TMI Blog2011 (8) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 3 of 2001 - - - Dated:- 17-8-2011 - Sunil Ambwani, Pankaj Mithal, JJ. B.J. Agrawal and P. Agrawal for the Appellant/Petitioner/Plaintiff C.S.C. for the Respondent/Defendant JUDGEMENT Sunil Ambwani and Pankaj Mithal, JJ:- 1. We have heard Shri Bharat Ji Agrawal, Senior Advocate assisted by Shri Piyush Agrawal for the Applicant. Shri S.P. Kesarwani appears for the Respondents. 2. On the directions issued by this Court, calling for a reference, the Custom, Excise and Gold (Control) Appellate Tribunal, New Delhi has referred the following questions to be considered by this Court:- (1) Whether, for the purpose of taking credit of duty paid on inputs under Rule 57-A read with Rule 57-C of the said Rules, the relevant stage is when credit of duty paid on inputs is taken i.e. when the inputs are brought into the factory, at which stage MODVAT Credit can be lawfully taken if the end product becomes exempt from the payment of duty? (2) Whether the extended period of limitation under the Rule 57-I(1) (ii) can be invoked when there is not even an allegation of fraud, misstatement, collusion or suppression with an intent to evade duty the Show Cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix months is not time barred having regard to the language of Rule 57-I (2) which is applicable in such a situation. 4. The unamended Rules 57-A, 57-C, 57-E and 57-I of the Central Excise Rules, 1944, as these were applicable, when the Show Cause Notice was issued on 5th August, 1993, providing for credit of duty paid on excisable goods used as inputs, are quoted as follows:- Rule 57A. Applicability:- (1) The provisions of this Section shall apply to such finished excisable goods (hereinafter, referred to as the "final products"), as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter, referred to as the "specified duty") paid on the goods used in or in relation to the manufacture of the said final products (hereinafter, referred to as the "inputs") and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash recovery from or, as the case may be, refund to the manufacturer availing of the credit under Rule 57A. Rule 57-I. Recovery of credit wrongly availed of or utilised in an irregular manner:- (1)(i) Where credit of duty paid on inputs has been taken on account of an error, omission or mis-construction, on the part of an officer or a manufacturer, or an Assessee, the proper officer may, within six months from the date of such credit, serve notice on the manufacturer or the Assessee who has taken such credit requiring him to show cause why he should not be disallowed to such credit and where the credit has already been utilised, why the amount equivalent to such credit should not be recovered from him:- Provided that where such credit has been taken on account of wilful mis-statement, collusion or suppression of facts on the part of a manufacturer or an Assessee, the provisions of this clause shall have effect as if for the words "six months" the words "five years" were substituted. (ii) The proper officer, after considering the representation, if any, made by the manufacturer or the Assessee on whom notice is served under Clause (i), shall determine the amount of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the Show Cause Notice has been issued is accepted, we are not required to reverse any credit, as no credit has been taken nor utilised after 27th February, 1993. (ii) The value of MODVAT as contained in the inputs lying in the inputs unused and in packed stocks totally valued at Rs. 31,28,267 represents the credit taken by us prior to 27th February, 1993, when the final product, viz. Tea was eligible for duty. We have therefore correctly availed MODVAT credit in terms of the provisions of Rule 57A. 7. The Applicant company further stated in its reply that there is no provision in the MODVAT Rule for recovering and/or adjusting the credit, legally earned by us under Rule 57A. The Show Cause Notice does not dispute the fact that the Applicant has received the inputs as per the declaration submitted under Rule 57-G for use in the manufacture of final product. There is no dispute that these inputs and final product are eligible for MODVAT credit under Rule 57A. It was submitted that receipt of duty paid inputs alongwith documents showing payment of appropriate Excise Duty; filing of a declaration under Rule 57G (i), indicating the description of the final notified products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay that it becomes available. 9. Shri Bharat Ji Agrawal has also relied upon the judgment of Delhi High Court in the case of Goodyear India Limited reported in 1990 (49) ELT 39 in which it was held that in the case of matters pertaining to proforma credit scheme under Rule 56A as well as MODVAT credit scheme under Rule 57A there is no necessity for a one to one co-relation between inputs and final products and that credit could be taken on the duty paid on the inputs, while paying duty on the final products some of which may have been cleared at nil rate of duty under Chapter X. Once raw materials enter the factory of the Petitioner company, the credit is to be taken in accordance with the procedure prescribed in the Rules, without any co-relation to the end product. Such a credit cannot be directed to be reversed when the final product becomes exempted subsequently. Shri Bharat Ji Agrawal further submits that the demand is barred by limitation under Rule 57-I. When the department seeks to recover or disallow credit wrongly availed by a manufacturer, the department has to issue Show Cause Notice within six months from the date of taking of the credit. In the present case, the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acknowledgement thereof take credit of the duty paid on the inputs received by him. The rule obliges the manufacturer to maintain necessary accounts and the manufacturer has to furnish before the superintendent of Central Excise within five days after the close of each month documents evidencing the payment of duty along with extracts of Parts 1 and II of form RG 23A. Rule 57-I provides:- for recovery of credit wrongly availed of where credit of duty on inputs has been taken on account of an error, omission or misconstruction, on the part of an officer or a manufacturer. Paragraph 10. As is evident, entries in PLA account and other documents are at times provisional in nature and become final after certain events take place. For example, a personal ledger account is commenced with a credit entry represented by a cash deposit in the treasury as required under Rule 9. When the first deposit is made in the treasury there is no payment of any Excise Duty. The deposit and the corresponding credit in the PLA account is only a provision for making payments of Excise Duty on the goods that are manufactured and are to be removed. Therefore, when a person makes the cash deposit in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be reversed. In my view there is no warrant for the view that MODVAT credit once availed by making the necessary entries is irrevocable. This would amount to unjust enrichment and cannot be conceived of in the light of the rules on the subject. I am, therefore, of the view that the debit entries made by the Petitioner for reversing the MODVAT credit availed by it were in compliance of its legal obligation and it cannot be said that by making such entries the Petitioner has made any illegal payment to the Union of India. On the other hand, the net result is that the Union of India has received only what it was justly entitled to receive, i.e. the duty on the inputs. What was exempt from Excise Duty was only the final product and not the inputs. 11. The Tribunal found that legal position was not changed by virtue of judgment of Apex Court in the case of Commissioner of Central Excise, Pune v. Dai-Ichi Karkaria Ltd. (112) ELT 353 in which the Supreme Court had held that a manufacturer obtains credit for the Excise Duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgment ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department the same. In Kirloskar Oil Engines v. CCE, Pune 1994 (73) ELT 835 (NRS), the Larger Bench had resolved the conflicting judgments of different benches of the Tribunal on the issue. It was held that if any credit on the inputs was taken or was wrongly taken contrary to the provisions of Rule 57-C, it is liable to be re-adjusted from RG-23 account or by recovering from the Applicant, if no adequate credit is available in such account. The MODVAT credit can be availed only if the final product is chargeable to central Excise Duty. 14. Shri S.P. Kesarwani submits that the Rule 57A and 57C, as they were applicable in the relevant year, do not admit any doubt that the MODVAT credit can be availed, as may be specified in the notification subject to the provisions of the conditions and restrictions that may be specified in the notification. Rule 57-C is clear on the point and provides that the credit of duty is not allowed if final products are exempt. The adjustment in duty credit under Rule 57E applies, if the duty paid on any inputs is varied subsequently due to any reason resulting in payment of refund to, or recovery of more duty from, the manufacturer or importer, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of an excisable product covered by MODVAT scheme under Section 4 (1)(b) of the Act read with Rule 6 of the Central Excise Valuation Rules, 1975 the Excise Duty paid on raw material is also covered by the MODVAT scheme, is not to be included. In real terms, it is the cost of the raw material (exclusive of freight, insurance and the like) which should properly be included in computing the cost of the excisable product. The Supreme Court referred to the MODVAT scheme in which the credit for Excise Duty paid on raw material can be used by the manufacturer, by way of reference to the working of the scheme for the purposes of valuation. The observations in Para 18, that the MODVAT credit may be taken against the Excise Duty on a final product manufactured on the very day that it becomes available, was made with reference to excisable final product. The Supreme Court was not considering the question of reversal of the MODVAT credit on raw material after the final products becomes wholly exempted from Excise Duty. 16. We have noticed that Rule 57-A underwent amendment and was substituted by M.F. (D.R.) Notification No. 6/97-C.E. (N.T.) dated 1st March, 1993, inserting Sub-rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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