ORDER
S.L. Peeran, Member (J)
1. This appeal arises from Order-in-Original No. 13/06 dated 20.9.06 by which the Commissioner of Central Excise, Mangalore has confirmed duty amount of Rs. 84,95,66,016/- being the 10% of the value of 314160.229 MTs of exempted goods falling under Chapter 15 of Central Excise Tariff Act 1985 cleared during the period from March 05 to January 06 under Rule 14 of Cenvat Credit Rules read with Rule (6)(3)(p) of Cenvat Credit Rules 2004 and a penalty of Rs. 1,00,000/- under Section 11A of CE Act.
2. The appellants are engaged in the manufacture of excisable goods falling under Chapter heading 3815 of CET Act 1985. The goods falling under Chapter 15 are exempted from payment of duty during the budget 2005. They availed Cenvat credit on the inputs and the input services used in the manufacture of final products. The department after scrutiny of ER returns for the months from March 05 to January 06 have observed that the assessee had availed and utilized the credit of duty on the inputs, capital goods and input services under the provisions of Cenvat Credit Rules 2004. The department was of the view that during the period March 05 to January 06, as they had cleared quantity of 314160.229 MTs of exempted goods falling under Chapter 15 of CET Act 1985 by using inputs as well as input services as they had not maintained separate records for receipts and utilization of such inputs and input services for the manufacture of dutiable and exempted goods, Therefore, it was alleged in the show cause notice that they were required to pay the amounts equal to 10% of the price excluding sales tax and other taxes payable on such goods of the exempted final products charged by the manufactures for the sale of such goods at the time of their clearance from the factory in terms of Sub-rule 6(3)(b) of Cenvat Credit Rules. The appellants denied the charge and contended that they had reversed the credit in respect of any inputs used in the manufacture of exempted goods under Chapter 30 and relied on large number of judgments to contend that once they have reversed the credit they are not required to pay 10% of the value of the exempted goods. They also contended that the show cause notice issued on 3.4.06 for the period March 05 to January 06 is clearly barred by time, as all the details had been informed to the department and there was no suppression of facts or mis-representation, mis-declaration. However, the Commissioner in his impugned order rejected all their pleas and held that they were liable to pay 10% of the value of the exempted gods as they had not maintained separate records and they had availed the entire credit. The same is challenged in this order.
3. The Tribunal heard the matter in extensio and passed the interim order granting stay by Miscellaneous Order No. 54/07 dated 13.2.07. The submission of the learned senior counsel has been summarized in para 2 of the miscellaneous order which is reproduced herein below.
The learned Senior Counsel submits that on this very issue, this bench, in the case of GTN Textiles Ltd., in Appeal No. 1020A/2006 by Stay Order No. 97/2007 dated 29.01.2007, has granted full waiver relying on the ruling rendered in the case of K.G. Denim Ltd., v. CCE Salem . He relies on the Larger Bench judgment rendered in the case of Franco Italian Co. Pvt Ltd., v. CCE Mumbai-II wherein it has been held that once the reversal of the Modvat credit taken with regard to the inputs has been done, then they are not required to discharge an amount of 10% equivalent to the value. The Larger bench judgment rendered in the case of Icon Pharma & Surgical Pvt Ltd and Ors. v. CCE Ahmedabad 2000 (40) RLT 918 (CEGAT-LB) was also relied. Further reliance is placed on CCE, Ludhiana v. Suraj Solvent & Vanaspati Industries 2007 (78) RLT 205 (CESTAT-Del). Reliance is placed on Hetero Drugs Ltd v. CCE, Hyderabad Final Order Nos. 1518 & 1519/2005 dated 26.8.2005. Reliance is also placed on this Bench’s order rendered in CCE Visakhapatnam v. Deccan Sugars 2006 (199) ELT 529 (Tri-Bang) and Tube Investments of India Ltd., v. CCE Madurai 2004 (177) ELT 880 (Tri-Chennai.) The learned Counsel submits that it is difficult to understand as to how such huge duty amount could be confirmed when reversal was only Rs. 26,59,546/-. He submits that the Revenue has not given the work out of the duty amount arrived at by them which is astronomical in figures. He submits that this amount cannot be arrived at all.
The matter was placed for hearing stay application on 29th March 07. The matter was heard and stay order No. 294/07 was passed which is as follows:
The stay application is taken up for hearing. The matter was heard and prima facie case was made out by the appellants. Therefore, the Miscellaneous Order No. 54/2007 dated 13.2.2007 granting interim stay of the matter was granted. Para 2 of the interim stay order is reproduced herein below, which refers to the citations given by the learned Sr. Counsel.
2. The learned Senior Counsel submits that on this very issue, this bench, in the case of GTN Textiles Ltd. in Appeal No. 1020A/2006 by Stay Order No. 97/2007 dated 29.01.2007, has granted full waiver relying on the ruling rendered in the case of K.G. Denim Ltd. v. CCE, Salem . He relies on the Larger Bench judgment rendered in the case of Franco Italian Co. Pvt. Ltd. v. CCE, Mumbai-II wherein it has been held that once the reversal of the Modvat credit taken with regard to the inputs has been done, then they are not required to discharge an amount of 10% equivalent to the value. The Larger Bench judgment rendered in the case of Icon Pharma & Surgical Pvt. Ltd. and Ors. v. CCE, Ahmedabad 2000 (40) RLT 918 (CEGAT-LB) was also relied. Further reliance is placed on CCE, Ludhiana v. Suraj Solvent & Vanaspati Industries 2007 (78) RLT 205 (CESTAT-Del.). Reliance is placed on Hetero Drugs Ltd. v. CCE, Hyderabad Final Order Nos. 1518 & 1519/2005 dated 26.08.2005. Reliance is also placed on this Bench’s order rendered in CCE, Visakhapatnam v. Deccan Sugars 2006 (199) ELT 529 (Tri.-Bang.) and Tube Investments of India Ltd. v. CCE, Madurai 2004 (177) ELT 880 (tri.-Chennai). The learned Counsel submits that it is difficult to understand as to how such huge duty amount could be confirmed when reversal was only Rs. 26,59,546/-. He submits that the Revenue has not given the work out of the duty amount arrived at by them which is astronomical in figures. He submits that this amount cannot be arrived at all.
2. We had directed the revenue to file their Para-wise comments and the learned JCDR has filed a detailed para-wise comments. In Para-wise comments, the learned Joint Commissioner has attempted to distinguish the Apex Court judgment rendered in the case of M/s. Chandrapur Magnet Wires (P) Ltd. has not reverted to submissions made in Para 2 which is extracted (supra) as to how such huge of amount of Rs. 84,95,66,016/- has been confirmed when reversal was only Rs. 26,59,546/-. Further submission was that revenue had not given the working out of the duty amount arrived at by them. It is astronomical figure which is more than 400 times the duty involved. On this aspect no comments have been furnished despite directions given in the interim stay order.
3. We have heard both sides in the matter. We find that the appellants have already reversed Rs. 26,59,546/- along with interest. The only plea taken in this pare-wise comments is that they are liable to pay 10% of the value of the goods, as they have not maintained separate accounts. On this point, the learned Sr. Counsel relied on large number of judgments to show that once the credit has been reversed, then the question of demanding 10% of the value of the goods does not arise. We have gone though the Para-wise comments and the submissions made by the learned Counsel. We notice that the issue is prima facie covered by the following judgments.
(i) K.G. Denim Ltd. v. CCE, Salem
(ii) Hetero Drugs Ltd. v. CCE, Hyderabad Final Order Nos. 1518 &, 1519/2005 dated 26.08.2005.
(iii) CCE, Visakhapatnam v. Deccan Sugars 2006 (199) ELT 529 (Tri.-Bang.)
(iv) Tube Investments of India Ltd. v. CCE, Madurai 2004 (177) ELT 880 (tri.-Chennai).
In all the above noted judgments, the ruling of M/s. Chandrapur Magnet Wires (P) Ltd. has been applied. The contention raised by the Commissioner in the Para-wise comments does not appear to be tenable. The appellants have already reversed the credit availed by them on inputs, therefore, the question of raising demands which are 400 times then the duty leviable does not appear to be justified. The Commissioner has not given out the working of the duty arrived at by the revenue despite directions given in the interim stay order. The appellants have shown
prima facie case in their favour and also they have pleaded financial hardship. For all these reasons, the stay application is allowed unconditionally granting full waiver of pre-deposit and staying its recovery till the disposal of the appeal. As the amounts involved in this appeal are huge, matter can be taken up for out of turn hearing on 10th May 2007.
In terms of the stay order, matter has come up for final hearing today. Learned Counsel has filed a paper book comprising of 25 judgments in his support and submitted that the issue is covered and contended that the issue is fully covered in terms of the judgments cited by him which includes even the rulings of this bench as rendered in Hetero Drugs The finding of the said Final order No. 1518, 1519/2005 dated 26.8.05 is reproduced herein below.
6. We have gone through the records of the eases carefully. The issue of availing CENVAT credit in respect of common inputs used for dutiable and exempted products is subject matter of litigation in several disputes. The judicial for a have clearly enunciated the principle that once the credit availed in respect of the exempted products is reversed there is no need for payment of duty at 8% of the sale value of the exempted goods. The case laws cited by the ld. Counsel for the appellants are very relevant. Even this bench of this Tribunal, in the case of Glaxo Smithkline Consumer Healthcare Ltd. v. CCE (supra) has held that when the appellants had reversed the entire credit taken on the inputs used for exempted products the demand of 8% is not sustainable The Hon’ble Supreme Court in the case of Chandrapur Maganet Wires (P) Ltd. (supra) has held that the reversal in. Modvat credit indicates as if no credit was taken on the inputs. In a Notification which gives the benefit of the Notification on condition that no Modvat credit has been taken on inputs, reversal of Modvat credit is permissible to avail exemption. Therefore, we hold that the orders in Appeal and Orders-in-Original cannot be sustained. We allow the appeals with consequential relief. There is also no justification for invoking the extended period as the fact of reversal of the Modvat credit had been intimated to the department in ER I Return. Both the appeals are allowed.
Learned Counsel also refers to the judgments of this bench rendered in Siripur paper Mills v. CCE (supra). The finding recorded in para 6 of this order is also reproduced herein below.
We have gone through the records of the case carefully. The fact that appellant used common inputs for both the dutiable and exempted goods is not in dispute They are also not maintaining separate accounts for the inputs used in dutiable and exempted goods. Under these circumstances, they are covered by Rule 57CC/Rule 6. However, it is seen that 95% of the goods produced are cleared, on payment of duty and 5% are cleared at nil rate of duty. The appellants submit that the credit attributable to exempted final products has already been reversed. The dutiable demand at 8% is Rs. 2.69 crores However, the credit attributable to exempted goods is only Rs. 4.29 lakhs. We also feel that such a demand over Rs. 2 crores when the credit involved is only Rs. 4.29 lakhs is unjust especially when the appellants had already reversed credit The Apex Court in the case of Chandrapur Magnet Wires Pvt. Ltd., v. CCE, Nagpur has held that the reversal of credit on input used in the manufacture of final products amount to non availment of credit on inputs used in the exempted products and consequently the assessee was eligible for the benefit of the notification as the assessee was not availed of the credit. Applying ratio of this decision, we hold that when the credit attributable on the inputs used in the exempted product is reversed, there is no justification to demand 8% of the sale amount. In view of the above observations, we allow the appeal with consequential relief.
The finding recorded in Forbes Gokak Mills in para 4 is reproduced herein below.
4. On a careful consideration, we agree with the learned Counsel that the issue is covered in their favour in terms of the ruling rendered by this bench in the case of Reid and Taylor by Final Order No. 866/06 dated 5.5.06. The finding recorded in Para 4 to 6 is reproduced herein below:
4. The learned Advocate, relied on the decision of the Apex Court in the case of Chandrapur Magnet Wires (F,) Ltd. v. CCE, Nagpur wherein it is held that, on reversal of Modvat Credit, the assessee cannot be said to have taken credit of duty on the inputs utilized in the manufacture of the exempted final products. Consequently, exemption from duty is not deniable to final product even if the exemption Notification stipulates a condition that exemption to final product is not available where Modvat credit under Rule 57A taken on inputs used in the manufacture of final products in question. In the above case, the Supreme Court has set aside the decision of the CEGAT denying the benefit of exemption notification. The learned Advocate pointed out that this case squarely applies to the present case. Further, he said that the Board’s Circular stipulating maintenance of separate accounts will have to be read in the context of Rule 6 and could not have been read de hors Rule 6 and this will become all the more relevant since it is a well laid down principle of law that any circular issued by the Board even under Section 378 will have to be in furtherance of and not contrary or in derogation to provisions of the Act or Rules thereof. [Pahwa Chemicals Pvt. Ltd. v. CCE, Delhi 2005 (151) EL.T. 339 (SC.)]. Further reversal of the credit before or prior to the removal of the goods would be sufficient to satisfy the condition of the Notification as held in the following, decisions:
Andhra Pradesh Paper Mills Ltd. v. CCE
Grasim industries Ltd. v. CCE, Indore 2005 (66) RLT 363 (CESTAT-Del).
Wearwell Tyre & Tubes Inds. Pvt. Ltd. v. CCE
Bharat Earth Movers Ltd. v. CCE, Bangalore 2001 (136) E.L.T. 225 (Tri.-Bang.)
CCE, Mumbai, VII v. Pearl Polymers Ltd. 2003 (158) E.L.T. 775 (Tri.-Mumbai)
Final Order No. 1260/2004 dated 21-7-2004 of CCE v. MIs. AVN Enterprises, Bangalore passed by SZB at Bangalore
5. The learned Departmental Representative reiterated the orders of the lower authority.
6. We have gone through the records of the case carefully. Even though the appellants have not maintained separate accounts, they have reversed the credit taken and attributable to the goods cleared free of duty before the removal of the goods from the factory. The Chandrapur Magnets case is squarely applicable to the facts of the case. In that view of the matter, one can safely say that no input credit had been availed. Hence, the condition of non-availment of input credit in respect of Notification 30/2004 is satisfied.
The OIA cannot be sustained. The same is set aside. We allow the appeal with consequential relief if any.
5. Learned senior counsel submits that in view of the issue being settled, the impugned is required to be set aside.
6. Learned JCDR refers to the written submissions filed by the Commissioner. However in his usual fairness contended that he is not in a position to distinguish the judgments. Although the Commissioner has filed his reply contending that despite reversal of credit they are required to pay 10% of the value of the exempted goods cleared during the period.
7. On a careful consideration, we are of the considered opinion that the issue in this appeal is no longer res-integra as the matter has been decided by all the citations referred by Senior counsel and the extract of the judgment cited above.
The appeal is allowed with consequential relief.
(Operative portion of the order already pronounced in open court on conclusion of the hearing)