Customs, Excise and Gold Tribunal - Tamil Nadu
K.G. Denim Ltd. vs Commissioner Of Central Excise on 8 October, 2007
Equivalent citations: 2008(124)ECC145, 2008(150)ECR145(TRI.-CHENNAI), 2008(222)ELT464(TRI-CHENNAI), [2008]13STT124
ORDER P.G. Chacko, Member (J)
1. In adjudication of show-cause notice dated 29.04.2003, the original authority had confirmed against the appellants a demand of Rs. 36,06,472/- being the credit of Additional Excise Duty [paid on inputs under the Additional Duties of Excise (Textile and Textile Articles) Act, 1978] utilised for payment of Basic Excise Duty (BED) and Additional Excise Duty (AED) [paid under the Additional Duties of Excise (Goods of Special Importance) Act, 1957] on their final products during the period July-October, 2001, demanded interest thereon under Section 11AB(1) of the Central Excise Act and imposed a penalty on the party under Rule 13 of the CENVAT Credit Rule, 2001 read with Section 11AC of the Central Excise Act. In an appeal filed by the assessee, the Commissioner (Appeals) found that they had reversed an amount of Rs. 3,65,662/-before the issue of the show-cause notice. The appellate authority sustained the demand of the balance amount of Rs. 32,40,810/-. It also reduced the quantum of penalty to the same extent. The present appeal is against the appellate Commissioner's order.
2. After examining the records and hearing both sides, we note that the substantive issue arising for consideration is whether CENVAT credit of AED (T & TA) could be utilized for payment of other types of duties of excise viz. BED, AED (GSI) etc. According to the appellants, under Rule 3(3) of the CENVAT Credit Rules, 2001, a manufacturer could utilise CENVAT credit for any duty of excise on any final product without any restriction. On the other hand, the case of the Revenue is that the matter is governed by Rule 3(6) of the CENVAT Credit Rules, 2001 rather than Rule 3(3) and that CENVAT credit of AED (T & TA) could be utilised only towards payment of AED (T & TA). Similarly, CENVAT credit of AED (GSI) could be utilised only for payment of AED (GSI). Learned Counsel has reiterated the case of the appellants and has relied on the Tribunal's decision in Commissioner of Central Excise, Ludhiana v. Malwa Industries Ltd , wherein, with reference to Sub-rule (1B) of Rule 57AB of the Central Excise Rules, 1944, it was held that CENVAT credit of Basic Excise Duty or Special Excise Duty could be utilised for payment of AED (GSI). Referring to the non obstante clause occurring in Sub-rule (6) of Rule 3 of the CENVAT Credit Rules, 2001, learned Counsel has argued that it has to be considered to be clarificatory and to have been incorporated by the legislative authority by way of abundant caution and not by way of limiting the ambit and scope of the sub-rule. This argument is based on the observations made by the Hon'ble Supreme Court in its judgment in Dominion of India v. Shrinbai A. Irani . The apex court was interpreting the non obstante clause in Section 3 of Ordinance 19 of 1946 (promulgated under Section 72 of the Government of India Act, 1935). Learned Counsel has also quoted from the apex court's judgment in Aswini Kumar Ghosh v. Aurobinda Bose , wherein the non obstante clause in Section 2 of the Supreme Court Advocates (Practice in High Courts) Act, 1951 was examined and it was held that, where the non obstante clause could not read harmoniously with the enacting part of the legal provision, the latter must, where it was clear, be taken to control the former. The endeavour of learned Counsel was to establish that the non obstante clause in Sub-rule (6) of Rule 3 of the CENVAT Credit Rules, 2001 could very well be ignored so that the enacting part of the sub-rule could be given effect to. Learned SDR has opposed the above interpretation given to the non obstante clause in question. He has also pointed out contextually that there was a similar clause in Sub-rule 2 of Rule 57AB of the Central Excise Rules, 1944 and that the legislative intent is very clear. In this connection, reliance has also been placed on Notification No. 21/99-CE (NT) dated 28.02.1999 issued by the Central Government under Rule 57A of the Central Excise Rules, 1944. The said Notification specified certain duties viz. (i) Basic Excise Duty and Special Excise Duty leviable under the Central Excise Act; (ii) AED leviable under the Additional Duties of Excise (T & TA) Act, 1978; (iii) AED leviable under the Additional Duties of Excise (GSI) Act, 1957 and (iv) Additional duty of Customs leviable under Section 3 of the Customs Tariff Act, to be specified duties for purposes of MODVAT credit under Rule 57A ibid. The Notification also laid down certain restrictions for utilisation of the credit. It was provided that credit of duty paid on input under the Additional Duties of Excise (T & TA) Act could be utilised only for payment of AED (T & TA) and it was similarly provided that credit of AED (GSI) paid on input could be utilised only for payment of AED (GSI). The endeavour of learned SDR was to establish the legislative intent underlying equivalent provisions like Sub-rule (2) of Rule 57AB of the Central Excise Rules, 1944, Sub-rule (6) of Rule 3 of the CENVAT Credit Rules, 2001 and Sub-rule (7) of Rule 3 of the CENVAT Credit Rules, 2004. It has been argued that Sub-rules (1) and (6) of Rule 3 of the CENVAT Credit Rules, 2001 have got to be read together to gather the legislative intent. Learned SDR has urged that the restrictions placed by the legislative authority under Sub-rule (6) for a manufacturer of final product in the matter of availing the benefit of CENVAT credit allowed under Sub-rule (1) of Rule 3 of the CENVAT Credit Rules, 2001 have to be given full effect to, in which event the appellants will not be entitled to utilise credit of AED (T & TA) paid on inputs for payment of BED or AED (GSI) on final products.
3. Having considered the cited provisions of law, we are in full agreement with the contention of learned SDR that the respondent's right to utilise the credit of AED (T & TA) paid on inputs, for payment of duty of excise on their final products is governed by the provisions of Sub-rule 6 of Rule 3 of the CENVAT Credit Rules, 2001. Sub-rule (1) of Rule 3 provides that a manufacturer of final products shall be allowed to take CENVAT credit of certain specified duties of excise/customs paid on any inputs or capital goods received in his factory on or after the first day of July, 2001. These duties are: (i) BED leviable under the Central Excise Act; (ii) Special Excise Duty leviable under the said Act; (iii) AED leviable under the Additional Duties of Excise (T &TA) Act; (iv) AED leviable under the Additional Duties of Excise (GSI) Act; (v) National Calamity Contingent Duty (NCCD) leviable under Section 136 of the Finance Act, 2001 and (vi) Additional Duty of Customs (CVD) leviable under Section 3 of the Customs Tariff Act. Sub-rule (3) reads as follows:
The CENVAT credit may be utilised for payment of any duty of excise on any final products or for payment of duty on inputs or capital goods themselves if such inputs are removed as such or after being partially processed or such capital goods are removed as such.
Learned Counsel has laid stress on the word 'any' preceding 'duty of excise' in the above sub-rule and has argued that credit of AED (T & TA) could be utilised for payment of any other kind of duty of excise. Leaned SDR has contested this argument by referring to Sub-rule (6).
Sub-rule (6), shorn of irrelevant clauses, reads as under:
Notwithstanding anything contained in Sub-rule (1),
(a) ...
(b) CENVAT credit in respect of --
(i) the additional duty of excise under Section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978;
(ii) the additional duty of excise under Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;
(iii) the National Calamity Contingent duty under Section 136 of the Finance Act, 2001; and
(iv) the additional duty under Section 3 of the Customs tariff Act, 1975, equivalent to the duty of excise specified under Clauses (i), (ii) and (iii) above, shall be utilised only towards payment of duty of excise leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, or under the said Additional Duties of Excise (Goods of Special Importance) Act, or the National Calamity Contingent duty under the said Section 136 of the Finance Act, 2001 respectively, on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves if such inputs are removed as such or after being partially processed;
(c) ...
(d) ...
(emphasis added) It has been argued by learned Counsel to the effect that the non obstante clause in Sub-rule (6) had nothing to do with Sub-rule (3) and, therefore, the right of a manufacturer of final products to utilise CENVAT credit of any of the specified duties of excise paid on inputs, for payment of any duty of excise on any final products was not affected by anything contained in Sub-rule (6). He has also referred to the corresponding provisions of the CENVAT Credit Rules, 2004. Sub-rule (4) of Rule 3 of the CENVAT Credit Rules, 2004 corresponds to Sub-rule (3) of Rule 3 of the CENVAT Credit Rules, 2001. Sub-rule (7)(b) of the CENVAT Credit Rules, 2004 corresponds to Sub-rule (6)(b) of the CENVAT Credit Rules, 2001. A conspicuous difference between Rule 3(6)(b) of the 2001 Rules and Rule 3(7)(b) of the 2004 Rules, pointed out by learned Counsel, is that the non obstante clause of the latter reads: "Notwithstanding anything contained in Sub-rule (1) and Sub-rule (4)" whereas the non obstante clause of the former reads: "Notwithstanding anything contained in Sub-rule (1)". The case of learned Counsel is that, had there been mention of Sub-rule (3) [equivalent to Sub-rule (4) of the 2004 Rules] in the non obstante clause of Sub-rule (6) of Rule 3 of the 2001 Rules, it could have been reasonably contended by the Revenue that Sub-rule (6)(b) of the 2001 Rules had overriding effect vis-a-vis Sub-rule (3) of Rule 3 of the said Rules. According to learned Counsel, such overriding effect cannot be claimed by the Revenue under the 2001 Rules. Learned Counsel means to say that, while, under the 2004 Rules, a manufacturer of final products could utilise CENVAT credit of AED (T & TA) paid on inputs, only for the payment of the same kind of duty on his final products by virtue of the non obstante clause [containing mention of Sub-rule (4)] of Sub-rule (7) of Rule 3 of the said Rules, he could utilise similar credit for payment of any duty of excise on final products under Sub-rule (3) of Rule 3 of the 2001 Rules, unaffected by anything contained in Sub-rule (6) of the said Rule, there being no mention of Sub-rule (3) in the non obstante clause of Sub-rule (6). Though this argument might seem to be impressive superficially, it is found, on deeper analysis, to be inconsistent with the legislative purpose which is writ large on the scheme of the law embodied in the CENVAT Credit Rules.
4. It is settled law that a provision of law incorporating a non obstante clause containing mention of another provision has overriding effect. It was held to this effect, in the case of Jindal Poly Films Ltd. v. Commissioner of Central Excise, Meerut-II 2006 (198) E.L.T. 3 (S.C.), by the Hon'ble Supreme Court referring to Rule 57B(1) which read: "Notwithstanding anything contained in Rule 57A, a manufacturer of final products shall be allowed to take credit of the specified duty on the following goods...". It was held that the goods which had been specified under Rule 57B(1) had been given a special treatment different from the treatment given to the goods specified under Rule 57A as Sub-rule (1) of Rule 57B opened with a non obstante clause. In the case of Indica Laboratories Pvt. Ltd. v. Commissioner of Central Excise, Ahmedabad 2007 (213) E.L.T. 20 (Tri.-LB), a Larger Bench of this Tribunal took note of the non obstante clause in Sub-section (2) of Section 4A reading "Notwithstanding anything contained in Section 4" and held that the provisions of Section 4A were overriding in nature vis-a-vis those of Section 4.
The dispute in the present case revolves round the non obstante clause occurring in Sub-rule (6) of Rule 3 of the CENVAT Credit Rules, 2001, which reads: "Notwithstanding anything contained in Sub-rule (1). The enacting part of Sub-rule (6), relevant to the present case, is Clause (b), which says that CENVAT credit in respect of (i) AED (T &TA); (ii) AED (GSI); (iii) NCCD and (iv) CVD shall be utilised only towards payment of AED (T &TA), AED (GSI) and NCCD respectively. Thus Sub-rule (6)(b) provides for manner of utilisation of CENVAT credit of various duties of excise. On the other hand, Sub-rule (1) is the main provision which confers the right to take CENVAT credit of specified duties paid on inputs and capital goods, on the manufacturer of final products. A sub-rule which provides for the manner of utilisation of CENVAT credit cannot override one which has created the very right to take such credit. This is because, unless credit is taken, it cannot be utilised. In other words, the non obstante clause occurring in Sub-rule (6) cannot be construed as having given overriding effect to the provisions of the said sub-rule vis-a-vis Sub-rule (1). [Had Sub-rule (3) been mentioned instead of Sub-rule (1) in the non obstante clause of Sub-rule (6), it would have made sense]. It can only be ignored as superfluous. Therefore, we are of the view that Clause (b) of Sub-rule (6) of Rule 3 of the CENVAT Credit Rules, 2001 should be construed without reference to the non obstante clause occurring in the sub-rule.
Sub-rule (3) says that the CENVAT credit [allowed under Sub-rule (1)] may be utilised for payment of any duty of excise on any final products or for payment of duty on inputs or capital goods themselves if such inputs are removed as such or after being partially processed or such capital goods are removed as such. Sub-rule (6)(b), shorn of the non obstante clause, says that CENVAT credit in respect of (i) AED (T &TA); (ii) AED (GSI) and (iii) NCCD shall be utilised only towards payment of AED (T &TA), AED (GSI) and NCCD respectively. We find that both the sub-rules deal with utilisation of CENVAT credit and that, while Sub-rule (3) is in the nature of a general provision providing for utilisation of CENVAT credit for payment of any duty of excise, Sub-rule (6)restricts utilisation of credit to payment of the same kind of duty of excise, that is, credit of AED (T &TA) to be utilised only towards payment of AED (T & TA) on final product. The legislative scheme is that the benefit provided under Sub-rule (3) can be availed only to the extent permitted under the restrictive provision viz. Sub-rule (6). SDR was right when he argued that the two sub-rules should be read together.
5. In the result, the appellants could have utilised CENVAT credit of AED (T &TA) only towards payment of the same kind of duty of excise i.e., AED (T &TA) in terms of Rule 3(6)(b) of the CENVAT Credit Rules, 2001. In fact, they utilised CENVAT credit of AED (T &TA) paid on their inputs, for payment of BED and AED (GSI) on their final products. This was not permissible in law. The appellants, therefore, do not have a case on merits.
6. It was also pointed out by learned Counsel that the entire demand of duty was beyond the normal period of limitation. The demand is for the period July-October, 2001 and the show-cause notice was issued on 24.04.2003. Learned Counsel submitted that there was no contravention of any rules by the appellants with intention to evade duty and, therefore, the extended period of limitation could not be invoked in the case. It was submitted that the taking of credit of AED (T & TA) and utilisation thereof for payment of AED (GSI) were always known to the department and, therefore, the allegation of suppression was baseless. Learned Counsel further submitted that, in a letter dated 06.11.2001 to the jurisdictional Assistant Commissioner of Central Excise, the appellants had informed the department that they had been availing CENVAT credit and proposed to avail henceforth the deemed credit facility under Notification No. 7/2001-CE(NT) dated 01.03.2001 (as amended). At the time of switching over to the deemed credit scheme in November, 2001, copies of the relevant invoices were made available to the department and credit of AED (T & TA) on the existing stock was reversed. Thus, according to counsel, the appellants had placed the relevant documents before the department which, upon verification, would have disclosed the fact that the appellants had taken CENVAT credit of AED (T & TA) and utilised the same for payment of AED (GSI) and BED on their final products. In the circumstances, it could not be said that the appellants suppressed anything before the department with intent to utilise CENVAT credit of AED (T & TA) for payment of other kinds of duties of excise on final products. The proposal in the show-cause notice was based on the returns and other documents filed by the appellants and, therefore, it was not open to the department to allege suppression against them. In this connection, learned Counsel relied on the following decisions:
(i) Jayashree Textiles and Industries and Ors. v. Collector of Central Excise 1985 (22) E.L.T. 708 (Cal.);
(ii) Kirloskar Oil Engine Ltd. v. Collector of Central Excise and Customs 1993 (65) E.L.T. 371 (Tri.); and
(iii) Hindustan Lever Ltd. v. Commissioner of Central Excise, Mumbai 1999 (106) E.L.T. 501 (Tri.).
We have heard learned SDR also, who has reiterated the finding of suppression as recorded in the impugned order.
7. It is not in dispute that the appellants had been filing returns and allied documents during the material period. It is also not in dispute that, at the time of switching over to the deemed credit scheme in November, 2001, copies of the relevant invoices were supplied to the department and credit of AED (T & TA) on the existing stock was reversed. The appellants have also claimed that they had placed before the department the relevant documents, which, if verified, would have disclosed the fact that the appellants had taken CENVAT credit of AED (T & TA) and utilised the same for payment of AED (GSI) and BED on their final products. In the case of Kirloskar Oil Engine Ltd. (supra), the allegation of irregular availment of MODVAT credit, raised in the show-cause notice, was based on RT-12 returns, RG-23 accounts and gate passes. In a corrigendum to the show-cause notice, the department raised a further allegation of suppression of facts by the assessee. The Tribunal held that there was no suppression. In the case of Hindustan Lever Ltd. (supra), the department invoked the extended period of limitation for recovery of duty on certain quantity of excisable goods found to have been clandestinely removed. The Tribunal found that the demand was based on RT-12 returns filed by the assessee and on this basis held that the extended period of limitation was not invocable. The case law thus supports the contention of the appellants that they cannot be held to have suppressed any fact inasmuch as they had been filing periodical returns and connected documents and had also supplied documentary materials to the department at the stage of switching over to the deemed MODVAT credit scheme, which documents, if verified, would have disclosed that they had utilised AED (T & TA) for payment of AED (GSI) and BED on final products during the period of dispute. This case of the appellants has not been successfully rebutted. It is, therefore, held that, on the facts of this case, it was not open to the department to invoke the extended period of limitation under Section 11A(1) for recovery of duty from the appellants. The demand is time-barred.
8. In the result, the impugned order is set aside and this appeal is allowed.
(Operative portion of the order was pronounced in open court on 08.10.2007)