ORDER
P.G. Chacko, Member (J)
1. The appellants are engaged in the manufacture of tyres and tubes of various sizes falling under Chapter 40 of the Schedule to the Central Excise Tariff Act, 1985 and are availing themselves of the benefit of Cenvat credit on inputs. On 15-8-2000, they were having Cenvat credit balance of Rs. 74,18,165/- in their RG-23A Part-II. On 20-8-2000, they debited an amount of Rs. 1,15,16,826/- towards duty on goods cleared during the period 1-8-2000 to 15-8-2000. The department alleged that the appellants utilized excess Cenvat credit amounting to Rs. 40,98,661/- which was not, allegedly, available to them under the provisions of Rule 57AB(1) (b) of the Central Excise Rules, 1944. Therefore, by show-cause notice, the department sought to recover from them a duty amount of Rs. 40,98,661/- towards duty on the clearances for the period 1 to 15 August, 2000 as also to impose on them penalty under Rule 173Q(1) of the Central Excise Rules, 1944. The party denied the department’s allegations and resisted the proposals for recovery of duty and imposition of penalty. The Commissioner of Central Excise, who adjudicated the dispute, confirmed the demand of duty against the appellants and imposed on them a penalty of Rs. 5 Lakhs. Hence the present appeal.
2. Heard both sides.
3. Ld. Counsel for the appellants submitted that the Cenvat credit in question was taken only on inputs physically received and accounted for in RG-23A Part-I in the first fortnight of August, 2000 (1 to 15 August, 2000). The credit entry was made in the RG-23A Part-II on 16-8-2000. On 20-8-2000, the credit was utilized for payment of duty on the goods cleared in the first fortnight of August, 2000. Ld. Counsel submitted that the credit taken on 16-8-2000 and availed on 20-8-2000 was not liable to be denied by reason of the fact that the credit entry was made in the RG-23A Part-II after the first fortnight of the month. He submitted that the proviso to Clause (b) of Sub-rule (1) of Rule 57AB, which was relied on by the department for denying the benefit of Cenvat credit, was introduced only w.e.f. 18-8-2000 under Notification No. 48/2000-CE.(N.T.) and that the proviso had no retrospective effect. Ld. Counsel submitted that the appellants’ case was covered by Clause (b) (without the proviso) of Sub-rule (1) of Rule 57AB, whereunder they were
entitled to utilize the Cenvat credit in the manner they did. In support of his contention that the proviso ibid had no retrospective effect, ld. Counsel relied on the Supreme Court’s decision in Excise Superintendent, Warangal and Ors. v. Deluxe Bar and Ors. [2001 (43) RLT 131]. He argued that the appellants had, a vested right to take credit on the duty-paid inputs received during the first fortnight of a calander month and to utilize the same for payment of duty on final product cleared during that fortnight. That right could not be taken away by the Notification which was issued after that fortnight and after the credit was taken by making entry in RG-23A Part II. Counsel further submitted that, as the credit was lawfully taken, there was no valid reason for imposition of any penalty on the party under Rule 173Q(1).
4. Ld. SDR reiterated the cross-objections filed by the department, and further sought to rely on the Board’s Circular No. 542/38/2000-CX, dated 25-8-2000.
5. We have examined the submissions. The appellants were liable to discharge duty liability on a fortnightly basis during the material period. Accordingly, the payment of duty on goods cleared during the first fortnight of a calander month had to be made on or before the 20th day of the month and the payment of duty on the clearances for the second fortnight of the month had to be made on or before the 5th day of the succeeding month. While making payment of duty on 20-8-2000 on the goods cleared during the first fortnight of August, 2000, the appellants utilized Cenvat credit to the extent of Rs. 40,98,661/- which had been credited on 16-8-2000 in their RG-23A Part-II in respect of the inputs received in their factory and entered in RG-23A Part-I during the said fortnight. According to the Revenue, such utilisation of credit was not permissible. The contention is that the credit which was entered in RG-23A Part-II only on 16-8-2000 was not available on 15-8-2000 (the last day of the first fortnight) for utilisation in the payment of duty on the final products. The Revenue has placed reliance on the proviso to Clause (b) of Sub-rule (1) of Rule 57AB. Ld. Counsel has, on the other hand, contended that the proviso which was inserted only after the close of the first fortnight had no application to utilisation of Cenvat credit taken on inputs received during the said fortnight. Ld. Counsel has argued that the proviso had only prospective effect. He has contended that the appellants’ case is covered by the main provision of Clause (b) without the proviso. Clause (b) of Sub-rule (1) of Rule 57AB [as amended by Notification No. 48/2000-CE. (N.T.)] reads as under :-
“The Cenvat credit may be utilised for payment of any duty of excise on any final products manufactured by the manufacturer or for payment of duty on inputs or Capital goods themselves if such inputs are removed as such or after being partially processed or such capital goods are removed as such :
Provided that while paying duty in the manner specified under Sub-rule (1) of Rule 49 or Sub-rule (1) of Rule 173G, as the case may be, the Cenvat credit shall be utilised only to the extent such credit is available on the fifteenth day of a month for payment of duty relating to the first fortnight of the month, and the last day of a month for payment of duty relating to second fortnight of the month or in case of a manufacturer availing exemption by notification based on value of clearances in a financial year for payment of duty relating to the entire month.”
6. We have examined the above sub-rule. It is not disputed by the
Revenue that, in terms of the main provision of the sub-rule, the appellants were entitled to utilise on 20-8-2000 the Cenvat credit of the duty paid on the inputs received by them during the first fortnight of August, 2000 towards payment of duty on final product. The Revenue would, however, like to apply the proviso retrospectively to cover the Cenvat credit entered in RG-23A Part-II on 16-8-2000. According to them, such retrospective application is permissible in terms of the Board’s Circular. We have examined the Board’s Circular as well. The relevant part of the Circular clarifying the position reads as under :-
” It has been decided to make it clear, by amending the Rule 57AB that for the payment of duty made for a fortnight’s clearances, the credit available for offsetting cannot extend to inputs/capital goods received beyond the fortnights. In other words, even though, the duly for the first fortnight is payable by the 20th, the Cenvat credit can be utilised only from the balance as exists on the 15th day of the month and not as on 20th. Similarly, though the duty liability for the second fortnight can be discharged by fifth of the following month, payment of duty from the Cenvat Credit Account maintained by the assessee cannot exceed the balance at the last day of the month.”
7. The above clarification cannot be relied on to contend that Cenvat credit on inputs received during the first fortnight of a calander month, taken in RG-23A Part-II on the 16th day of the month, would not be available for utilisation on the 20th clay of the month (the last day prescribed for payment of duty for the said fortnight) for utilisation in payment of duty on final products cleared during the said fortnight. The Board’s clarification is only to the effect that the credit available cannot extend to inputs received beyond the fortnight. In the instant case, the inputs were admittedly received in the first fortnight of August, 2000. The Cenvat credit of the duty paid on those inputs was entered in RG-23A Part-II on 16-8-2000 and the same was utilised on 20-8-2000 for payment of duty on final products cleared during the first fortnight. The utilisation of the credit was, therefore, in accordance with the main part of Clause (b) of Sub-rule (1) of Rule 57AB, as clarified by the Board. As rightly submitted by the Counsel, the proviso, which was added to the above Clause only on 18-8-2000, had no retrospective effect to cover the Cenvat credit entered in RG-23A Part-I on 16-8-2000 in respect of the inputs received in their factory and entered in RG-23A Part-I during the first fortnight. As the utilisation of the credit was lawful, no penalty was warranted under Rule 173Q(1). The order passed by the Commissioner is set aside and the appeal is allowed.