levied and not the customs duty under the Customs Act. If it is to be regarded as import, then the duty has to be charged under Section 12 of the Customs Act, read with Section 3 of the Customs Tariff Act. The Revenue, it seems is confusing the measure of the tax with the nature of the tax. The nature of the duty levied on the goods from 100% E.O.U. is excise duty and nothing else, whereas for determining the quantum of duty the measure adopted is duty leviable under Customs Act as held by the Supreme Court in many cases referred to above. The method adopted by the law makers in recovering the tax cannot alter its character. Once it is held that the duty paid by the 100% E.O.U. in respect of goods cleared to any place in India is excise duty, the question of dissecting the said duty into different components of basic customs duty, auxilliary duty, additional duty of Customs or any other customs duty does not arise. The proforma of AR-1A on which the reliance was placed by the learned D.R., cannot change the legal position that the duty levied on 100% E.O.U. is a duty of excise and not customs duty.
17. The question then arises is how to determine the quantum of Modvat credit available to the manufacturer in respect of the goods procured from a 100% E.O.U. The only method, which, we feel, is available to the Revenue is as suggested by the learned Counsel, i.e. ascertain firstly the additional duty of customs leviable on like goods, if imported into India from outside India; ascertain the actual amount of duty paid by the 100% E.O.U. on the goods cleared to any part in India under Notification No. 2/95; after ascertaining these two elements the Modvat credit has to be allowed to the manufacturer on the basis of the first proviso to notification No. 5/94-C.E. As per first proviso to this notification credit shall be restricted to the extent of duty which is equal to the additional duty leviable on like goods. If the additional duty is less than the actual duty paid on the inputs cleared from 100% E.O.U., the manufacturer in India shall be eligible only for the credit equivalent to the additional customs duty. On the other hand if the duty actually paid by 100% E.O.U. on inputs cleared by them is less than the additional duty of customs payable on like goods the manufacturer shall be eligible only to the extent of actual duty paid by 100% E.O.U. The reading of first proviso to notification No. 5/94 does not indicate at all that the credit of specified duty shall be restricted to the components of additional customs duty actually paid by 100% E.O.U. as excise duty. Had this been the intention of the Government, the proviso would not have been termed in the present form. In that situation the proviso should have provided that the credit of specified duty shall be restricted to the extent of portion of excise duty which is equivalent to the additional duty of customs paid by the 100% E.O.U. The phrase "equivalent to the duties of excise specified under (i) & (ii) above paid on such inputs" refers to the payment of (a) duty of excise under the Central Excise Act and (b) additional duty of excise under the Additional Duties of Excise (Textiles and Textile Articles) Act. If the Additional Customs duty leviable on like goods includes any other excise duty, such as duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, the Modvat Credit will not be available in respect of such duty.
18. We, therefore, agree with the views expressed by the Tribunal in the Second Weston Electronics case. The matter may now be placed before the regular Bench for deciding the appeals.