TMI Blog1994 (6) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... , 57G(1) (2) and 57-I which are as follows :- ******** 11.Learned Chartered Accountant, Shri B.K. Kulkarni appearing for one of the appellants, namely M/s Kirloskar Oil Engines Ltd. involved in the present reference has submitted that the purpose of MODVAT Credit Scheme is to mitigate the high cost of economy and complete reimbursement of duty paid on inputs. He has drawn attention to para 113 in the portion relating to proposals concerning Indirect Taxes in Hon'ble Finance Minister for the Union of India's Speech on 28-2-1986 [1986 (23) E.L.T. A105]. The learned Chartered Account has stressed on the following sentence in the speech :- "This Scheme which has been referred as Modified Value Added Tax (Modvat) Scheme-I shall stress MODVAT, not MADVAT - allows the manufacturer to obtain instant and complete reimbursement of the excise duty paid on the components and raw materials". In order to have a clear idea of the purpose of the Scheme we reproduce below paras 113 to 115 of the Hon'ble Finance Minister's Speech :- In excise taxation a vexatious question which has been "113. often encountered is the taxation of inputs and cascading effect of this on the value of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in exempted plain shaft bearings in terms of the aforesaid notifications. In short, he submits that allowing of credit and utilisation of credit are two different things and once the credit is taken correctly utilisation has to be strictly governed under Rule 57F(3). Rule 57C which creates a bar on allowing the credit would not come into operation after the credit has been allowed. 11.2Apart from the aforesaid general submission, he submits that even if it is taken that Rule 57C disallows credit already taken in view of the inputs having been used for fully exempted goods, the exemption should be one which is irrevocable and not the type of exemptions under the Notifications 217/85 and 75/86. The two exemptions, he submits, are subject to observance of procedure under Chapter X. If the goods so cleared under that Procedure are not duly accounted for the consignee of the goods would have to pay the duty on such plain shaft bearings in the present case. Therefore, it cannot be said that the final products in the present case i.e. plain shaft bearings are fully exempted from duty. On this ground, he submits that reversal of MODVAT Credit in the instant case would not be justified, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Government. Inputs have been defined in that Rule as excisable goods which are used in or in relation to manufacture of final products. Under Rule 57G a declaration is required to be made of the specified final product to be manufactured by an assessee and the specified duty paid inputs which he would be using in the manufacture of such final product. After making such a declaration and receiving an acknowledgement thereof from the Central Excise Officer, the assessee is competent to take the MODVAT Credit of duty paid by him on inputs brought by him in his factory for use in the manufacture of final products. The manufacturer is required to keep an account of the quantity of inputs as well as of the credit taken on inputs and utilised by him in two parts which is known as RG.23A-Pt. I Pt. II respectively. Rule 57C creates a bar on allowing or taking of MODAT Credit in respect of duty paid inputs which are used in the manufacture of final products wholly exempted from duty or chargeable to nil rate of duty. Rule 57F, inter alia, provides for manner of utilisation of the MODVAT Credit so taken. 13.1We notice that there is no direct decision of any High Court which has been bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed27. to take proforma credit of the duty, paid on inputs, as soon as the inputs are brought into the factory. This credit is then utilised and the manufactured goods are cleared and is not linked to any particular item of the manufactured product. The language of the new notification, does not require the inputs to be correlated with end-product. Similarly, under Rule 56A of the Rules, which is the procedure, applicable to Notification No. 97/579—C.E. as amended by Notification No. 58/82-CE, no correlation is required between the inputs and the final product. Moreover, the Notification No. 201/79, as well as Rule 56A of the Rules, are self-contained codes and, the manner in which exemption is to operate, is laid down in the appendix to the said notification, as well as, Rule 56A. ..........., on the other hand, has contended that the28 direction, given by the Assistant Collector, is in accordance with law. As per the aforesaid Notification No. 201/79 and Rule 56A of Rules, nothing apply to the goods, which are exempted from the whole of the duty of excise and/or chargeable to nil rate of duty. In our view, there is a force in the contention29. of..................It appears th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of Rule 56A(2) and in the light of the exemption notification they were not entitled to the credit and therefore, they should pay it back. The Tribunal in the said case held as follows :- In the absence of any direct judicial authority, the case"18. has to be decided from first principles and whatever other guidance may be available. It appears to us that the Ahmedabad Collectorate trade notice, which is evidently based on clarifications given by the Board or the Ministry of Finance, does have relevance to the case. Notification No. 95/79 was one with quite a wide scope, covering several important commodities. It was also stipulated in the notification that in relation to the exemption, the procedure set out in Rule 56A should be followed. This being so, it could reasonably be assumed that the detailed clarifications given with reference to this notification were such as the higher authority considered to be consistent with the provisions of Rule 56A. With reference to point (5), it has been clarified that19. proforma credit of the duty paid on inputs accrues to the manufacturer immediately on receipt of the inputs in his factory. This necessarily means that the credit is av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.22. Of these, sub-rule (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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cleared under the exemption notification depending upon when the orders from the original equipment manufacturers were received. SRB in dealing with the aforesaid two contentions has observed as follows in para 5 of the said judgment :- .............. . In the present case there is no plea from"5. the revenue that the credit, which was taken on the inputs received, was wrongly taken. The objection of the Revenue is only in regard to the utilisation of the same. Further, we observe, in the nature of things when the inputs are received the respondents might not have known that part of the end products would be cleared without payment of duty as the clearance under the exemption for the original equipment by the manufacturer would depend upon the orders placed for the supply. It would not also be known at the time when the inputs are received as to which portion of the goods into which the inputs are going would be cleared under the exemption notification. The Rules as such provide for taking up Modvat Credit on the specified inputs when the specified product in or in relation to which these inputs are to be used, are not exempt. In the present case it is not the case of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed products as and when the same are cleared. No correspondence is provided for in regard to the quantum of inputs used in the finished product and the credit available in respect of the inputs going into a batch of the final product cleared on payment of duty. The rules appear to have been separately worded to ensure that such questions of correlation do not arise and the purpose of providing for modvat credit or proforma credit facilities is not defeated by each clearance becoming an issue regarding the quantum of credit that can be taken. The Rules as are worked clearly provide for the utilisation of the credit taken in respect of the inputs for payment of duty towards the final product irrespective of when the final product is cleared and whether a particular batch of inputs has gone into that particular batch of the final product. In the Rules, it is seen, so far as an event of taking credit is concerned that is provided for separately under Rule 57A and the event of utilisation of the credit has been wrongly taken, the same can be reversed or recovered within a period of six months or 5 years as provided for under Rule 57-I. The same would apply in case the said credit has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be disallowed if the final products become exempt. There is no escape from that, in terms of Rule 57C. Simply because another manufacturer has, with alacrity, utilised the credit before utilising the inputs themselves he cannot be given more favoured treatment, unless the law allows him the same. It is here that the strict construction of the relevant provisions comes into play. In view of our discussion of Rule 57F(3), we feel the strict apportionment of credit of duty paid on inputs for utilisation for payment of duty on the final product arising from them is inherent therein. The liberal treatment of allowing the credit to be not only taken immediately on receipt of the inputs, but also to be utilised without looking into whether the inputs have been taken up for manufacture and whether the final products are made from that lot of the inputs is an extra-legal working arrangement based on executive instructions without statutory backing. The restriction imposed by Rule 57C will become otiose if a laiberal construction is given to Rule 57F(3). The latter has got to be read down in the manner indicated by us to make the functioning of Rule 57C meaningful. The allowing of cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit is taken. These goods need not be exempted goods, but will be those goods on which duty is payable under the Act. It further appears from the judgment of Delhi High Court in Goodyear India that they have not taken specific notice of proviso to sub-rule (2) of Rule 56A. In so far as appendix to Notification 201/79 is concerned, there is no such provision corresponding to proviso to sub-rule (2) of Rule 56A, although it may get implied from the main part of the said notification that the said notification is applicable only if the final product falling under Item 68 is dutiable inasmuch as it has been exempted equivalent to the duty of excise already paid on the inputs. The question of application of Notification 201/79 would not, therefore, be applicable in respect of the final products under Tariff Item 68 if they are otherwise fully exempted. 17.It is, no doubt, true that the stage of taking the MODVAT Credit is immediately at the time of receipt of the inputs and the duty paying documents thereon in the factory whereas utilisation of the credit would be only at a later stage when the inputs are utilised in the manufacture of the final product and clearance of the said prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emand of duty on inputs (raw material used in the manufacture of clinical samples) related to the period between January 1, 1961 and March 31, 1970. In this connection, paras 7 and 8 of Bombay High Court's judgment in the case of Geoffrey Manners are reproduced below :- Mr. Desai submits that the excisable goods produced by the"7. petitioners are not wholly exempted from the duty and what Notification (Ex.B) provides is exemption only to clinical samples limited to a quantity not exceeding 5% by value of the total duty paid during the preceding months. It is not possible to accept the submission of the learned counsel. In my judgment, the two authorities below were right in holding that proviso (i) of sub-rule (2) of Rule 56-A clearly attracts to the advantage claimed by the petitioners in respect of clinical samples under the Notification. Mr. Desai submits that what is required under the proviso is total exemption to a particular item and not only to a quantity limited to 5%. The submission is that the products manufactured by the petitioners are not exempted but only a concession is given in respect of quantity not exceeding 5% of the value of the total duty paid. Mr. Desai su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It is a settled position that there can be no estoppel against law. If a manufacturer therefore wants to avail of the benefit of any notification, he can do so even at a later stage even by filing a refund claim so long as it is within the period of limitation. 17.2What has been said above in respect of an existing exemption notification at the time of receipt of the inputs and when MODVAT Credit is taken may equally be applicable in our view even if the exemption notification in respect of a final product is received subsequently after the credit on the inputs has been taken inasmuch as embargo under Rule 57C would still operate. However, we would not express any final opinion in respect of a notification having its enforcement w.e.f. the date subsequent to the receipt of the inputs of which credit has already been taken. This is partly because of the fact that the facts and circumstances of the present cases do not call for expressing an opinion on that later ..... X X X X Extracts X X X X X X X X Extracts X X X X
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