Customs, Excise and Gold Tribunal - Tamil Nadu
Tube Investments Of India Ltd. vs Commissioner Of Central Excise on 5 November, 1997
Equivalent citations: 1998(59)ECC201
ORDER
V.P. Gulati, Vice-President
1. The issue in the appeal relates to demand of duty in respect of Tubes which were cleared in terms of Notification No. 202/88. The benefit of the Notification is contingent upon the Modvat credit or the Proforma Credit not having been taken in respect of inputs used for the manufacture of the Tubes. The appellants manufactured the tubes out of the inputs in respect of which they had taken the Modvat credit under Rule 57A of the Central Excise Rules. When they cleared the goods under exemption Notification No. 202/88, they reversed the Modvat credit taken in respect of the inputs which were attributable to those finished products i.e. Tubes on monthly basis.
2. The Ld. Lower appellate authority in this regard has held in para-4 of his order as under:--
4. I have given due consideration to the impugned order and the contentions raised in appeal. The decision on this appeal rests on the interpretation of Notification 202/88. This is a conditional exemption notification granting exemption to final products if the input credit has not been availed either under Rule 56-A or 57-A. In the Board's clarification dated 7.1.87 relied on both by the lower authority as well as appellants it is made clear that credit of duty paid on inputs used in exempted products is debited on the credit account before removal of such exempted final products. The logic/reason behind this clarification is apparent on the face of it. The availment of exemption is subject to fulfilling the condition precedent that credit is not availed and this should happen before removal of exempted final products. In any event as per notification the exemption is available to final products for clearance without payment of duty only if the credit is not availed under Rule 56-A or 57-A of Central Excise Rules 1944. This stipulation cannot be whittled away or side stepped by availing the exemption first and expunging the credit later. The condition stipulated should be satisfied for availing the exemption. When at the time of clearance of final products, the credit availed has not been expunged, the exemption ceases to be available to the products cleared. As such I see no reason to differ with the reasoning of lower authority in the impugned order. The appellants seek to justify their availing the exemption on the premises that credit taken has been expunged. As indicated supra expunging the credit availed prior to availment of exemption on final product is a condition precedent. Their expunging the credit later to removal of final products cannot cure the defect and it would be a case of wrong availment of the said exemption.
3. The Ld. Advocate for the appellants has pleaded that the appellants manufactured the tubes out of HR coils and in respect of which on receipt they took Modvat credit. He has pleaded that out of the tubes manufactured only 3% of the tubes were cleared under the exemption notification No. 202/88 and the remaining tubes were cleared on payment of duty. He has pleaded that at the time when they received the inputs they in no way knew as to which of the tubes manufactured would be cleared under the exemption notification No. 202/88 and that the tubes that were cleared on payment of duty and those under the exemption notification were identical in nature. He has pleaded that at the time of receipt of inputs, they took the Modvat credit for the entire quantity of the inputs namely HR coils. Depending upon the need for the tubes, the same were cleared under exemption Notification No. 202/88 and at the end of each month based on the quantum of the tubes that were cleared the appellants adopted the reversal of the Modvat credit attributable to the inputs contained in the tubes cleared under the exemption notification No. 202/88.
4. He has pleaded that at any time, there was sufficient balance in the RG-23A account remaining unutilised which would be more than the Modvat credit to be reversed for reason of clearance of the tubes under the exemption notification.
5. In this connection, he pleaded that the Hon'ble Supreme Court under similar circumstances in the case of Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur reported in 1996 (81) ELT 3 (SC) has allowed the benefit of notification subject to the reversal of the Modvat credit. He has pleaded that the tribunal also following the ratio of this decision in the case of Orissa Extrusions Ltd. v. CCE, Bhubaneswar reported in 1996 (83) ELT 308 (T) has allowed the benefit of Notification No. 180/88-CE dt 13.5.88. He has pleaded the exemption under that notification was contingent upon the Modvat credit not having been taken on inputs out of which the goods manufactured. In para-8 of this order, the tribunal has held as under:--
8. The question of reversal of credit and permissibility thereof came up for decision before the Supreme Court in Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur. (Since reported in 1996 (81) ELT 3 (SC)]. The relevant exemption Notification that was considered in the said case also contained a similar provision that the exemption from payment of the whole of duty was subject to the condition that no credit of duty paid on the specified goods used in their manufacture had been taken under Rule 57A of the Rules. In that case the appellants had themselves reversed the credit of the duty paid on inputs utilised for manufacture of duty free goods. This was objected to by the department stating that reversal of credit entries are not permitted by the Rules. They sought to deny the exemption itself. However, the Supreme Court took note of a Circular issued. The circular indicated that credit account under Modvat Rules may be maintained chapter-wise and credit is not available if the final products are exempt or are chargeable to nil rate of duty. Where a manufacturer produces dutiable final products and final products are covered by exemption notification and in respect of which it is not reasonable to segregate" the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of 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. Relying on the circular, the Supreme Court held that the assessee can make a debit entry in the credit account before removal of the exempted final product and if such debit entry is permissible, credit entry for the duty paid on the inputs utilised in the manufacture of final exempted product will stand deleted in the account of the assessee and in such a situation, it cannot be said that the assessee has taken credit for duty paid for the inputs utilised in the manufacture of final exempted product under Rule 57A. Hence, 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 the manufacture of these goods. Thus, it can be seen that there can be a reversal of the credit and consequently, the manufacturer will become eligible for exemption. The decision of the Supreme Court is relevant to the above extent. But. then it is clear, as we have indicated that the appellant cannot avail Modvat credit as well as exemption.
6. He has pleaded that in view of the above decision, the appellants' plea for exemption is allowable and the demand as made is not sustainable in law.
7. The Ld. JDR for the department has pleaded that admitted position is that the appellants had availed of the benefit of the notification before fulfilment of the conditions regarding non-availment of the Modvat credit on the inputs used for the manufacture of the Tubes. For this reason, he pleaded, the benefit could not be allowed. The ratio of the decision of the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd., he pleaded, is not applicable to the facts of the case.
8. We have considered the pleas made by both the sides. We observe that the benefit of the notification No. 202/88 would be available only in the event where the conditions regarding the non-availment of the Modvat credit on the inputs was satisfied. In the present case, when the appellants received the inputs, the same were intended for the manufacture of the tubes which ultimately went into two streams of clearance i.e. on payment of duty and under exemption notification No. 202/88. It is not disputed that at the time when the inputs were received it could not be known that as to which of the components of the inputs would go into the tubes to be cleared on payment of duty and which component of the inputs would go into the tubes which was to be cleared under exemption notification No. 202/88. It is only after the tubes had been manufactured depending upon the need for particular clearance that the tubes came to be cleared either on payment of duty or under the exemption notification 202/88. The appellants resorted to reversal of the Modvat credit attributable to the inputs contained in the tubes cleared under the exemption notification on a monthly basis. The question is whether by reason of this reversal, the appellants can be taken to have fulfilled the requirements of the notification 202/88.
9. The Ld. advocate for the appellants has relied on the benefit of the decision of the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd. cited supra. In that case, after taking note of the problem that was posed before the Bench as in para-4 which is reproduced below for convenience of reference:--
4. The problem in this case arose because, some of the goods manufactured by the appellants were exempted from duty by Notification No. 69/86-CE dated 10th February, 1986. This notification was amended by a further notification No. 106/88, dated 1st march, 1988 by which copper winding wires were exempted from payment of the whole of the duty subject to the condition that the final products were manufactured from copper wire bars of over 6 mm and also subject to the stipulation that--
(b) No credit of the duty paid on goods (a)(ii) above, used in their manufacture, has been taken under Rule 57A of the said Rules.
There is no dispute that the inputs which were utilised in the manufacture of the copper wires were duty paid and that the amount of duty paid on the inputs had been entered by the appellants to their credit in the ledger which has to be maintained under the Excise Rules. The credit amount can be utilised by the manufacturer towards payment of duty of excise leviable on the final products. Since the copper wires manufactured by the appellants had become duty free, there was no question of any adjustment of the credit amount against the duty payable on these copper wires. Moreover, Rule 57C specifically provides that credit of duty. Faced with this situation, the appellants reversed the credit entries of duty paid on inputs which were utilised for manufacture of the duty free copper wires.
10. The Hon'ble Supreme Court also held as set out in para 6 & 7 in the above case which is reproduced below:--
6. It is true that the assessee has not maintained separate accounts or segregated the inputs utilised 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 chapter-wise, 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 utilised 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 utilised 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 utilised 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. It is in this context that the tribunal in the decision cited supra allowed the benefit of the notification. The appellants' claim therefore will have to be considered in the light of these judgments cited supra. We, therefore, hold that the benefit of the notification would be allowable in the light of the judgments cited supra and the matter should therefore be decided by the Ld. Lower authority in the light of the above.
12. The appeal is therefore allowed in the above terms.