Customs, Excise and Gold Tribunal - Mumbai
Mattel Toys (India) Ltd. vs Collector Of Central Excise on 13 September, 1990
Equivalent citations: 1991ECR346(TRI.-MUMBAI), 1992(58)ELT218(TRI-MUMBAI)
ORDER R. Jayaraman, Member (T)
1. This is an appeal directed against the order of the Addl. Collector of Central Excise, Nagpur bearing No. 46/89, dated 17-7-1989.
2. The brief facts of the case for purpose of disposal of the appeal can be stated as below :
The appellants herein are the manufacturers of toys. They had applied for availing modvat facility in respect of inputs used in the manufacture of toys and accordingly they were availing the modvat credit since 6-11-1987. However, in 1988 Budget, under Notification No. 64/88, dated 1-3-1988, toys, the final product were exempted. The appellants were served with a notice for declaring the stock of inputs lying as on 1-3-1988 and also the stock of finished product containing the inputs in respect of which modvat credit has been taken. It was alleged that under Rule 57C of the Central Excise Rules, modvat benefit cannot be availed of in respect of duty paid on inputs going into the manufacture of final product which are exempted. Hence, inputs received prior to 29-2-1988 on which modvat credit was taken but remained unutilised from 1-3-1988 was required to be reversed back. Accordingly, notice was issued for crediting back an amount of Rs. 3,89,346.28 availed wrongly. In the adjudication proceedings initiated by the Additional Collector, ¦the demand for the aforesaid amount was confirmed under Rule 57- I read with Rule 9(2) and proviso to Section 11A of the Central Excises & Salt Act. The appellants were also imposed with a penalty of Rs. One lakh under Rule 173Q of the Central Excise Rules. The present appeal is against the aforesaid order of the Additional Collector.
3. Dr. Jois, the learned Advocate appearing on behalf of the appellants, after narrating the facts of the case stated that the issue to be considered in this case is, whether the appellants are required to reverse the credit and pay the amount in cash in respect of the duty involved on the inputs lying in stock as on 1-3-1988 and also on the stock of final product containing such inputs lying on 1-3-1988 in view of the fact that the final product came to be exempted on 1-3-1988. He contended that the admitted position is that the modvat credit accrues instantaneously as soon as the inputs are received and also can be utilised immediately on such accrual. There is no one to one co-relationship of inputs and final products. Accordingly, the appellants had received the inputs and modvat credit was taken immediately in respect of duty paid on such inputs and also utilised in the clearance of final product, which were dutiable. No contention has been raised by the Department that at the time when modvat credit was taken and utilised, the final products were exempted, nor the inputs were not eligible for modvat credit. The appellants could not have anticipated that the final product is going to be exempted at a future date. There is no provision made in the modvat rules either for reversal of such credit or for demanding cash payment in respect of stock of inputs lying at a particular date when the final product is exempted. Unless a specific provision is made in the Rules or there is a proviso in the Notification denying exemption on the final product, where inputs used have availed modvat credit, no demand is sustainable under law. In this particular context, he cited the decision of the South Regional Bench of the Tribunal in the case of Collector of Central Excise, Bangalore v. Wipro Information Technology reported in 1988 (33) ELT 172 (Tri.). He took us through the judgment of the Tribunal, where identical provisions under Rule 56A were considered and the Tribunal held that so long as no such provision existed for reversal of credit in such contingencies, the Department has no authority to take back the credit. He also argued that the ratio of the decision is squarely applicable in this case mainly because of the fact that the wording of the relevant provisions of Rule 56A runs identical to wording of the relevant modvat rules invoked by the Addl. Collector. He, therefore, argued that applying the ratio of the decision to this case, the Department is not justified in reversing back the duty paid on inputs lying in stock as on 1-3-1988. Next he argued on the question of time-bar and imposition of penalty. He contended that the demand is beyond a period of six months. However, the Addl. Collr. has chosen to invoke the extended period and imposed a penalty only on the ground that the information regarding the stock of inputs as well as the final product lying as on 1-3-1988 was furnished late and the final information came to be furnished by the appellants only on 18-10-1988 and the delay was deliberate with a view to evading payment of duty and in that view has justified the extended period and also imposed a penalty under Rule 173Q. He argued that the information required could have been very well taken by the Department from RG-23A Register. Since they have to compile it, which runs into pages, some delay has been noticed. It is not although they have withheld the information. Even the cause for the delay has not been enquired into. The Addl. Collector on his own assumes that it is deliberate. Even after furnishing the information on 18-10-1988, the show cause notice came to be issued only on 22-12-1988 nearly after two months. Hence, the delay on the part of the appellants could not be attributed to any mala fides warranting invoking of extended period or for imposition of penalty.
4. Shri Mondal on the other hand contended that in this case it is not disputed that the appellants had a stock of inputs in respect of which modvat credit had been taken as also final product containing such inputs as on 1-3-1988. As per the provisions of Rule 9-A of the Central Excise Rules, the final product cleared would be charged to Nil rate of duty on or after 1-3-1988. Hence, final product manufactured out of such inputs in respect of which modvat credit has been taken are exempted goods squarely falling within the purview of Rule 57C, of the Central Excise Rules. In the circumstances, because of the clear provisions of Rule 57C, modvat credit in respect of such inputs lying in stock also the product containing such inputs as on 1-3-1988 are required to be reversed. If they have not done it, they are required to make the cash payment. He also contended that under Rule 57-I, if any inputs are not utilised in the manner prescribed under the modvat rules, the proper officer can serve a demand which can be honoured by the assessee within 10 days. In this case, inputs brought in under modvat scheme are admittedly going to be used in the final product, which came to be exempted from 1-3-1988. Hence, those inputs cannot be said to have been accounted for in the manufacture of dutiable goods, since admittedly, the final product stands exempted effective from 1-3-1988.
5. On the question of time-bar and imposition of penalty he pleaded that the Supdt. has already pointed out the ineligibility of the credit in respect of stock lying as on 1-3-1988. On receiving such communication, the appellants should have reversed the credit on his own. On the contrary, they took their own time to furnish the information in respect of such stock so that they could plead the question of time-bar and thus avoid the payment of duty, which they legitimately are required to pay.
6. After hearing both the sides, we find that the main issue to be decided is, whether the appellants are required to reverse back the credit taken and utilised in respect of inputs and final product containing such inputs, where modvat credit has been taken and utilised lying in stock as on 1-3-1988. The admitted facts are that they had a stock of such inputs as also the final product. The final product viz. toys were exempted from 1-3-1988 and hence inputs in respect of which modvat credit has been taken and utilised lying before 1-3-1988 would be utilised only after 1-3-1988 because of the stock position. The question is whether, modvat credit taken and utilised in respect of such stocks is to be reversed back and if there is no balance in RG-23A, this could be demanded by cash payment? It is also not disputed by the Department that there is no one to one co-relation between the inputs and final products and modvat credit accrues instantaneously on receipt of inputs and it can be utilised immediately for the clearance of the final product. Viewed in the context of this admitted position, it is clear that when the appellants brought the inputs and took credit in RG-23A and utilised the same in the clearance of the dutiable final products, they were perfectly working within the scheme of modvat. Credit was available in respect of the inputs and it was taken and utilised in the clearance of dutiable final product. But then, we are to take note of the contention of the learned SDR that Rule 57C specifically bars extension of credit on the inputs used in the final product, if the same is exempted or chargeable to 'nil' rate of duty. In this case, in so far as the stock of inputs lying on 1-3-1988 is concerned, credit of duty on these inputs has been already taken and utilised. But these inputs will be utilised only after 1-3-1988, when the duty on final product would be nil because of the exemption granted to the final product effective from 1-3-1988. Hence, the Department is entitled to recover the credit taken in respect of such inputs.
7. We have examined this argument carefully. The provision enabling recovery of modvat credit is set out under Rule 57-I. Under Rule 57-I(2) it is laid down that if any inputs in respect of which credit has been taken are not fully accounted for as having been disposed of in the manner specified in the Section, the manufacturer shall, on a written demand being made by the Asstt. Collector, pay the duty leviable on such inputs. It is, therefore, possible to take a view that since Rule 57-I(2) refers to the full accountal of the inputs in respect of which credit has been taken and since in this case, inputs lying in stock on 1-3-1988 cannot be said to have been accounted for as having been disposed of in the manner specified in the Section pertaining to the modvat rules because of the fact that Rule 57C specifically bars extension of credit used in the manufacture of final product, which is exempted. But then, the other view is possible that accountal of disposal of the inputs is to be done in the manner specified in the Section and these inputs have not been disposed of for other use but only used in the manufacture of the specified final product covered by the modvat scheme. In this view, there is no dispute that both the inputs and final product are covered by the modvat scheme when the credit was taken and utilised and even after 1-3-1988, these inputs are going to be used in the same final product, which however, would be exempted because of the exemption Notification. Hence, when the Rules permit availment of instantaneous and its immediate utilisation, it could be argued that there should be specific provision to be made in the Rules itself for recovery of credit on such duty paid on inputs in the contingency of this type. This is the view taken by the South Regional Bench in the case of Collector of C. Ex., Bangalore v. Wipro Information Technology cited supra. We also find that this is the very same view, which has been taken by the South Regional Bench in the case of Collector of C. Ex., Bangalore v. Wipro Information Technology reported in 1988 (33) ELT 172 (Tri.). Though the aforesaid decision is in the context of Rule 56A, we find that the provisions of the aforesaid rule dealt with in the aforesaid decision are identical to the provisions of modvat Rules. For purpose of easy comparison, the relevant provisions of Rule 56A and the corresponding provisions of modvat scheme are tabulated below:
Provisions under Rule 56A Corresponding provisions under Modvat Sub-rule of Rule 56A - Proviso (1) Modvat Rules to Sub-rule (2) "Provided that no credit of duty "57C - Credit of duty not to be allowed shall be allowed in respect of if final products are exempt - No credit any material or component parts of the specified duty paid on the inputs used in the manufacture of used in the manufacture of a final product finished excisable goods shall be allowed if the final poduct is (i)If such finished excisable goods exempt from the whole of the duty of produced by the manufacturer are excise leviable thereon or is chargeable excempt from the whole of the to nil rate of duty." duty of excise leviable thereon or are chargeable to 'nil' rate of duty." Sub-rule (2)(v) - "If any material or component parts, 57-I (2)- If any inputs in respect of in respect of which credit has which credit has been taken are not been allowed under Sub-rule (2) fully accounted for as having been are not duly accounted for as having disposed of in the manner specified been disposed of in the manner in the section the manufacturer shall authorised in this rule, the upon a written demand being made by manufacture shall, upon a written the Assistant Collector of Central demand being made by the proper excise pay the duty leviable on such goods within ten days. of inputs officer within ten days of the the notice of demand." notice of demand." Sub-rule (5)(i) - When credit has been allowed under 57-I(1) - Recovery of credit wrongly Sub-rule (2) on account of an error, availed of or utilised in an omission or misconstruction on the irregular manner - If the credit of duty part of an officer, the proper paid on inputs has been taken wrongly, officer may, within six months the credit so taken may be disallowed by from the date of such credit, the proper officer and the amount so serve notice on the manufacturer disallowed shall be adjusted in the or the assessee to whom such Credit credit account or the account-current has been allowed, reqiring him to maintained by the manufacturer of if show cause why he should not be such adjustments are not possible for any disallowed to utilize such credit reason, by cash recovery from the manu- should not be recovered from him, facturer of the said goods: if the credit has already been utilised. Provided that where a credit Provided that such manufacturer may has been allowed under Sub-rule (2) make such adjustments on his own on account of wilful mis-statement, in the credit account or the account- collusion or suppression of facts current maintained by him under on the part of the manufacturer intimation to the proper officer. or the assessee, the provisions of Clause (i) shall have effect as if for the words 'six months' the words "five years" were substituted.
7. From the above it can be appreciated that the provisions of Rule 56A and corresponding provisions under modvat scheme are more or less similar and identical. Even the provisions of Rule 57-I have been subsequently modified in full conformity with the corresponding provisions of Rule 56A. With the above position being confirmed on comparison of relevant provisions of Rule 56A and modvat scheme, we proceed to go into facts of the case dealt with by the South Regional Bench in the case cited before us. In the case of Wipro Information Technology, proforma credit was taken in respect of the parts of computers and the credit was utilised by them against the payment of duty on computers on 17-3-1985, by issue of notification, computers were exempted. The question dealt with was, whether in respect of stock of parts of computers lying as on 17-3-1985, credit of duty taken is to be reversed. The South Regional Bench in the aforesaid case, considered the various arguments including the absence of requirement of one to one co-relation, the credit being available instantaneously and can be immediately utilised and finally came to the conclusion. The South Regional Bench while deciding the issue in favour of the assessee has held as below:
"It is not necessary to elaborate the point further, because it is abundantly clear, as we stated at the outset, that both at the time of taking credit and at the time of utilising it, the respondents were doing what both they and the Department felt to be authorised under Rule 56A. The question then is whether there is anything in Rule 56A which authorised the Department to take back the duty credit on the ground that the respondents became disentitled to it because of the subsequent exemption from duty granted in respect of computers.
It appears to us that in such a situation, where the assessee was acting in good faith and where what he did was not at the time he did it illegal or unauthorised, any action which would impose a liability on him should be something clearly authorised by law. We have, therefore, to see whether there is anything, in Rule 56A which authorised the Department to demand back the duty amount in a case like this. It is obvious that, although Rule 56A covers more than seven printed pages and includes a mass of detail, it does not specifically provide for a case of this nature.
Certain provisions have been relied upon by the Department. Of these, subrule (v), which was cited in the show cause notice, and which refers to credit having been wrongly allowed, is obviously inapplicable, and this has been accepted by Shri Bhatia himself. He has however, relied on Sub-rule (3)(v), read with Sub-rule (2). Sub-rule (3)(v) is procedural, and therefore, one has to go back to Sub-rule (2) and the proviso thereto. That sub-rule however, refers to credit being allowed. We find force in the submission of Shri Khunger that allowing credit and utilising it are two different stages. Obviously, since the credit is to be allowed as soon as the inputs are brought into the factory (and there has to be a time lag before they are used in manufacture and the finished goods are cleared) the grant of credit is not to wait till the finished goods have been actually manufactured. Therefore, allowing of credit would have to be with reference to the facts as prevailing at the time the inputs are taken into the factory. If there was no error or irregularity in the allowing of credit at that point of time, it does not appear to us that the credit becomes liable to be disallowed subsequently, because the finished goods are subsequently exempted from duty. If this be the position, recourse to Clauses (v) and (vi) of Sub-rule (3) would not help the Revenue.
No other provision has been brought to our notice which would justify the taking back of the credit in a case of this nature. It is no doubt an unusual case. It may be that Government by oversight omitted to provide for cancellation or taking back of the credit in such a case. But so long as no such provision exists, and when it has not been shown or even alleged that there was any irregularity either at the time the credit was taken or at the time it was utilised, we do not think the Department has the authority to take back the credit. We think the Collector (Appeals) was right in taking the view that he did and in setting aside the Assistant Collector's order. We accordingly reject this appeal."
8. We thus find that the S.R. Bench on the identical facts and provisions of law have taken a view that there should be specific provision for recovery of credit in such a contingency and in the absence of any such specific provisions, the Department cannot take back the credit. Though we do not share this view and on this ground, we could have referred this point for decision by Larger Bench, we are not inclined to do so, mainly, because of the fact that the appeal is required to be allowed on consideration of other ground of time-bar, which is dealt with in the succeeding para. In this case, the case law cited relates to the South Regional Bench of the same status as this bench, unlike in the case of Paras Laminates (P) Ltd. reported in 1990 (45) ELT 521 (Del.), where the two Member Bench differing with the decision of the three Members Bench referred the issue to the President for deciding the issue by constituting the Larger Bench of five members. In the absence of any other caselaw laid down by the High Court or by any Larger Bench to the contrary, and in view of the fact that the appeal is in any case required to be allowed on the ground of time-bar, we are not inclined to resort to the course of referring the issue to a Larger Bench.
9. We have considered the plea of time-bar apart from consideration of the issue on merits. In this case, the Addl. Collector invoked proviso to Section 11A for applying the extended period of 5 years. The main ground for doing this, as per his findings is that the appellant has failed to furnish the information regarding stock of inputs and the inputs contained in the finished goods lying on 1-3-1988 and only after repeated reminders, the assessee furnished part information on 22-8-1988 and full information on 18-10-1988 and his act of not furnishing the information amounts to suppression of facts with an intention to evading duty. We are unable to appreciate this stand for the following reasons:
It is not although the Department could not have collected the information on their own by reference to RG-23A, Part I and also from RG-1 register regarding stock of inputs and finished goods for purpose of issue of notice in time. Moreover, the argument of the learned Advocate that even after furnishing the information, the Department has taken nearly two months for issue of show cause notice and the delay on the part of the Department is not explicable, has considerable force. In view of this, purely on the ground of time-bar, the demand is not sustainable, so also the penalty imposed. We, therefore, allow the appeal on both the grounds.