TMI Blog2000 (8) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... nufactured in a 100% E.O.U. and cleared to the Domestic Tariff Area (D.T.A.). According to Notification the duty payable under Section 3 of the Central Excise Act will be 50% of each of the duties of Customs leviable under Section 12 of the Customs Act read with any other notification for the time being in force provided that the amount of duty payable shall not be less than the duty of excise leviable on the like goods manufactured by a manufacturer in DTA. In case of procuring of Pellets from 100% E.O.U., the quantum of Modvat credit is determined in terms of Notification No. 5/94. 2.2According to the Department, duty paid under Notification No. 2/95 comprises of two elements-basic customs duty and Additional duty of Customs - and the entitlement for Modvat credit is required to be restricted to the component of additional duty of customs. On the other hand, the contention of the Appellants is that the 100% E.O.U.s pay duty of excise under Central Excise Act and Notification No. 2/95-C.E. only determines the quantum of such excise duty required to be paid; that the entitlement has to be seen in the light of Notification No. 5/94-C.E. which provides for availment of credit of du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of excise duty leviable on these goods when cleared from 100% E.O.U. would also be 10% ad valorem; that by this Proviso, the Central Government has put 100% E.O.U. at par with a domestic manufacturer in so far as payment of excise duty is concerned; that while the proviso ensures that a 100% E.O.U. shall not pay less than the duty payable by a manufacturer in DTA, it provides for levy of a higher rate of duty on the goods in cases where the rate of customs duty happens to be higher. 3.2The learned Counsel, further, submitted that under the Modvat Scheme, a recepient manufacturer is entitled to the credit of duty paid by manufacturer of inputs; that when goods are received from 100% E.O.U., there is a restrictive clause in Notification No. 5/94-C.E. (N.T.) which provides as under :- "Credit of specified duty in respect of any inputs produced or manufactured - …………..(a) by a hundred percent export oriented(b) undertaking...........and used in the manufacture of final products in any place in India, shall be restricted to the extent of duty which is equal to the additional duty leviable on the goods under section 3 of the Customs Tariff Act, 1975 [51 of 1975], [equivalent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision in Hyderabad Industries v. U.O.I., - 1999 (108) E.L.T. 321 (S.C.). 5.Shri Lodha, learned Advocate, said that likewise, proviso to Notification No. 5/94 has to be interpreted; that it has to be ascertained as to what is the extent of additional duty of customs leviable and paid on like goods when imported into India and restrict the modvat credit to that extent; that in other words, it is to be imagined that like goods are being imported and ascertain the extent of additional duty of customs which will be required to be paid on such goods and restrict the credit to that extent; that proviso to Notification 5/94-C.E. (N.T.) uses the expressions 'leviable' and 'paid'; that this is so because what is leviable need not required to be paid. He relied upon the decision in the case of Modi Rubber Ltd. v. U.O.I., - 1996 (84) E.L.T. 173 (S.C.) wherein it was held that "where Section 4(4)(d)(ii) lays down that 'value' does not include the amount of duty of excise, if any, payable on such goods, an enquiry will have to be made as to the amount of effective duty of excise, which is actually payable on the goods and not merely leviable in accordance with the rates prescribed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Advocate for M/s. Kundalia Industries, submitted, in addition to the submissions made by Shri C.S. Lodha, that Notification No. 5/94-C.E. (N.T.) is a self contained or integrated code in itself for determining the amount of Modvat credit available and Modvat credit has to be allowed in terms of the said Notification; that three steps to be adopted for determining the amount of Modvat credit available to a unit purchasing inputs from an E.O.U. in terms of Notification 5/94 or 177/86, would be as under : Take a notional import from abroad of the very goods made by(a) a 100% E.O.U.; work out the additional duty of customs payable on such import. Take the total amount of excise duty actually paid by the(b) 100% E.O.U. under Section 3(1) of the Central Excise Act read with any applicable exemption notification. If excise duty paid as per (b) above is more than the(c) additional duty of customs payable as per (a) above, credit would be restricted to (a) above; If the excise duty as per (b) above is less than the amount as per (a) above, it will be restricted to (b) above. 7.2He also mentioned that proviso to Notification does not require the department to ascertain the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion "the excise duty leviable" means the excise duty for the time being in force which would be leviable on a like article; that leviable duty means the effective duty. He relied upon the decision in the case of Motiram Tolaram v. U.O.I., - 1999 (112) E.L.T. 749 (S.C.) wherein it was held that on the correct interpretation of Section 3 of the Customs Tariff Act, the rate of duty would be only that which an Indian Manufacturer would pay under the Excise Act on a like article. The learned D.R. then mentioned that it is thus appearant that the expressions 'leviable' and 'payable' mean the same thing. Learned JDR explained that 100% E.O.Us are being promoted for increasing the export of the Indian goods; that these units are like Islands created in the country; that according to para 106 of the Import Export Policy, 1992-97 supplies from DTA to E.O.Us. is regarded as deemed exports and will be eligible for the refund of excise duty, CST and duty draw back, exemption from payment of central excise duty on capital goods, components and raw materials and discharge of export obligation, if any, on the supplier; that similarly supply from 100% E.O.U. to DTA should be regarded as deemed imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Modvat credit- Scheme. Modvat credit availment is to be restricted to the actual payment of additional customs duty paid on the inputs. 9.Refering to decision in Weston cases, the learned D.R. submitted that the facts in both Weston cases are similar; that the department's view was that since no countervailing duty was paid by 100% E.O.U. no credit should be available to the units in DTA; that in first Weston case, the Appellate Tribunal held that notification No. 97/91-C.E. was relevant for interpreting application of notification No. 177/86-C.E.; that similarly in the present matters Notification No. 2/95-C.E. is relevant for interpreting and application of notification No. 5/94; that secondly it is mandatory for the purpose of availing of Modvat credit that the duty is paid on inputs; if no duty is paid, the question of availing of any Modvat credit cannot arise under Rule 57A; that thirdly even the Bench, which referred the case of Vikram Ispat, did not agree with the decision in Second Weston case that "it is nowhere laid down that the additional duty should be paid or should have been paid." Bench while referring the matter observed that this view is a wrong statement as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent Modvat credit will be available to a unit in DTA, on receipt of goods from 100% E.O.U; that this additional customs duty payable satisfy the phrase "paid on such inputs". He also mentioned that the clearances from 100% E.O.U. to DTA cannot be termed as deemed export as nowhere any such fiction has been provided in any law. The learned Advocate explained his submissions by giving various examples. Two such examples are as under :- Example I A. Rate of Duty (a) Exise duty 10% (b) Customs duty 5% (c) Add. Customs duty 10% B.Excise Duty Payable by 100% E.O.U. for clearance (a) Get exemption to the extent of 50% of Customs duty (2.5%) and 50% of Add. Customs duty (5%) and pay remainder = 7.625% (b) But payment cannot be less than domestic excise duty = 10% Hence payment of excise duty = 10% C.Modvat Availment by Manufacturer 10%= Example II A.Rate of Duty - (a) Excise duty 10% (b) Customs duty 50% (c) Add. Customs duty 10% B.Excise Duty Payable by 100% E.O.U. for clearance to DTA (a) Get exemption to the extent of 50% of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Orissa, AIR 1961 SC 459 wherein it was held that the method in which the fee is recovered is a matter of convenience and by itself it cannot fix upon the levy the character of the duty of excise. In this case a fee was levied by the State of Orissa on the basis of 5% of the value of the minerals at the pits mouth. It was challenged that the CESS was in the nature of duty of excise. The Supreme Court did not agree with this contention holding that "it is difficult to appreciate how the method adopted by the Legislature in recovering the impost can alter its character........ In our opinion, the mere fact that the levy imposed by the impugned Act had adopted the method of determining the rate of levy by reference to the minerals produced by the mines would not by itself make the levy a duty of excise. Again the Supreme Court in the case of U.O.I. v. Bombay Tyre International, supra, held that Section 3 of the Central Excise Act creates the charge and defines the nature of the charge that it is a levy on excisable goods, produced or manufactured in India. "The levy of tax is defined by its nature, while the measure of the tax may be assessed by its own standard". The Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to the manufacture of the said final products and the credit of duty so allowed shall be utilised for payment of duty leviable on the said final products, or as the case may be, on such inputs, if such inputs have been permitted to be cleared under rule 57F of the said Rules : Provided that, - credit of specified duty in respect of any inputs produced or(i) manufactured - (a) in a free trade zone and used in the manufacture of final products in any other place in India; or by a hundred percent export-oriented undertaking or by a unit(b) in an Electronic Hardware Technology Park and used in the manufacture of final products in any place in India, shall be restricted to the extent of duty which is equal to the additional duty leviable on like goods under section 3 of the Customs Tariff Act, 1975 (51 of 1975), equivalent to the duties of excise specified under (i) and (ii) above paid on such inputs;" 14A perusal of this notification reveals that a. manufacturer is eligible to avail of the credit of the entire duty of excise paid under the Central Excise Act on inputs which are used in or in relation to the manufacture of the final products. However, the first pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Modvat credit. On careful reading of two notifications referred to above and Section 3 of the Central Excise Act, 1944, we find that credit of additional duty of customs has been permitted only for the purpose of bringing in equity in the case where the inputs were imported on payment of additional duty of customs. In the instant case we do not see any connection between actual payment of additional duty by a 100% E.O.U. because what is paid by a 100% E.O.U. is central excise duty. If any central excise duty has been paid by a 100% E.O.U. while selling the goods in Domestic Tariff Area, customer becomes entitled to take Modvat credit and the extent of Modvat credit is determined by notification No. 177/86. So we have to read notification for measuring the quantum of credit that can be taken out of total central excise duty paid on such goods." 15.The referal Bench in the case of M/s. Kundalia Industries was inclined to agree with the views taken in the First Weston case. The referal Bench in the case of Vikram Ispat has made a reference to the Larger Bench as two judgments of the Tribunal were in opposite directions. The Bench, however, was of the view that the observations in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantum of duty the measure adopted is duty leviable under Customs Act as held by the Supreme Court in many cases referred to above. The method adopted by the law makers in recovering the tax cannot alter its character. Once it is held that the duty paid by the 100% E.O.U. in respect of goods cleared to any place in India is excise duty, the question of dissecting the said duty into different components of basic customs duty, auxilliary duty, additional duty of Customs or any other customs duty does not arise. The proforma of AR-1A on which the reliance was placed by the learned D.R., cannot change the legal position that the duty levied on 100% E.O.U. is a duty of excise and not customs duty. 17The question then arises is how to determine the. quantum of Modvat credit available to the manufacturer in respect of the goods procured from a 100% E.O.U. The only method, which, we feel, is available to the Revenue is as suggested by the learned Counsel, i.e. ascertain firstly the additional duty of customs leviable on like goods, if imported into India from outside India; ascertain the actual amount of duty paid by the 100% E.O.U. on the goods cleared to any part in India under Notific ..... X X X X Extracts X X X X X X X X Extracts X X X X
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