Customs, Excise and Gold Tribunal - Bangalore
Crompton Greaves Limited vs Cce on 28 September, 2007
Equivalent citations: 2008(223)ELT459(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. The appellants filed an appeal against Order-in-Appeal No. 156/2006 dated 26.12.2006 passed by the Commissioner of Central Excise (Appeals) Bangalore. They filed stay petition against the said order to this Bench. Consequently, stay order No. 441/2007 dated 01.06.2007 was passed wherein it was ordered that the appellant should pre-deposit Rs. 1 lacs and the balance of duty and penalty payable would be waived. The appellants filed a miscellaneous application No. 261/2007 for modification of the stay order on the ground that they had already reversed the disputed amount of Rs. 5,96,304/- in the month of May 2006 immediately after issue of Order-in-Original No. 8/2006 dated 20.3.2006 issued by the Joint Commissioner of Central Excise, Bangalore-I Commissionerate. This fact was not brought on record in the appeal filed by the appellants before the Commissioner (Appeals). Even this fact was not placed on record in the appeal filed before CESTAT. The mistake is due to the fact that the person incharge of Central Excise had left the organization without handing out the relevant papers and therefore, there was no information with regard to the reversal of the said credit. In view of the above facts in the miscellaneous application, there is prayer to modify the stay order by granting waiver of pre-deposit of penalty and stay of recovery proceeding without requiring them to pre-deposit a further Rs. 1 lac. On a careful consideration of the issue, we take note of the fact that the appellant had reversed the disputed credit of Rs. 5,96,304/- in the month of May 2006 and hence we modify the earlier stay order and grant full waiver of pre-deposit of penalty and stay of recovery proceedings without requiring the appellants to pre-deposit a further Rs. 1 lac. On the request of both sides, we hear the appeal itself for decision.
2. Shri Raghuraman, learned Advocate appeared for the appellants and Shri K.S. Reddy, learned JDR for the Revenue.
3. We heard both sides. The appellants are the manufacturer of rural automotive exchanges and parts thereof. They cleared 900 Nos. of FRS120 with all the accessories to M/s Midas Communication, Chennai a 100% EOU, on payment of Central Excise duty of Rs. 5,96,304/- on 31.01.2004. The customer rejected the goods on account of certain defects and the goods were brought back to the factory of the appellant on 27.02.2004 and 12.03.2004. The appellants availed cenvat credit of Rs. 5,96,304/- on 25.03.2004. Later they, on the basis of fresh purchase order, cleared the goods free of duty under cover of CT3 certificates. Revenue proceeded against the appellants by issue of show cause notice dated 10.8.2005 for clearing the goods without payment of duty. Duty was demanded under Rule 16 of Central Excise Rules, 2002. The allegation was that the appellant had not furnished the details of the said clearances in the monthly return justifying invoking extended period of limitation. The adjudicating authority in his order No. 8/2006 dated 20.03.2006 confirmed the duty demand and imposed penalty of Rs. 1 lac under Rule 25 of the Central Excise Rules and Section 11AC of the Central Excise Act, 1944. The appellants approach the Commissioner (Appeals) who upheld the Order-in-Original. The appellants were highly aggrieved over the impugned order.
4. The learned Advocate submitted that the appellants are entitled to avail cenvat credit on return of defective goods and there is no requirement to reverse the credit when cleared to 100% EOU as per Rule 6(5) of Cenvat Credit Rules, 2002. Clearance to EOU is clearly exempt under Notification No. 22/2003-CE. It was urged that the decision of the CESTAT, Bangalore in the case of Toyota Kirloskar Motor Pvt. Ltd., v. CCE, Bangalore in final order Nos. 974 & 975/2007 is not applicable as that decision deals with removal on payment of duty vis-a-vis cenvat credit reversal. The instant case involves removal under Rule 6(5) of the Cenvat Credit Rules to a 100% EOU where removals are also exempted under Notification No. 22/2003. This aspect is not present in Toyota's case. Supply under Rule 16 need not be to the same party and therefore exemption can be availed in appropriate case.
5. The learned Advocate took us through the impugned order and submitted that the Commissioner has traveled beyond the scope of allegation in the show cause notice. He has erroneously concluded that the goods were not received but only documents were transferred. New allegation is made without giving notice to the appellant. This is violation of the principles of natural justice since the show cause notice and Order-in-Original specifically record that the rejected goods have been received back by the appellants. He referred to the material gate pass duly acknowledged by the appellant and also Annexure-I showing that the goods were received and dispatched subsequently. It was urged that under erstwhile Rule 173H and 173L of Central Excise Rules, 1944 refund was granted under Rule 173L even though the goods were cleared to EOU without payment of duty.
6. Rule 16 is successor to Rule 173H/L. Under the earlier rules if duty was paid at the time of removal and goods were received back for reprocessing they could be removed to any party. If the second removal was on payment of duty, the same would be refunded. Removals to 100% EOU without payment of duty would also entitle the refund under Rule 173L. To obviate the refund procedure Rule 16 provides for availment of cenvat credit. If Rule 16 is interpreted to make out payment compulsory, then dispatches to 100% EOU would suffer duty twice without having a refund mechanism. Alternatively, if cenvat credit is denied there being no refund mechanism, the assessee will be in a worse of position than earlier. Moreover, Rule 6(5) of Cenvat Credit Rules will be rendered otios. This interpretation should be avoided.
7. The learned authorized representative (DR) referred to the impugned order and urged the point that the appellants had not properly followed the procedure under Rule 16. He referred to the certain discrepancies between the dates of receipt of the returned goods and the dates of clearances of the returned goods second time by the appellant. He pointed out to certain inconsistencies observed by the Commissioner (Appeals). In any case, he said that Rule 16 has to be followed strictly and in the light of the decision of this Tribunal in Toyota Kirloskar case cited (supra), the appellant had to reverse the cenvat credit taken by them and should not have cleared the goods without payment of duty under CT3 certificates.
8. On a very careful consideration of the issue, we find that originally the goods were cleared on payment of duty to a 100% EOU by the appellant. In fact, if the appellants had obtained CT3 certificates, they could have cleared the goods even without payment of duty as the recipient is a 100% EOU. Goods cleared to 100% EOU are exempted from payment of Central Excise duty vide Notification No. 22/2003. Obviously, the appellants committed an error as they did not follow the proper procedure. However, when the goods were found defective and they were returned under Rule 16 of the Central Excise Rules, they took cenvat credit of the duty originally paid namely, i.e. an amount of Rs. 5,96,304/-. Therefore, there is nothing wrong in taking credit of the duty originally paid. When the defective goods were rectified and that process did not amount to manufacture in terms of Rule 16(2), the appellants were required to pay an amount equal to the credit taken. But when the clearance was effected second time to the same 100% EOU, the appellants were armed with CT3 certificate. Therefore, there was a genuine difficulty in following the provisions of Sub-rule (2) of Rule 16. In such circumstances, the appellants could have approached the Commissioner and obtain permission for removal of such goods without payment of duty as recipient happens to be 100% EOU and also the appellants were in possession of CT 3 certificate in respect of the clearance in the normal circumstances. We agree with the Revenue that the cenvat credit taken under Rule 16(1) should have been reversed but in the peculiar circumstances of this case it may not be correct to insist that the appellants should pay the credit taken for the precise reason that the removals were to a 100% EOU and the appellants were having CT3 certificates. That is why Sub-rule (3) of Rule 16 provides removal of the goods subject to such condition as may be specified by the Commissioner. For clarity, we reproduce Rule 16 of the Central Excise Rule.
Rule 16 Credit of duty on goods brought to the factory:
(1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilize this credit according to the said rules.
(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under Sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under Sub-rule (1) at the rate applicable on the date of removal and on the value determined under Sub-section (2) of Section 3 or Section 4 or Section 4A of the Act, as the case may be.
(3) If there is any difficulty in following the provisions of Sub-rule (1) and Sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner.
9. The very fact that Rule 16(3) has been provided indicates that under certain circumstances as in the present one, the amount of credit taken need not be reversed. Moreover, if the department insist that the appellant has to pay exactly the credit taken for the second clearances then it would amount to compelling the appellants to pay duty on clearances to EOUs. A mistake committed during the first clearances need not be repeated. In the present case, the fact remains that the appellants did not approach the Commissioner in terms of Rule 16(3). However, this lapse is condonable. In any case, we are not convinced that the appellants violated Rule 16 with an intention to evade Central Excise duty. An assessee who intends to evade Central Excise duty would not in the first instance have cleared the goods on payment of duty when that was not a requirement. Therefore, the demand is clearly time barred. The Commissioner's (Appeals) findings that goods were never returned is not sustainable. Therefore, invocation of longer period is not sustainable. There is no justification for any penalty. The appeal is allowed with consequential relief.
[Pronounced on 28.9.2007]