TMI Blog2017 (1) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... hikari, J. ) 1. By this writ petition under Article 226 of the Constitution of India, the petitioners seek the following reliefs:- a) that this Hon'ble court pleased to declare Rule 57C of the Central Excise Rules, 1944 unconstitutional and ultra vires Article 14 of the Constitution of India and/or Rule 57A of the Central Excise Rules, 1944; b) that this Hon'ble Court be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate writ, order or direction calling for the papers pertaining to this case and after going into the question of legality and validity thereof to quash and set aside the Impugned order dated 28.12.1994 (Exhibit 'D' hereto); c) that this Hon'ble Court be pleased to issue a Writ of Mandamus or a writ in the nature of Mandamus or any other appropriate writ order or direction, ordering and directing the Respondents, their officers, subordinates, servants and agents to forthwith withdraw the demand of duty amounting to ₹ 29,88,435/-; .. 2. At the hearing of this writ petition, the petitioners' counsel does not press the relief in terms of prayer clause (a), by which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturer of castings, at the time of receipt of inputs for manufacture of castings, it is not aware or cannot foresee which inputs shall be used in the manufacture of castings which the buyer decides/elects to purchase on payment of duty or on remission of duty sanctioned by the competent authority. However, three show cause notices were issued by the third respondent, calling upon the petitioners to show cause why the credit of duty wrongly availed by petitioner no. 1 in respect of inputs used in the manufacture of castings cleared without payment of duty should not be recovered under Rule 57-I read with Section 11A of the Act. Annexures 'A', 'A1' and 'A2' are the copies of the notices. By letter dated 11th October, 1993, a reply was filed by the petitioners to these notices, but not being satisfied with the explanation, a demand came to be confirmed on 18th February, 1994. Thereafter, an appeal was preferred to the second respondent, who dismissed it on 28th December, 1994 relying upon an order passed by the tribunal in the case of Kirloskar Oil Engines Ltd. vs. Collector of Central Excise, Pune 1997(73) ELT 835. 5. The respondents to this writ peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding final product. Once no one to one co-relation in the inputs of finished product is necessary, then, this right cannot be refused or denied. Precisely that has been done in the present case. Mr. Bharucha would submit that remission of duty on excisable goods could not be equated to either exemption or duty being chargeable at nil rate. The product continues to remain dutiable, albeit, the duty is remitted. It is in these circumstances that he would question the conclusion in the impugned order. 8. Our attention has also been invited to the rules in question to submit that the respondents have not appreciated the facts in their proper perspective. The castings manufactured by the petitioners are neither exempted from excise duty nor are they chargeable to nil rate of duty. The expression chargeable at nil rate of duty means that as per the charging section of the Act read with the Schedule to the Central Excise Tariff Act, 1985, the goods are chargeable at nil rate of duty. The word exemption means the goods attract the duty, but are exempt by virtue of the power conferred in that behalf. It is in these circumstances and when neither eventualities are satisfied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reversed the MODVAT Credit for inputs used in the manufacture of these aluminium castings cleared under Chapter X procedure, chargeable to nil rate of duty from the month of August, 1992 to November, 1992. The assessees were, therefore, called upon to show cause as to why MODVAT Credit availed on these inputs should not be reversed. Since the assessees have availed the MODVAT Credit on inputs used in the manufacture of these aluminium castings cleared under Chapter X without payment of duty, contravention of Rule 57C of the Central Excise Rules, 1944 was alleged. The first show cause notice is dated 28th January, 1993. It provides all the details of the MODVAT Credit availed of. Then, there is a show cause notice, copy of which is at Annexure 'A-1' dated 24th May, 1993 with identical allegations, but for a distinct period, namely, from December, 1992 to April, 1993. Finally, there is another show cause notice, copy of which is at Annexure 'A-2' and with identical allegations, but for the period commencing from May, 1993 to September, 1993. 12. The reply to the show cause notice by the assessees was that they are not liable to reverse any MODVAT Credit of inputs g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribunal, in the case of Kirloskar Oil Engines (supra). In that the tribunal concludes that MODVAT Credit in terms of Rule 57C in respect of inputs, which have been used in manufacture of final product, fully exempted from the whole of duty of excise levaible on such products, is not available. Reproducing relevant paragraphs of the tribunal's decision, the appellate authority holds that the legal issue has been finally settled by this judgment. Once the assessees have cleared the castings (final product) without payment of duty, their case is covered by the tribunal's decision. Therefore, the appeal was dismissed. 15. The relevant rules have been placed for our perusal by the counsel appearing for the petitioners. The Chapter X procedure, which is highlighted, would denote that therein falls Rule 192, which speaks of an application for concession. The concession can be granted provided an application is made as contemplated by this rule. The argument is that there is a difference between a remission and an exemption from payment of duty. Rule 57A reads as under:- Rule 57A. Applicability (1) The provisions of this section shall apply to such finished excisable goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final products that the credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975, as may be specified in the said notification, paid on the goods used in or in relation to the manufacture of the final products (referred to as 'inputs') can be availed of. Thus, the credit of duty of excise paid on the goods is used or in relation to manufacture of the said final products is allowed, but that is towards payment of duty of excise leviable on the final products. Rule 57A is stated to be conferring a substantive right. What the parties are relying upon is Rule 57C, which reads as under:- Rule 57C. Credit of duty not to be allowed if final products are exempt. - No credit of the specified duty paid on the inputs used in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hundred per cent Export Oriented Unit) shall be allowed if the final product is exempted from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty. 17. A bare perusal of this rule would indicate as to how no credit of the specified duty paid on the inputs used in the manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. It is that view of the tribunal and correctness of which fell for consideration of the High Court of Kerala. That is how it made observations in paras 4 and 5 in holding that utilisation of the credit comes after allowing a credit of duty paid on the inputs. If any credit is wrongly taken and then utilised, there are provisions in the MODVAT Scheme under Rule 57-I, by which limitation of period has been provided for recovery of the wrong credit initially taken or utilised. The High Court held that utilisation of the credit is different from taking the MODVAT Credit if at the time of taking the MODVAT Credit, products are not exempted. Thus, it is not necessary to reverse the entry immediately. It is enough if it is utilised later. In the case before the High Court, exemption notification was subsequently issued. The exemption notification was not there at the time when the credit was taken. Thus, on facts the question of law was answered in favour of the assessee and against the Revenue. 20. In the case of Kirloskar Oil Engines Limited (supra), the larger bench of the tribunal was deciding the correctness of a view referred for its opinion. The tribunal found that the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the question of its utilisation after having taken a wrong credit does not arise. If any credit is wrongly taken and then utilised, there are provisions in the MODVAT Scheme itself under Rule 57-I by which limitation of period has been provided for recovery of the wrong credit initially taken or utilised. Thus, the object of the MODVAT Scheme was to avoid high cost economy or to give a complete reimbursement of the duty so that there is no hyper technical embargo on initially giving of MODVAT Credit of duty paid on inputs used in the manufacture of fully exempted final product. There, the argument that stage of utilisation is different from the stage of giving credit is not relevant. Once there is an existing notification on the statute book at the time of receipt of inputs for use in the manufacture of such final products, it cannot be stated with any element of correctness that the manufacturer was not aware of availing of the said exemption notification in the absence of any order in his hand for clearing the final product under the said notification. 21. Therefore, the observations in para 17.1 would apply to cases which are of the nature found by the tribunal. The allega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to nil rate of duty or wholly exempt from payment of duty. Then, the argument was that the petitioner being manufacturer of castings at the time of receipt of inputs for manufacture of castings was not aware or cannot foresee which inputs shall be used in the manufacture of castings which the buyer decides/elects to purchase on payment of duty or on remission of duty sanctioned by the competent authority. Pertinently, the petitioners did not provide any explanation as to why they reversed the duty. The argument was that there is no one to one co-relation. Therefore, there is no bar to the petitioners availing the benefit of MODVAT Credit. As long as there are clearances of final product on payment of excise duty, but admitting that some clearances of final product were without payment of duty, that the action is justified by the petitioners. 22. We are of the clear opinion that when the impugned order terms this exercise of the petitioners as jugglery, then, that finding and remark is fully justified. We have perused the entire paper book and found that there is no explanation provided, much less reasonable and plausible by the petitioners for the decision to initially revers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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