Customs, Excise and Gold Tribunal - Bangalore
Glaxo Smithkline Consumer Healthcare ... vs Cce on 13 February, 2004
ORDER K.C. Mamgain, Member (T)
1. This is an appeal filed by M/s. GlaxoSmithKline Consumer Healthcare Limited against the Order-in-Original No. 87/2002-RP dated 31.12.2002 passed by the Commissioner of Central Excise, Visakhapatnam.
2. The appellants are engaged in the manufacture of Bulk Horlicks falling under Chapter Sub-heading No. 1901.92 of the Central Excise Tariff. They are availing Modvat credit on the inputs namely Hydrochloric Acid, caustic Soda Lye and Malted barely, Hydrochloric acid and caustic soda lye are common inputs for manufacture of horlicks which is dutiable, and ghee and husk are chargeable to NIL rate of duty. As per rule 57 C(1) of Central Excise Rules, 1944, modvat credit is not allowed on such quantity of inputs which is used in the manufacture of final products which are exempt from the whole of the duty of Excise or are chargeable to NIL rate of duty. according to Rule 57C(2) of Central Excise Rules, where a manufacturer avails of the credit of specified duty on any inputs and is engaged in the manufacture of any final product which is chargeable to duty as well as in the manufacture of any other final product which is exempt from the whole of the duty of excise or is chargeable to NIL rate of duty, the provisions of sub-rule (1) of Rule 57C shall be deemed to be satisfied only when the manufacturer follows the procedure prescribed in sub-rule (1) of Rule 57CC or the provisions of sub-rule (9) of Rule 57CC. The appellants have not maintained any separate accounts or records for receipt of the inputs under sub-rule (9) of Rule 57CC for the proportionate quantity of common inputs viz. hydrochloric acid, caustic soda lye and malted barely used in relation to manufacture of exempted products viz. ghee and husk. Therefore, they were required to pay 8% of the whole value of these goods as laid down under Rule 57CC (1). Shri Seshadri, Manager(Finance) of the Appellants Company, in his statement, stated that they have reversed modvat credit availed on hydrochloric acid, caustic soda lye from 01.09.1996 to 31.10.1996 and they have stopped availing credit on these two inputs from 01.11.1999. A show Cause Notice was issued to the appellants demanding duty of Rs. 91,88,731/- being 8% of the value of ghee cleared from 01.09.1996 to 31.10.1999 and an amount of Rs. 4,75,379 being 8% of the value of husk cleared from 01.09.1996 to 29.02.2000 as payable under Rule 57CC(1). interest on delayed payment was also demanded and proposal was also made for imposition of penalty under Section 11AC and Rule 173Q(1) (bb) of Central Excise Rules, 1944, The case was adjudicated by the Commissioner, visakhapatnam, who demanded an amount of Rs. 91,88,731/-. being 8% of the value of ghee removed during the period from 01.09.1996 to 31.10.1996 in terms of Rule 57CC(1) for their failure to maintain separate inventory and accounts of the receipt and use of inputs, as required under Rule 57CC(9). He dropped the demand of Rs. 4,75,379/- related to husk. He also imposed a penalty of Rs. 5,00,000/- under Rule 173Q(1)(bb) of Central Excise Rules for failure to comply with the prescribed procedure under Rule 57CC.
3. Shri G. Shiva Dass, the learned Advocate for the appellants stated that the appellants are engaged in the manufacture of Bulk Horlicks. The raw-materials used in the manufacture of Horlicks are barley grains and wheat flour. The milk is received by the appellants from collection centers. It is tested for fat content and non-fat solids. Then it is pasteurised and stored. It is thereafter standardised by using skimmed milk/skimmed milk powder. Since horlicks should contain a specified percentage of fat the excess fat in the form of cream in the milk is removed/separated and the milk containing the required fat alone is sent to the evaporators for further processing to manufacture the horlicks. The cream separated from the milk is pumped into the ghee boiler and is heated with the steam pressure. After due process of settling, ghee emerges and thereafter packed in tins. The malted barley grains are crushed to powder and barley powder and wheat flour are added into the mash tank. By heat treatment with the steam, the starch in malted barley and wheat flour is converted into smaller sugars in the form of a liquid. This liquid is filtered to separate the husk. The milk with required fat and the liquid separated from the husk are thereafter subjected to further detailed processes to manufacture bulk horlicks. The appellants cleared both ghee and husk from their factory by availing exemption from payment of duty. They used caustic soda lye and hydrochloric acid for demineralization of water in the demineralization plant. The demineralised water starch in the barley as well as for heating the cream in the ghee boiler, apart from being used in remaining process of manufacture of horlicks. The appellants claimed modvat credit of the duty paid on caustic soda lye and hydrochloric acid.
4. It was pleaded that the ghee emerges as a by-product in the manufacture of horlicks in the same way as the husk emerges in the process of manufacture. The only difference is that while ghee emerges during the process of preparation of milk for the manufacture of Horlicks, the husk emerges during the process of preparation of barley grains and wheat for the manufacture of Horlicks. The Commissioner has recognized the husk as a by-product but failed to recognize ghee also as a by-product. The ghee and husk are by-products as recognized by the Government of India itself, as is evident from Notification dated 28.09.2001, issued by Ministry of Law, Justice and Company Affairs in connection with the Cost Accounting Records (Milk Food) Amendment Rules, 2001. Once ghee is recognized as a by-product, then the provisions of Rule 57CC would not apply as held by the Tribunal in the following decisions.
(a) Aarti Drugs Limited Vs. CCE, Mumbai-III - 2001 (133) ELT 385
(b) Gas Authority of India Ltd. Vs. CCE, Mumbai & Vadodara - 2001 (136) ELT 1019
(c) CCE, Ahmedabad Vs. Nirma Limited. (Final Order No. C-II/792/WZB/2002 dated 25.2.2002)
5. There is no machinery provision for recovery provided under Central Excise Act and the Rules made thereunder to recover the amount under Rule 57CC(1). Hence, the demand raised cannot be recovered. He relied on the decision of Madras High Court in the case of Ethernet Everest Ltd. Vs. Union of India reported in 1997 (89) ELT 28 wherein the High Court has held that the amount under section 11D could not be recovered in the absence of separate recovery mechanism provided under the statute. He also stated that the Tribunal in the case of Pushpaman Forgings Vs. CCE, Mumbai reported in 2002 (149) ELT 490 has held that the amount to be debited at 8% of the price of the exempted final product is neither Modvat credit nor duty and in the absence of any machinery provisions in the Act or the Rules for its recovery, the said amount, if not debited is not recoverable. This decision of the Tribunal has been affirmed by the Hon'ble Supreme Court as reported in 2003 (153) ELT A89. This decision has been followed by the Tribunal in the following cases.
(a) Wheel & Axle Plant Vs. CCE, Bangalore-II - Final Order No. 999/2003 dated 04.08.2003.
(b) SAIL, Bokaro Steel Plant Vs. CCE, Jamshedpur - 2002(142) ELT 574
(c) Hi-Line Pens Pvt. Ltd. Vs. CCE Delhi - 2003 (58) RLT 483
6. He further pleaded that in any case, they have reversed the total Modvat credit taken on the caustic soda lye and hydrochloric acid for the entire period in question and the said reversal was done much before the issue of the Show Cause Notice. Once the credit taken on the inputs has been reversed, then it would tantamount to not taking the credit at all and therefore, the provisions of Rule 57CC would not apply for that reason also. He relied on the following decisions.
(a) Chandrapur Magnet Wires Ltd. CCE - 1996 (81) ELT 3 (SC)
(b) Franco Italian Co. Ltd. Vs. CCE - 2000 (120) ELT 792 (L.B.)
(c) Icon Pharma & Surgical Pvt. Ltd. & Ors. Vs. CCE - 2000 (40) RLT 918 (L.B)
(d) Dharamsi Morarjee Chemical Co. Ltd. Vs. CCE - 2001 (138) ELT 164
7. The Board has also issued Circular dated 16.10.2001 in which it has been clarified that where an assessee does not pay 8% of the amount in terms of Rule 57CC, the input credit is to be reversed under Rule 571. The Circular has been taken note of in the following decisions :-
(a) Indian Iron & Steel Co. Ltd. Vs. CCE, Bolpur - 2002 (143) ELT 442
(b) Vam Organic Chemicals ltd. Vs. CCE, Noida - 2003 (56) RLT 402
(c) Thermax ltd. Vs. CCE, Pune-2003 (156) 1033
8. He also pleaded that the Board, by its subsequent Circular dated 19.08.2002 has clarified that the Circular dated 16.10.2001 would apply during the relevant period. He, therefore, pleaded that the impugned order is not sustainable and the appeal may be allowed.
9. Smt. Radha Arun, SDR, pleaded that whether ghee is a by-product or not is an arguable point. However, she conceded that when the credit taken on hydrochloric acid and caustic soda lye has been reversed and also when there is no machinery in the Act or in the Rules for recovery of 8% duty, she has no objection if the appeal is allowed.
10. We have carefully considered the submissions made by both sides. We find that the appellants had debited the Modvat credit taken on hydrochloric acid and caustic soda lye even before issue of the Show Cause Notice and they had not taken any credit on these inputs after 01.11.1997, as is evident from the Order-in-Original itself. We find that the Supreme Court in the case of Chandrapur Magnet Wires Limited Vs. Collector of Central Excise, Nagpur reported in 1996 (81) ELT 3(SC), has held as under:
"6. It is true that the assessee has not maintained separate accounts or segregated the inputs utilized for manufacture of dutiable goods and duty free goods, as should have been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration. There is no doubt that the assessee should have maintained separate accounts for duty free goods and the goods on which duty has to be paid. But our attention was drawn to a departmental circular letter on this problem in which it has been clarified by the Ministry of Finance as under:-
"3. The credit account under MODVAT rules may be maintained chapterwise, MODVAT credit is not available if the final products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products."
This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilized in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products.
7. In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilized in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilized in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods."
11. We find that entire credit on the disputed inputs namely hydrochloric acid and caustic soda lye was debited by the appellants much before the issue of show cause notice, therefore following the ratio of decision of Tribunal in case of Dharamsi Morarjee Chemical Co. Ltd Vs. CCE [2001 (138) ELT 164(T)], the question of demanding 8% duty on the ghee, as held by the Commissioner, does not arise. We therefore, set aside the order of the Commissioner and allow the appeal filed by the appellants.