JUDGMENT
K.K. Usha, President
1. This appeal is placed before
the Larger Bench by a reference under Order No. C-I/2077-79/WZB/2001,
dated 1-8-2001 by the West Regional Bench of the Tribunal
2. The reference was necessitated in view of conflicting decisions of
two High Courts, namely Super Cassettes Industries v. Union of India – 1997 (94)
E.L.T. 302 of the Allahabad High Court and Collector of Central Excise & Customs,
Cochin v. Premier Tyres Ltd. – 2001 (130) E.L.T. 417 of Kerala High Court. Since
the decision of the Kerala High Court was rendered following a decision of
the Supreme Court in Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd. –
1999 (112) E.L.T. 353 (S.C.), it was felt that the matter need not go before 7
Member Bench in spite of the decision of the Larger Bench of the Tribunal in
Khanbhai Esoofbhai v. Collector of Central Excise, Calcutta – 1999 (107) E.L.T. 557
(Tribunal-LB).
3. The issue that arises for consideration is whether credit availed
and utilised under the Modvat Scheme during the period when the final
products were dutiable is required to be reversed when subsequently the final
product is exempted from duty. Facts in the present case are not in dispute.
The respondent is manufacturing both Kerosene Wick Stove as well as
parts of Kerosene Wick Stove. When Kerosene Wick stove were wholly exempted
from duty under Notification dated 1-3-94 the parts which were also
end products of the respondent were not granted the exemption. Subsequently,
parts captively consumed were exempted under Notification No.
10/96-C.E., dated 23-7-96. The respondent had obtained Central Excise licence
since parts of the stove were not exempted prior to 23-7-96. The respondent
worked out the stock of inputs lying with them aggregating to Rs.
12,17,473/- as on 22/23-7-96 and accordingly reversed an amount of Rs.
2,01,261/- vide RG 23A, Part II, Entry No. 421, dated 9-8-96 and an amount of
Rs. 10,16,212/- vide Personal Ledger Account Entry No. 373, dated 9-8-96.
Later on, realising that they were not required to pay/reverse the credit of
the inputs, already utilised by them before 23-7-96 they filed a claim for refund
of Rs. 10,16,212/- before the competent authority. This claim was rejected
by the adjudicating authority holding that availing of credit in anticipation
of the use of the inputs in the manufacture of dutiable products become
irregular once the finished products become exempt from duty. The
finished products loosing their dutiable character would have its effect on the
credit of duty taken and utilised already. If such credit had been taken and
also utilised already, then such utilisation was irregular and had to be recovered.
4. On appeal by the assessee, Commissioner (Appeals) took a different
view. According to him, the assessee is entitled to claim refund in respect
of the credit which they had already utilised while clearing their final
product at a time when it was dutiable. He took the view that there is no
provision in law to recover the credit of duty on inputs which has been
availed and utilised at the material time in the clearance of final product. He
placed reliance on the decision of the Supreme Court in Eicher Motors Ltd. v.
Union of India – 1999 (106) E.L.T. 3 and certain other decisions. We find no
reference in this order to the decision of the Allahabad High Court in Super
Cassettes Industries Ltd. or to the decision of the Larger Bench of this Tribunal
in, Khanbhai Essoofbhai. It is true that the decision of the Kerala High Court in
Premier Tyres Ltd. case was after the appellate order but the decision of the
Supreme Court in Dai Ichi Karkaria Ltd. which was rendered as early as on 11-8-99
is not seen placed before the appellate authority.
5. In Super Cassettes Industries Ltd. a decision rendered by a Single
Judge of the Allahabad High Court it was held that Rule 57A shows Modvat
credit is available for utilising the credit so allowed for payment of excise
duty leviable on the final products and therefore, there can be no finalised
credit unless the inputs are used in accordance with Rules 57A and 57F and
either excise duty on the final products is paid or the inputs are otherwise
disposed of for home consumption or export etc. Till such events occur, the
Modvat credit is only provisional and cannot be said to be final and irrevocable. It was further held that the inputs which have been used in the manufacture
of final products, which have become exempt from excise duty, Modvat
credit in respect of such inputs becomes inadmissible and will have to be
reversed. In Premier Tyres Ltd. the Kerala High Court took the view that if at
the time of taking the Modvat credit final products are not exempted it is not
necessary to reverse the entry in the light of a subsequent exemption Notification
relating to the end product. In taking the above view reliance was
placed on the Supreme Court decision in Dai Ichi Karkaria Ltd.
6. Before the Supreme Court the Attorney General drawing support
from the decision in Super Cassettes Industries Ltd. contended that there could
be no final credit until the inputs were used and excise duty on the final
product was paid or the inputs were otherwise disposed of. The submission
was that the credit was a contingent credit. It might be disallowed under certain
circumstances. The manufacturer did not have any indefeasible right or
title to it. The credit of excise duty on the raw material in the register maintained
for Modvat purposes was only a book entry which might be utilised
later for payment of excise duty on the excisable product. In other words, it
matured when the excisable product was removed from the factory and the
stage for payment of excise duty thereon was reached. This argument did not
find favour with the Apex Court. The nature of the credit for excise duty paid
on raw material was explained in the following manner:-
“It is clear from these Rules, as we read them, 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 acknowledgement thereof. It is entitled to use the credit at
any time thereafter when making payment of excise duty on the excisable
product. There is no provision in the Rules which provides for a reversal of
the credit by the excise authorities except where it has been illegally or irregularly
taken, in which event it stands cancelled or, if utilised, has to be paid for.
We are here really concerned with credit that has bene validly taken, and its
benefit is available to the manufacturer without any limitation in time or otherwise
unless the manufacturer itself chooses not to use the raw material in
its excisable product. The credit is, therefore, indefeasible. It should also be
noted that there is no co-relation of the raw material and the final product;
that is say, it is not as if credit can be taken only on a final product that is
manufactured out of the particular raw material to which the credit is related.
The credit may be taken against the excise duty on a final product manufactured
on the very day that it becomes available.”
7. The learned Departmental Representative very staneously argued
interpreting different provisions relating to the Modvat Scheme that
availing of Modvat credit was not irrevocable and when subsequently the
end product was exempted from duty the entry has to be reversed event it the
credit has been utilised by the time. He placed reliance on the following decisions
of the Supreme Court in –
(1) CCE, Meerut v. Mod Rubber Ltd. [2001 (133) E.L.T. 515 (S.C.)]
(2) CCE, Jaipur v. Raghuvar (India) Ltd. [2000 (118) E.L.T. 311 (S.C.)] =
2000 (38) RLT 777 (S.C.)]
(3) Chandrapur Magnet Wires (P) Ltd. [1996 (81) E.L.T. 3 (S.C.)]
(4) CCE, Vadodara v. Dhiren Chemical Industries [2002 (139) E.L.T. 3
(S.C.)]
and took us through those decisions. We find that none of these decisions relate
to the issue with which we are concerned. We are not informed that a later
decision of the Supreme Court has taken a different view from Dai Ichi Karkaria
Ltd. In view of the above, we are bound by the dictum laid down by the
Supreme Court in Dai Ichi Karkaria Ltd. Since the issue is now covered directly
by a decision of the Apex Court, we find it not necessary to place the matter
before a Bench of 7 Members even though a Bench of 5 Members has taken a
contra view in Khanbhai Essoofbhai.
8. In the light of the above, we dismiss the appeal.