Customs, Excise and Gold Tribunal - Tamil Nadu
Hunsur Plywood Works (P) Ltd. vs Collector Of C. Ex. on 20 June, 1995
Equivalent citations: 1996(82)ELT256(TRI-CHENNAI)
ORDER V.P. Gulati, Member (T)
1. This appeal is against the order of the Collector of Central Excise, Bangalore. Under the impugned order, the appellants have been called upon to pay an amount of Rs. 1,64,542/- being the MODVAT Credit taken on the inputs namely Phenol Formaldehyde resin used in the manufacture of commercial plywood which was cleared without payment of duty under Rule 191B of the Central Excises and Salt Act, Central Excise Rules", - Ed. 1944. The learned lower authority has relied upon the earlier decision in another case wherein the learned lower authority has held as under :
"I have gone through the appeal. The short point for consideration is whether the appellant is eligible for the benefit of Modvat credit on Phenol Formaldehyde Resin used as an input in the manufacture of commercial plywood, cleared to M/s. Decorative Laminates (P) Ltd., Mysore. Admittedly, the appellant has cleared the input without payment of duty as per the provisions of Rule 191BB which was availed by M/s. Decorative Laminates. First of all, the appellant cannot take the plea that going by the eligibility under Rule 191BB, the input was eligible for Modvat. Evidently, the appellant himself is not an exporter. Had he been the exporter, the input would have suffered duty and export taken place from his premises and in the event of such exports where the inputs are used for the manufacture of final product, the appellant is eligible for Modvat benefit, or alternatively, cash refund of the duty paid on the input, if it is not possible to get the credit in RG 23A in the circumstances cited in Rule 57F(3). There is no provision under Modvat Rules to give Modvat relief in respect of deemed export, since the appellant himself had not availed Rule 191BB and the question of extending concession under this Rule, therefore, does not arise. The basic requirement under Rule 57 A read with 57F is that the input and the final product should have suffered duty for claiming the credit of duty paid on such inputs. Having not satisfied the basic requirement of this Rule, the appellant has no case to claim the credit. The plea that he had not availed drawback on the input is besides the issue. Having failed to pay duty on the inputs contained in the intermediate product, namely commercial plywood, the question of claiming Modvat on the inputs so contained in the commercial plywood or preferring refund claims does not arise. Further the final products have also not suffered Central Excise duty. In the circumstances, the order of the lower authority is correct in law".
2. The issue therefore that falls for consideration is whether the Modvat credit taken in respect of Phenol Formaldehyde Resin which is attributable to the quantity of Phenol Formaldehyde Resin contained in the commercial plywood manufactured by the appellants and removed without payment of duty under Rule 191B can be recovered from the appellants in terms of Rule 57-I read with Rule 57C of the Central Excises and Salt Act, Central Excise Rules", - Ed. 1944. The learned Collector (Appeals) has relied on the ruling of the Tribunal in the case of India Pharmaceutical Works v. Collector of Central Excise reported in 1991 (54) E.L.T. 355 (Tri.).
3. The learned Consultant for the appellants has pleaded that the finished products in which the appellants have used the inputs had been cleared from the appellants' factory without payment of duty under Rule 191B of the Central Excise Rules for the purpose of further manufacture and export. He has pleaded that the person to whom the appellants had supplied the finished product namely the commercial plywood had after further processing exported the same and inasmuch as the goods which are cleared from the appellants' factory were ultimately exported, the appellants should be given the benefit available to the goods in which the inputs in respect of which Modvat credit has been taken are used and which are exported in terms of Rule 57F applicable. He has pleaded under this Rule when the finished products are exported and cleared from the factory without payment of duty the Modvat Credit taken in respect of the inputs contained therein is not required to be reversed and in case the Modvat credit cannot be utilised on account of the export of the goods, the same is even allowed to be refunded in cash. In this connection, he referred us to the provisions of Rule 57F. He has pleaded that there is no one to one co-relation under the Modvat Scheme between the inputs and finished goods. His plea is that the appellants had taken the Modvat credit in respect of the inputs received for the manufacture of the commercial plywood correctly in terms of Rule 57G and the same was also available for payment of duty towards that portion of the finished product which were cleared on payment of duty.
4. The learned DR pleaded that commercial plywood which the appellants manufacture out of the inputs received by them and for which they had taken Modvat credit was not exported as such and therefore the appellants' plea that they should be given the benefit in terms of proviso to Rule 57F (3)(iii) is not maintainable. The goods as manufactured by the appellants were finished goods and notwithstanding the fact that the same were further used by other manufacturer for making a product which was ultimately exported, the same cannot be considered as intermediate goods for Modvat purposes. He has adopted the reasoning of the learned lower authority's order and relied upon the Larger Bench decision in the case of Kirloskar Oil Engines Ltd. v. C.C.E., Pune reported in 1994 (73) E.L.T. 835 wherein it has been held that in case a portion of the finished product manufactured by the appellants was cleared free of duty, the input credit relatable to that component of inputs contained in the finished product cleared free of duty will be required to be reversed.
5. We have given a careful thought to the pleas made by both the sides. The commercial plywoods manufactured by the appellants were cleared free of duty in terms of Rule 191B after following the procedures prescribed thereunder. Rule 191B figures in Chapter IX which carries a heading "Export under claim for rebate of duty or under bond" and the Rule carries the heading "Manufacture in bond of articles from excisable goods on which duty has not been paid". This Rule is applicable to manufacture in bond of such articles from such excisable goods and subject to such conditions and limitations as may be specified in the notification issued in this regard. Under this Rule, the Govt. of India has issued a notification under which decorative plywood is covered for in bond manufacture out of commercial plywood as one of the items for the purpose of expprt outside India. It was under this notification that the appellants cleared commercial plywoods manufactured by them to the manufacturer of the decorative plywoods under proper central excise prescribed documents. It is nobody's case that the manufacturer has not manufactured decorative plywood for export purpose out of commercial plywood in question under Rule 191B of the Central Excise Rules. In terms of the notification, the manufacturer of the decorative plywood, i.e. the buyer of the commercial plywood, the appellants customer, would have therefore executed a bond for twice the amount of duty payable beyond the non-duty excisable goods i.e. commercial plywood in this case, used for the manufacture of decorative plywood for export purpose. The excisable goods therefore received by the decorative plywood manufacturer were also required to be kept in terms of this notification in a separate room. A procedure is also prescribed under this notification for disposal of the waste arising during the manufacture either on payment of duty or for recycling in the same factory. This notification also has a provision for allowing the manufacturer of the finished goods who has manufactured under bond under Rule 191B for clearance for home consumption on payment of excise duty leviable by them on such article as also on the excisable goods used in the manufacture thereof in the same manner as excisable goods intended for home consumption are cleared from the place of their production or manufacture or storage. It is thus seen that Rule 191B is a very comprehensive procedure under which finished goods manufactured out of non-duty paid goods have to be properly accounted for and in the event of the goods not being exported the levy of duty is provided both in respect of the finished goods manufactured in bond as also the inputs contained thereunder which was received without payment of duty. In view of this procedure prescribed under Rule 191B the question that has to be considered is whether goods cleared by the appellants under Rule 191B free of duty to the other unit which manufactured decorative plywood for export purposes could be taken to be export for Modvat purposes in terms of Rule 57F(3). We observe that Rule 57F(3) during the relevant period i.e. 1-3-1993 to 31-7-1993 providing for the manner in which the credit taken in respect of the inputs could be utilised read as under :
(3) Credit of specified duty allowed in respect of any inputs may be utilised towards payment of duty of excise, -
(i) on any of the final products in or, in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under Sub-rule (1) of Rule 57G; or
(ii) on the waste, if any, arising in the course of manufacture of the final products; or
(iii) on the inputs themselves if such inputs have been permitted to be cleared under Sub-rule (1) :
Provided that the credit of specified duty in respect of inputs used in the final products cleared for export under bond or used in the intermediate products cleared for export in accordance with Sub-rule (2), shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption or for export on payment of duty and, where for any reason, such adjustment is not possible, by refund to the manufacturer subject to such safeguards, conditions and limitations as may be specified by the Central Government in the Official Gazette :
Provided further that no such refund of credit of duty shall be allowed if the manufacturer avails of drawback; allowed under the Customs and Central Excise Duties (Drawback) Rules, 1971, or claims rebate of duty under rule 12A, in respect of such duty.
Provided also that the credit of specified duty in respect of inputs used in the final products cleared either to a unit in a Free Trade Zone or to a hundred per cent Export Oriented Unit under bond shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption on payment of duty.
It is seen that earlier under the first proviso Modvat credit taken in respect of the inputs contained in the goods exported under bond or used in the intermediate products cleared for export could be utilised for payment of duty towards goods cleared for home consumption or for any reason if this adjustment was not possible the cash refund has been provided for. With effect from 1-3-1992, the second proviso has been added under this even where the final products in which the inputs have been utilised are cleared to a unit in a free trade zone or to a 100% export oriented unit under bond, the same benefit as in the case of the export of the goods has been provided for. We observe that as such in Rule 57F(3) there is no specific provision in regard to the clearances made to a unit functioning under Rule 191B. We observe that when the clearances are made to a free trade zone or to a 100% export oriented unit of any finished product without payment of duty from a unit which has taken Modvat credit in respect of the inputs, the benefit is given as ultimately in terms of the schemes the goods allowed manufacture are exported. The units which are manufacturing goods under Rule 191B in terms of notification issued under this Rule are in our view similarly placed as the unit located in the free trade zone or to a 100% export oriented unit. We see no reason as to why the same benefit as provided under Rule 57F for these units cannot be extended to this unit. Interest of revenue is safeguarded by the specific provision under the notification issued under Rule 191B for recovery of duty both in respect of the finished goods and the non-duty paid goods out of which the same are manufactured in bond in case the goods are not exported. We therefore hold that notwithstanding the absence of any specific mention in the proviso to Rule 57F(3) in regard to the finished goods in respect of which input credit is taken and which are cleared without payment of duty to a unit functioning under Rule 191B, the second proviso to Rule 57F(3) would cover such units also, as we do not find any reason to differentiate the operations in the unit functioning under Rule 191B from the operations carried out in the unit functioning under a free trade zone or to a 100% export oriented unit. In view of above, we hold that the appellants' plea has to be allowed and we order accordingly.