Customs, Excise and Gold Tribunal - Tamil Nadu
Collector Of Central Excise vs American Auto Service on 23 June, 1995
Equivalent citations: 1996(81)ELT71(TRI-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. This matter was referred to the Larger Bench by the regular South Regional Bench, Madras, for settling the controversy in the conflicting decisions of the rulings of the Tribunal in the case of SAE (India) Ltd. v. CCE reported in 1992 (61) E.L.T. 726 (Tribunal), which is in favour of assessee; with that of the ruling rendered in Revenue's favour by South Regional Bench as in the case of Ponds India Ltd. v. CCE reported in 1991 (56) ELT 574.
2. The Hon'ble President constituted this Bench for hearing and answering the points referred to it for its decision.
3. The point for determination in this appeal is as what is the rate of duty that is required to be paid in respect of duty paid inputs purchased and brought inside the factory; and on which Modvat credit had been utilised? and at the time of its removal for home consumption under Rule 57F(l)(ii) of Central Excise Rules, 1944.
4. The assessee had been manufacturing inter alia electric horn falling under Tariff Heading No. 8512 of Central Excise Tariff Act, 1985. They had filed classification list for clearing bought-out Modvat inputs, namely CRCA sheets falling under Tariff Heading Nos. 7209.20, 7211.49, 7208.29 & 7211.41 as such, under Rule 57F(l)(ii) of Central Excise Rules, 1944 @ Rs. 735/- PMT. The assessee were issued with a show cause notice calling upon them to explain as to why the classification list should not be approved classifying the CRCA sheets under Heading Nos. 7209.20, 7208.29, 7211,41, 7211.49 attracting appropriate rate of duty as per Notification No. 60/90 dated 20-3-1990.
5. The assessee by their reply submitted that the wordings in Rule 57F(l)(ii), namely, "as if such inputs have been manufactured" carries the meaning that while clearing such Modvat inputs, they are required to follow the central excise procedure only and hence the CRCA sheets which have already suffered duty and on which no further process of manufacture has been carried on, it therefore, continues to remain as CRCA sheets and as such Rule 9A cannot be invoked and they be called upon to pay duty, as if they are the goods manufactured Under Section 2 (f) and by invoking the charging Section 3 of the Central Excises & Salt Act, 1944. The goods already suffered duty, they are only being cleared for home consumption, therefore, the Rule 57F(l)(ii) only stipulates that such goods which are removed for home consumption, should pay only appropriate duty, as had been discharged by them at the time of bringing the goods in the factory, by treating the goods, as if manufactured in the factory. However, it did not mean that fresh rate of duty is worked out on the prevailing rates and make payment of duty over and over the rate of duty at which the goods had been brought inside the factory. The original authority did not agree with the assessee's contention and had held that the effective rate of duty in terms of Notification No. 60/90, dated 20-3-1990 is required to be paid, which was determined as follows :-
CRCA SHEETS Effective rate of duty ___________________________________________ 1. 7209.20 Rs. 1000/-M.T. 2. 7208.29 Rs. 800/-M.T. 3. 7211.41 Rs. 1000/- M.T. 4. 7211.49 Rs. 800/- M.T.
6. The learned Collector (Appeals) overruled the learned Asstt. Collector and accepted the assessee's plea, by following the ruling of the North Regional Bench rendered in the case of SAE (India) Ltd. v. CCE (supra), hence aggrieved by this order, the revenue has filed this appeal Under Section 35B of the Central Excises & Salt Act, 1944. The revenue has mainly relied in the case of Ponds (India) Ltd. (supra).
7. We have heard Sh. Murugandi, the learned DR for the appellant and Sh. Subhas Chandra, the learned Counsel.
8. Learned DR submitted that the reasoning adopted by the authority is consistent with the view expressed by South Regional Bench in the case of Ponds (India) Ltd. and it is required to be accepted. While learned Counsel submitted that the view expressed in SAE India Ltd. is the correct view and it is based on the correct interpretation of the terms and wordings used in the Rule 57F(l)(ii). He submitted this rule speaks only of the removal of goods by payment of appropriate duty and not payment of "effective rate of duty". He submitted that if the purchaser of raw material is required to pay higher duty after availing Modvat credit at the first instance, while removing the same goods for home consumption, then in that event, the very purpose of granting Modvat, which is to avoid the cascading effect, would be defeated. The learned Counsel submitted that the Bombay Collectorate had also placed a similar interpretation as given by Tribunal in the case of SAE India Ltd. and has issued Trade Note No. 5/89, dated 16-1-1989, Trade Notice No. 57/III/Gen. (23)/89, dated 16-6-1989; and by Trade Notice No. 157/88-CE, dated 18-11-1988 and therefore, prayed for dismissal of this appeal.
9. We have carefully considered the submissions made by both the sides and have perused the facts of the case and the rulings on this point. Rule 57F(1) reads as follows :-
"(1) The inputs in respect of which a credit of duty has been allowed under Rule 57A may -
(i) be used in, or in relation to, the manufacture of final products for which such inputs have been brought into the factory; or
(ii) shall be removed, after intimating the Assistant Collector of Central Excise having jurisdiction over factory and obtaining a dated acknowledgment of the same, from the factory for home consumption or for export under bond, as if such, inputs have been manufactured in the said factory :
Provided that where the inputs are removed from the factory for home consumption on payment of duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such inputs under Rule 57A."
The South Regional Bench in the case of Ponds (India) Ltd. has taken a view in paras (5) and (6) as follows :-
"It is seen that the inputs brought into the factory can be used in the manufacture of final product as inputs in terms of Rule 57F(1) and in case these are removed from the factory for home consumption etc. the removal has to be treated as if these goods which are being removed are manufacture of the said factory. By this deeming provision therefore, the goods which have been removed from the factory have become the manufacture of the factory, from which these were removed. Duty, therefore, would be required to be collected in respect of those goods in terms of the provisions of this Rule at the rate that would apply to the goods when actually manufactured or produced in this factory. That would mean the requirement of approval of price list and classification list and also the duty payment with reference to the relevant date for that purpose specified in the Act and the Rules. The assessment has to be based on the date of removal of the goods with reference to the classification as applicable. The duty to be paid could be more than the credit that was taken when the goods were brought into the factory but it cannot be less than the amount of credit that was taken by virtue of the proviso to the Rules as above. In the present case, therefore, the order of the lower authority for demanding differential duty is maintainable in law. In regard to the amount demanded in respect of the inputs used in the samples, it is not denied that the finished products were taken out for testing purpose and such goods can be taken to have been removed for home consumption and Rule 49 would come into play. The appellants have cited the case law reported in 1989 (39) E.L.T. 689 in support of their plea. He has pleaded that till the testing was completed the appellants' product could not be considered as marketable and hence the product could not be considered as excisable.
We observe that in the facts of the case referred to supra, the Tribunal took note of the fact that in terms of the contract, before the goods are delivered, testing was one of the requirements and for that reason, without testing the goods, the goods were held to be as not marketable. In the case of the appellants' goods there is no plea of this nature in regard to sale of the goods and therefore, we hold that the ratio of the decision cited supra will not be applicable to the facts of this case. In view of above, we hold that the duty demanded is maintainable in law. The impugned order is therefore upheld and the appeal is rejected."
On the other hand, the North Regional Bench on this very point has held in the case of SAE (India) Ltd. in para (5) at page 345 of the report as follows :
"I have carefully considered the submissions made by both sides and perused the records. The short point to be considered in this case is that what will be the rate of duty applicable in case inputs are removed under Rule 57F(1). In other words, whether the rate of duty which is applicable on the date of removal or rate on which credit was taken in terms of Rule 57A of the Central Excise Rules. I find that assessable value of purchased duty paid inputs on which credit is taken under Rule 57A was allowed to be cleared for home consumption on appropriate rate of duty under Central Excise Rules 57F(l)(ii) as if such inputs have been manufactured in the same factory. It is evident that the appellants are not manufacturer of the inputs but they purchased duty paid inputs which were cleared from the original manufacturer. If the assessee is also manufacturing the goods in question, the rate of duty applicable will be the rate of duty as prevalent at the time of clearance of the goods. Since the inputs in question were already cleared on payment of duty at the appropriate rate from the original manufacturer of the inputs, I feel that there is no justification for the recovery of higher rate of duty as it was rightly contended by the appellants' counsel. In the view I have taken, I set aside the impugned order and allow this appeal with consequential relief."
10. The point for determination is the interpretation of the terms appearing in Rule 57F(l)(ii), with regard to "appropriate duty of excise" and "as if such inputs have been manufactured in the said factory." The North Regional Bench in the case of SAE (India) Ltd. has held, as can be seen from the extract of the relevant portion of the finding, that the assessee being not the manufacturer of the inputs but only having purchased duty paid inputs from the original manufacturer, is only required to pay the duty at the rate of duty as prevalent at the time of clearance of the goods i.e. at the appropriate rate as applicable to the original manufacturer of the input. The view taken in Ponds (India) Ltd. case, on the other hand is that the appropriate rate of duty means the duty as prevalent at the time of removal of the inputs for home consumption. As a consequence the Bench has further held that:
"that would mean the requirement of approval of price list and classification and also the duty payment with reference to the relevant date for that purpose specified in the Act and the Rules. The assessment has to be based on the date of removal of the goods with reference to the classification as applicable."
11. With utmost respect, we do not agree with this view. The reason being that the classification and its assessment has already been finalised at the original manufacturer's end and such an act of approval of classification and assessment cannot be reopened at the stage of the user of inputs. Further there is no provision in the Act and Rules for reopening the settled classification and assessment at the purchaser's end. The term "appropriately" cannot be read to mean "effective duty of excise" as prevalent at the time of manufacture and removal of goods, at the first instance by the original manufacturer of the goods. As the Rule 57F(l)(ii) is placing a burden on the user to make the payment of duty, therefore, a legal fiction has been created, to consider the user of the inputs as a manufacturer, only to recover the credit already utilised by him on such inputs. This is a requirement for payment of duty on the inputs removed for home consumption, as at the stage of its removal, the duty which it had suffered, has already been utilised by the user of input. Therefore, in order to undo this act, the duty which the input had suffered earlier, is required to be paid back, even if the duty had been reduced at a level lower than the rate at which duty had been paid by the original manufacturer. The proviso to Rule 57F(l)(ii) makes this aspect clear. Therefore, the Rule directs the user of the input to maintain the level of rate of duty, even if rates of excise duty have come down. This same benefit availed by revenue is also required to be granted to the user of inputs when the rates go up by recovering only the rate of duty utilised by him at the time of taking credit. Therefore "appropriate duty of excise" has to be taken as the rate of duty which he suffered at the first instance and it cannot be read to mean "effective rate of duty" as prevalent at the time of clearance of inputs for home consumption. The view expressed in the SAE India Ltd.'s case is required to be accepted and followed. This view appears to have been the understanding of the department also, as can be seen from the Trade Notices referred to before us.
12. In that view of the matter, there is no merit in this appeal and the same is ordered to be dismissed.
V.P. Gulati, Member (T) 12A. I have given a careful thought to the order recorded by my learned Brother Sh. Peeran and learned Brother Sh. Kalyanam, and I have not been able to agree with the interpretation of Rule 57F(l)(ii) placed by my learned Brothers that in case of inputs for which the Modvat has already been taken and which are cleared from the factory as such, the duty to be paid on these goods should be equivalent to the Modvat credit already taken in terms of Rule 57F(l)(ii). Rule 57F(l)(ii) which falls for interpretation before us is reproduced below :
"(1) The inputs in respect of which a credit of duty has been allowed under Rule 57A may -
(i) be used in, or in relation to, the manufacture of final products for which such inputs have been brought into the factory; or
(ii) shall be removed, after intimating the Assistant Collector of Central Excise having jurisdiction over factory and obtaining a dated acknowledgment of the same, from the factory for home consumption or for export under bond, as if such inputs have been manufactured in the said factory.
Provided that where the inputs are removed from the factory for home consumption on payment of duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such inputs under Rule 57A."
In the present case, the appellant's after having taken Modvat credit on the inputs had cleared the goods subsequently and the plea of the appellants was that duty to be paid on the inputs cleared as such would be equivalent to the Modvat credit taken notwithstanding the use of the words in the rule to the effect that the same could be removed from the factory for home consumption or for export under bond as if such inputs had been manufactured in the said factory. The plea is that the inputs in respect of which Modvat credit had been taken had been cleared from the factory from where these were manufactured after paying appropriate duty and also after complying with the necessary formalities for assessment i.e. approval of the classification list, price list, etc. and therefore there could not be any further classification approval and re-determination of the price of the goods and the only normal procedural requirements of a gate pass etc. for clearance from the factory for clearance for home consumption are required to be complied with. My learned Brothers have entered findings accepting this line of reasoning. I am afraid this line of reasoning though looks prima facie attractive does not take into consideration the fact that the legislature has in clear words set out under Rule 57F(l)(ii) that the inputs in respect of which the Modvat credit has been taken could be cleared from the factory for home consumption or for export under bond by treating them as having been manufactured in the said factory. The words used do not leave any doubt that the legislature intended these goods in respect of which Modvat has been taken to be considered as goods as if the same had been manufactured in the factory where the same were brought in as inputs in case these were to be cleared for home consumption or for export. The words used "clearance from the factory for home consumption or for export" are used in the context of the goods where the goods originally take shape as manufactured excisable goods and when in fact after these goods were received in the factory where the Modvat credit was taken after the same had already been cleared for home consumption if what has been pleaded is to be accepted, then these words "clearance for home consumption" would be superfluous and all that should have been provided in the Rule 57F(1) is that these goods if cleared as such from the factory without the use of the words 'home consumption'. These words have been used deliberately to bring in the concept that the goods in respect of which Modvat credit has been taken are restored to the status of excisable goods on which duty had yet to be paid and for the purpose of working out the quantum of duty the same have to be treated as the goods manufactured in the factory where the modvat was taken. Once these goods after the MODVAT credit has been taken are restored to the status of non-duty paid goods it will be like any other goods manufactured in a factory where the incidence of duty is postponed till their clearance outside the factory for home consumption or for export and the relevant date for the purpose of valuation and classification would be the date on which same were cleared from the factory as per the provisions in the Central Excise Act & Rules.
13. Lot of stress has been laid on the fact that the inputs in question had already stood manufactured and had already been cleared for home consumption and therefore these could not be treated again as excisable manufactured goods by virtue of the provision of Rule 57F as above and that there could not be a deemed concept of manufacture under the scheme of Modvat. In my opinion, there is a fallacy in this argument inasmuch as by virtue of Modvat Rule 57F no fresh definition of manufacture as such has been brought in and all that is sought to be done is to recover the duty on the goods in respect of which the burden of duty which had already been discharged stood lifted by virtue of taking of the Modvat credit. Keeping this in mind, the provision of Rule 57F as above have to be interpreted. It has to be borne in mind that by virtue of the Modvat scheme a relief in respect of the duty paid on the inputs which go into the manufacture of a specified finished product has been provided for and the assessee under this scheme is eligible to this benefit in case he uses the inputs for the specified purpose i.e. for the manufacture of the finished excisable goods and in case this is not done and the goods as such are cleared after availment of the Modvat credit a provision has been made to recover the duty due on the goods. The legislature in its wisdom has thought it fit to provide for the recovery of the duty as would have been payable in case the said goods had been manufactured in the appellants factory, i.e. the duty as would be otherwise payable under the Central Excise law and procedure in respect of goods which have not suffered duty. A relief under Rules 57A, 57G has been given subject to the conditions as set out under Rule 57F as above. When a relief is given the Government retains its right to put certain conditions subject to which the relief could be availed. The conditions under the Modvat scheme among other things are that the goods are either used for the manufacture of finished excisable goods or the same may be cleared outside the factory subject to the payment of duty on the goods as provided for under the rules and in this case under Rule 57F as above. It is for the assessee to either accept the scheme as a whole and go by the provision or not to operate under the scheme. The methodology for recovery of duty in respect of the goods in question has been provided for is by way of machinery provision of Rule 57F and this cannot be taken to be bringing in a new concept of manufacture.
14. A reading of Rule 57F(l)(ii) would make it amply clear that duty sought to be recovered will be in terms as if the goods which are lying in the factory had been manufactured in the said factory subject to that such duty to be paid shall not be in any case less than the amount of the credit that had been taken earlier. The words used leave no room for doubt as to what the legislature intended in the matter of recovery of duty on inputs which are cleared as such from the factory where these were brought in earlier. The expression and the terms in Rule 57F(l)(ii) are similar to the machinery provision in respect of the recovery of duty under Rules 9, 9A read with Rule 49 for clearance of the goods either from the factory or warehouse. In the case of clearance of goods from the warehouse, the rate of duty applicable is the one chargeable at the time of clearance of the goods based on the assessable value approved. In fact, after the duty burden has been lifted by virtue of taking of the Modvat credit on the goods, the status of the goods would become that of a non-duty paid goods when these could be considered as if these are lying in a warehouse only before these are cleared from the factory. There are a number of provisions under the Central Excise law wherein certain reliefs are provided subject to the fulfilment of certain conditions and in case those conditions are not complied with, the duty required to be recovered is on the same lines as set out under Rule 57F(l)(ii). One such situation is covered under Rule 173L under which refund is allowed in respect of the goods which after clearance on payment of duty are received back for re-conditioning and reprocessing, etc. and the goods after re-conditioning have to suffer duty as if the same are manufactured in the factory even though the process carried out may not be strictly according to the definition of manufacture given under Rule 2(f).
15. It is pertinent to note that in the case of goods which have been cleared for warehousing on clearance the duty on the same has to be paid as provided for under Rule 157 read with Rule 159 of the Central Excise Rules, 1944. For convenience of reference, the said Rules are reproduced below :-
157. Clearance of goods for home consumption. - Any owner of goods warehoused may, at any time (within the period during which such goods can be left or are permitted to remain in a warehouse under Rule 145] clear the goods for home consumption by paying -
(a) the duty thereon assessed prior to entry or re-assessed under Rule 159; and
(b) all rent, penalties, interest and other charges payable in respect of such goods.
The goods shall then be assessed and cleared in the manner described in Rule 52.
159. Re-assessment. - (1) If, after any goods are entered for warehousing-
(a) any alteration is made in the rate of duty leviable thereon, or in the tariff valuation (if any) applicable thereto, or
(b) the goods are sorted, separated, crushed, or subjected to any other process which causes the goods or any part thereof to become liable to duty at a rate other than that at which they were assessed on entry into the warehouse, the goods shall be re-assessed in accordance with such alteration.
(2) Where the rate of duty leviable upon any goods is determined by the use to which the goods are to be put after clearance from the warehouse the goods shall be re-assessed to duty at such rate if such rate be different from the rate at which goods were assessed to duty when they were received in the warehouse.
16. It may be seen that duty required to be paid is based on the prevailing rate at the time of clearance. The position in regard to the goods which are brought in as inputs and in respect of which Modvat credit is taken is somewhat analogous to the warehoused goods. The goods after receipt as inputs as mentioned earlier have been relieved of the duty burden by virtue of taking Modvat credit and the same therefore became non-duty paid goods as in the case with the warehoused goods which after manufacture have been cleared from the factory of manufacture and brought to another place for being kept as non-duty paid goods. Thus, there could"not be any legal anomaly so far as the demand or duty in respect of inputs in question which are cleared as such when the duty demanded is reassessed at the prevailing rate and value applicable at the time of clearance of the goods from the factory where these had been received as inputs. In sum, the Modvat credit has been given in respect of the inputs subject to their being utilised in the factory of the assessee for the specified purpose as envisaged under Rule 57A read with Rules 57F & 57G and in the event of the same not being utilised the framers of the statute have thought it fit as a part of package of concession allowed under the Modvat scheme to charge duty in respect of the said goods in the event of the same being cleared as such for home consumption ... at the time of clearance of the goods from the factory. This as mentioned earlier does not in any way bring any new concept of manufacture but this provision is considered only as a machinery provision as a part of the package for recovery of duty in respect of the inputs. The wording of the rule are very clear as to the quantum of duty to be charged and once the language of the statute is clear, the same is to be given full effect to notwithstanding any anomalies that may ensue therefrom which in the present case is not the case. If the framers of the statute intended to recover only the duty equivalent to the Modvat credit taken on the inputs on their clearance from the factory then the wording of the rule would have been that the goods could be cleared subject to the payment of duty equivalent to the Modvat credit taken.
The framers of the statute have deliberately used the words "the goods to be removed from the factory for home consumption or for export under bond on payment of appropriate duty of excise as if such inputs had been manufactured in the said factory." In my humble opinion, there is no warrant to substitute these words by another set of words with a view to bring in certain level of equity. I, therefore, hold that the appeal of the revenue has to be allowed.