Custom, Excise & Service Tax Tribunal
Mahindra & Mahindra Ltd vs Commissioner Of Central Excise, Nagpur on 16 July, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL No. E/87792/14-Mum (Arising out of Order-in-Original No. 17/CEX/2014/C dated 31.3.2014 passed by Commissioner of Central Excise, Nagpur) For approval and signature: Honble Mr. P.K. Jain, Member (Technical) and Honble Mr. S.S. Garg, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
====================================================== Mahindra & Mahindra Ltd. Appellant Vs. Commissioner of Central Excise, Nagpur Respondent Appearance:
Shri M.H. Patil, Advocate, and Shri Ravi L. Ramanan, Sr. General Manager-Excise, for appellant Shri Hitesh Shah, Commissioner (AR), for respondent CORAM:
Honble Mr. P.K. Jain, Member (Technical) Honble Mr. S.S. Garg, Member (Judicial) Date of Hearing: 9.7.2015 Date of Decision: 16.7.2015 ORDER NO Per: P.K. Jain Brief facts of the case are that the appellant is engaged in the manufacture of tractors and parts thereof. They were clearing such goods on payment of duty and also availing cenvat credit for the inputs used in the manufacture of such goods. Vide Notification No.23/2004-CE dated 9.7.2004, tractors falling under Chapter Heading 8701 became exempt from payment of central excise duty. Thus from 9.7.2004 onwards they were not required to pay central excise duty on the agricultural tractors so cleared. In terms of Rule 6(1) cenvat credit is not allowed on inputs which are used in the manufacture of exempted goods. Further, in terms of Rule 6(2) if a manufacturer is manufacturing dutiable as well as exempted goods, he is required to maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final product and the quantity of inputs meant for use in the manufacture of exempted goods and take credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. Rule 6(3) further provides that if the appellant is not maintaining separate account, he shall pay an amount equal to 8% of the total price, excluding sales tax and other taxes if any paid on such exempted goods.
2. The appellant was not in a position to immediately segregate the records of inputs which go into the production of exempted goods and which go into the dutiable goods. They therefore vide their letter dated 14.7.2004 informed the Revenue that they are not in a position to immediately segregate the inputs which will go into the production of the exempted goods and which will go into the production of dutiable goods and therefore they will be paying an amount of 8% on the price of the exempted tractors as per the provisions of Rule 6(3)(b) of the Cenvat Credit Rules. They also informed that they are taking steps so that they are in a position to segregate the inputs which go into the exempted goods and which go into the dutiable goods and as soon as their system is in place, they will switch over to other scheme viz. Rule 6(2). The appellant vide letter dated 31.8.2004 informed that w.e.f. 1.9.2004 they will not be availing cenvat credit on any input which is used in the manufacture of exempted tractors. Further, hydraulics which is an integral part of tractor and is otherwise chargeable to duty, they will be availing the credit of inputs used in the manufacture of hydraulic unit. Further in respect of such hydraulic unit which will be used in the exempted tractors, they will reverse the credit of duty on inputs used in such hydraulics. Other hydraulics would be cleared on payment of duty. They also informed vide the said letter that the department shall be informed about the stock of tractors as also the inputs lying in stores, work in progress and in finished goods as on 31.8.2004. Thereafter on 24.9.2004 they computed the total amount of cenvat credit availed by them on various inputs lying in stores, work in progress as also used in the finished goods which were available as on 31.8.2004 and reversed the credit (approximately Rs.4.98 croes) by partly paying from the credit available and partly paying by cash.
3. Revenue issued a show cause notice dated 6.10.2005 demanding an amount equal to 8/10% of the total price, (excluding sales tax and other taxes) of the exempted final product charged by the manufacturer for sale of such goods at the time of their clearance from their factory under Rule 6(3)(b) of the Cenvat Credit Rules, 2004. The amount was proposed to be recovered under Rule 12 of the erstwhile Cenvat Credit Rules, 2002 read with Section 38A of the Central Excise Act, 1944 and under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944. In addition, interest under Section 11AB and penalty under Rule 13 of the erstwhile Cenvat Credit Rules, 2002 read with Section 38A of the Central Excise Act, 1944 and Rule 15 of the Cenvat Credit Rules, 2004 was also proposed. The case was adjudicated by the Commissioner vide the impugned order wherein the Commissioner confirmed the demand of an amount of Rs.7,05,16,944/- under Rule 14 of the Cenvat Credit Rules, 2004, Rule 12 of erstwhile Cenvat Credit Rules, 2002 read with Section 11A of the Central Excise Act, 1944. Interest under Section 11AB was also confirmed. A penalty equal to the amount confirmed was also imposed under Rule 13 of the Cenvat Crediit Rules, 2002 read with Section 38A of the Central Excise Act, 1944 and Rule 15 of the Cenvat Credit Rules, 2004. Aggrieved by the said order, the appellant is before us.
4. Learned counsel for the appellant submitted that the department is demanding an amount equal to 8%/10% of the price of the exempted tractors cleared by them during the period 1.9.2004 to 24.9.2004. The learned counsel submitted that the delay in reversing the credit was due to the detailed accounting and thereafter computation of the credit involved on hundreds of inputs lying in stores, work in progress and used in the manufacture of final exempted tractors. It was submitted that w.e.f. 1.9.2004, they have not availed the credit on inputs used in the exempted final product. They also started maintaining separate accounts for inputs used in exempted and dutiable goods as per Rule 6(2). Hence there is no contravention of Rule 6 of the Cenvat Credit Rules.
4.1 The next submission of the learned counsel was that the provisions of Rule 9 of the Cenvat Credit Rules, 2002 and Rule 11 of the Cenvat Credit Rules, 2004 are not applicable before 1.3.2007. It was only w.e.f. 1.3.2007 that Rule 11 of Cenvat Credit Rules, 2004 was amended to insert sub-section (3) thereby a manufacturer was required to reverse the input credit on the inputs in stores, work in progress and the final product. It was further submitted that in their case Rule 6(3)(b) of the Cenvat Credit Rules is not applicable w.e.f. 1.9.2004 as they opted for maintaining separate account as per Rule 6(2) of the Cenvat Credit Rules and they had informed the department vide their letter dated 31.8.2004. It was further submitted that the appellant on their own paid cenvat credit of Rs.4,98,83,659/- on 24.9.2004. Under the circumstances, the appellant is squarely covered by Rule 6(2) of the Cenvat Credit rules. It was submitted that the demand is to be restricted on the stock of inputs as on 31.8.2004 in any case and cannot be on the final products cleared between 1.9.2004 to 24.9.2004. It was further submitted that Section 72 of the Finance Act, 2010 amended Rule 6 of the Cenvat Credit Rules, 2002 by inserting sub-rule (b) of Rule 6 permitting manufacturer to reverse the proportional credit if such inputs are used in relation to credit of exempted final products. It was further submitted that this amendment was made retrospectively for the period 1.3.2002 to 9.7.2004. Similar provisions was made under Section 73 of the Finance Act for the Cenvat Credit Rules, 2004 for the period 10.9.2004 to 31.3.2008. It was submitted that these provisions have been given retrospective effect. The fact that they have reversed the credit in 2004 itself, they have satisfied the condition of the said Rules and therefore no further demand is sustainable. It was also submitted that the Commissioner has confirmed the demand of Rs.7,05,16,944/- without deducting the amount of Rs.4,98,83,659/- paid by them. It was also submitted that the tractors became chargeable to nil duty w.e.f. 9.7.2004 and in view of various decisions of various courts, the credit of inputs taken before 9.7.2004 is not required to be reversed. In support of his contention, the learned counsel submitted the judgment of Premier Tyres Ltd. reported in 2001 (130) ELT 417 (Ker.) and Dai Ichi Karkaria reported in 1999 (112) ELT 353 (SC). The learned counsel also submitted that strictly speaking, no interest is chargeable as the amount to be reversed was required to be paid by them only by 5.10.2004. In fact, they have paid the amount on 24.9.2004. The learned counsel also submitted the recent decision of the Honble Supreme Court in the case of Sonalac Paints and Coatings Ltd. vs. CCE, Chandigarh reported in 2015-TIOL-77-SC-CX, wherein a similar situation had occurred in case of a unit availing SSI exemption. The unit was required to reverse the credit of inputs available with them, work in progress or contained in the final product as on 31.3.2000, they reversed the said amount only on 3.10.2000 i.e. on a later date and the Honble Supreme Court found the action in order. The learned counsel also submitted the following case laws in support of his contention that once proportional credit on common inputs used in manufacture dutiable as well as exempt product has been reversed there is no need to pay 10% or 8% of the value of exempt goods, in view of the retrospective amendment to Cenvat Rules, through Sections 69 to 73 of the Finance Act, 2010:-
(i) Shree Rama Multi Tech reported in 2011 (267) ELT 153 (Guj.);
(ii) Kudremukh Iron & Steel reported in 2011 (271) ELT 172 (Kar.);
(iii) Anil Products Ltd. reported in 2010 (260) ELT 54 (Guj.);
(iv) Murli Industries Ltd. reported in 2010-TIOL-1586-CESTAT;
(v) Ahlocon Parenterals reported in 2011 (265) ELT 72 (T),
(vi) Dabur Pharma Ltd. reported in 2010 (262) ELT 275 (T).
The learned counsel also submitted the following case laws in support of his contention that the provisions of Rule 11(3) of the Cenvat Credit Rules, 2004 (inserted by Notification No. 10/07-CE(NT) dated 1.3.2007) would apply prospectively and would not apply to credit validly earned/taken prior to 1.3.2007:-
(i) CCE vs. Gokaldas Intimate Wear reported in 2011 (270) ELT 351 (Kar.);
(ii) CCE vs. Saboo Alloys Pvt. Ltd. reported in 2008 (228) ELT 422 (T),
(iii) CCE vs. Saboo Alloys Pvt. Ltd. reported in 2010 (249) ELT 519 (HP).
The learned counsel also submitted the Larger Bench decision of this Tribunal in the case of CCE, Rajkot vs. Ashok Iron & Steel Fabricators reported in 2002 (140) ELT 277 (Tri.-LB), wherein the Tribunal has held that the credit availed and utilized during the period when final product dutiable credit not to be reversed when subsequently final product exempted from duty.
5. The learned Commissioner (AR) reiterated the points mentioned in the impugned order. He submitted that the appellant has not reversed the cenvat credit till 24.9.2004 and therefore it cannot be said that they have opted for maintaining separate records. He further emphasized that a perusal of the impugned order indicate that even after 1.9.2004, the appellant was taking the credit of inputs relating to hydraulic system. After assembling such hydraulic system which are chargeable to duty, some times they are clearing on payment of duty and in some cases when they are using such hydraulics for manufacture of exempted tractors, they are reversing the credit of inputs used in such hydraulics. Thus in view of this factual position, it cannot be said that even after 1.9.2004 they were not availing the credit of inputs used in the manufacture of tractors exempt from payment of duty. He further submitted that the Honble High Court of Bombay in the case of CCE, Thane-I vs. Nicholas Piramal (India) Ltd. reported in 2009 (244) ELT 321 (Bom.), has held that once the credit on inputs is taken, then the appellants are required to pay 8 or 10% amount. He further submitted various paragraphs of the said judgment.
5.1 The learned AR further submitted that the benefit of the scheme introduced in 2010 cannot be extended to the appellant at this stage as held by this Tribunal in the case of R.R. Paints Pvt. Ltd. vs. CCE, Mumbai reported in 2013 (288) ELT 289 (Tri.-Mumbai). It was submitted that the said order of the Tribunal has been upheld by the Honble Bombay High Court as reported in 2014 (33) STR 156 (Bom.). The learned Commissioner (AR) submitted that the very fact that they have not filed any declaration for the benefit of this scheme during 2010, they cannot claim the benefit of the scheme at this stage. The learned Commissioner (AR) further submitted that the Honble Supreme Court in the case of Amrit Paper vs. CCE, Ludhiana reported in 2006 (200) ELT 365 (SC), has held that the provisions of Rule 57C of the erstwhile Central Excise Rules, 1944 providing for, in mandatory and categorical terms, non availment of credit if final product exempted, would be rendered nugatory and redundant if exemption granted considering absence of any condition in Notification ibid and primacy not to be given to the Notification over statutory provisions contained in Rule 57C. It was submitted that in the said case, the Honble Supreme Court has held that since the assessee has availed of the credit at the time of clearance of goods, hence not entitled to exemption after reversal of credit after certain time.
6. We have considered the submissions made by both the sides. Rule 6 of the Cenvat Credit Rules as it existed at the relevant time is as under:-
(1) The CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances in sub rule (2).
(2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs Intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods.
(3) The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely:-
(a) if the exempted goods are-
i. goods falling within heading No. 22.04 of the First Schedule to the Tariff Act:
ii. Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity;
iii. Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer;
iv. tyres of a kind used on animal drawn vehicles or handcarts and their tubes, falling within Chapter 40 of the said First Schedule;
v. newsprint, in rolls or sheets, falling within heading No.48.01 of the said First Schedule;
vi. final products falling within Chapters 50 to 63 of the said First Schedule.
vii. goods supplied to defence personnel or for defence projects or to the Ministry of Defenc .
the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory; or
b) if the exempted goods are other than those prescribed in condition (a), the manufacturer shall pay an amount equal to the eight percent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.
Explanation -1 The amount mentioned in the conditions (a) and (b) shall be paid by the manufacturer by debiting the CENVAT credit or othenvise.
Explanation -11 if the manufacturer fails to pay the said amount, it shall be recovered along with interest in the same manner, as prescribed in Rule 12. for recovery of CENVAT credit wrongly taken. A reading of the above Rule would indicate that any manufacturer who is producing dutiable as well as exempted goods has to follow either procedure envisaged under Rule 6(2) or Rule 6(3)(b). In the present case, the tractors became exempt w.e.f. 9.7.2004. From that date onwards they followed the procedure as envisaged under Rule 6(3)(b). They followed the said procedure as it was practically not possible by them to immediately segregate their accounting system in respect of inputs going into the dutiable products and exempted products. After working out the details, they put a system in place and w.e.f. 1.9.2004 they switched over to the scheme as envisaged under Rule 6(2) above. We do not find anything anywhere in the Cenvat Credit Rules or any other provision in the law that before switching over to Rule 6(2) above, a manufacturer is required to reverse the credit of inputs available in its stores, work in progress and in the finished goods on that date and only after reversing the credit the manufacturer can switch over to Rule 6(2). In the absence of any such prohibition, we are unable to appreciate Revenues contention that the appellant is required to pay an amount under Rule 6(3)(b) till 24.9.2004 i.e. the date when they reversed the credit attributable to inputs in its stores, work in progress and on the finished goods as on 31.8.2004. We also note that from 1.9.2004 onwards the appellant has stopped taking credit as inputs meant to be used in exempt goods and were reversing credit on inputs used in hydraulic system if used in exempt tractors. Even in respect of the inputs on which they have taken the credit earlier, the same was reversed if the said input was in stores, work-in-progress or final product available with them. Thus, effectively no credit was taken on the inputs used in the goods cleared from 1.9.2004 without payment of duty. We find the only objection of the Revenue is about delay in reversal of the cenvat credit. We find that the learned counsel for the appellant has submitted a judgment of the Honble Supreme Court in the case of Sonalac Paints and Coatings Ltd. (supra) wherein almost similar situation had arisen. In that case, the unit was a SSI unit. As a SSI unit they were to clear goods without payment of duty beginning 1.4.2000. As per the requirements of the law, they were required to reverse the credit of duty on inputs in their stores, work in progress and the final product on 31.3.2000. M/s. Sonalac Paints and Coatings Ltd. in that case computed the same but reversed on 3.10.2000 and in these circumstances the Honble Supreme Court has upheld the order of the Commissioner, i.e. reversal of credit at a later date will not disentitle the assessee from availing the exemption.
6.1 The learned counsel for the appellant has submitted about the retrospective amendment introduced vide Finance Act, 2010 and the learned Commissioner (AR) has, on the other hand, submitted the judgment of the Honble Bombay High Court in the case of RR Paints Pvt. Ltd. (supra). In our view, in the present case, the appellant has not reversed the credit on inputs on proportional basis as envisaged in the amended Rule 6(3) and in our view, the discussion on the said Rule is irrelevant in the facts of the present case. In the present case, the appellant has switched over to Rule 6(2) w.e.f. 1.9.2004 and reversed actual credit on its stores, work in progress and finished products as on 31.8.2004 and thus submissions by both sides are irrelevant to the facts of the present case. Similarly, the appellant has submitted number of judgments on the proposition that once proportional credit on common inputs used in the manufacture of dutiable as well as exempted product has been reversed, there is no need to pay 10% or 8% of the value of the goods. Even this does not require any further elaboration or discussion at our end. The learned Commissioner (AR) has submitted that in respect of the inputs used in the manufacture of hydraulic units, the appellant is taking credit of duty paid on inputs and after the manufacture of the hydraulics which are used in the manufacture of exempted tractors, they are reversing the credit availed on such inputs and therefore it cannot be said that they are maintaining separate account. We note that in the present case the amount demanded is not on the hydraulics but on the exempted tractors under Rule 6(3)(b) and in view of this factual position, we do not find any strength in the submission of the learned Commissioner (AR). Moreover, hydraulics is being cleared on payment of duty as also being used in exempt tractors.
7. Both sides have quoted number of judgments. We have gone through those judgments and do not consider it necessary to discuss each of them. Suffice to state that present case is relating to switching over from Rule 6(3)(b) to Rule 6(2) of the Cenvat Credit Rules and not to the issues involved in those judgments.
8. In the result, the appeal filed by the appellant is allowed.
(Pronounced in Court on 16.7.2015) (S.S. Garg) Member (Judicial) (P.K. Jain) Member (Technical) tvu 1 16