ORDER
Jeet Ram Kait, Member (T)
1. This appeal filed by the Revenue is directed against the Order-in-Appeal No. 16/03 (M-II) dated 28.2.2003 passed by the Commissioner of Central Excise (Appeals) Chennai, by which the Commissioner has directed the original authority to consider the question of sanction of rebate on its merits.
2. The brief facts of the case are that the assessee-respondents are engaged in the manufacture of Air-conditioners and parts thereof falling under heading 8414.00. They have availed Modvat Credit on the inputs in terms of Rule 57-A of the CE Rules, 1944. They have also filed declaration under Rule 173B on 1.4.99 claiming exemption from payment of duty in terms of Notification No. 75/87 dated 1.3.87. During the scrutiny of the RT 12 returns filed by the assessee-respondents, it was noticed that they have carried forward the unutilized credit lying in their RG 23A part II account to the extent of Rs. 4,06,594.00 and have also taken fresh credits to the extent of Rs. 4,49,773.44 during the period from 1.4.99 to 30.9.99. The assessee-respondents were clearing their final products without payment of duty in terms of Notification No. 75/87 dated 1.3.87. Rule 57C prescribed that the credit of duty shall not be allowed if the final product is exempted from payment of duty. It was in these circumstances that show cause notice was issued to the assessee-respondents and the show cause notice culminated in the order of adjudication passed by the Deputy Commissioner whereby he has confirmed the duty demand of Rs. 8,56,368 apart from imposing penalty of Rs. 1,00,000 under Rule 173Q of the CE Rules, 1944. He has also demanded interest under Section 11AB, and also rejected their refund claim for Rs. 3,53,075.22 under Section 11B of the CE Act, 1944. Aggrieved by the said order, the party filed appeal before the Commissioner (Appeals) who by the impugned order has held that the refund claim should not have been rejected. He has also directed the original authority to consider the rebate on merits. The Revenue has come in appeal against in said finding and order of the Commissioner (Appeals). In the grounds of appeal, it is inter alia stated that:
(a) As per Rule 57C, no credit of specified duty shall be allowed on such quantity of inputs which is used in the manufacture of final products which are exempt from the whole of duty of excise leviable thereon or are chargeable to NIL rate of duty. In the present case, the assessee had opted to avail Notification No. 75/87 dated 1.3.87 which envisages full exemption to the goods viz. Refrigerators & Air Conditioners and parts thereof if produced by SSI units. Therefore, it is obvious that the goods produced by the assessees attract NIL rate of duty, in terms of the Notification 75/87 dated 1.3.87.
(b) By the operation of Rule 57H(7) the balance of credit lying as on 1.3.99 will automatically lapse and the assessees are not entitled to take any credit whatsoever till such time the exemption limits as prescribed under Notfn. No. 75/87 are exhausted. The assessee had wrongly continued to take credit while under exemption as per Notfn. No. 75/87. Therefore, there is no possibility of accumulation credit from 1.3.99 to 31.3.99 and therefore the question of application of Rule 57F(13) does not arise.
(c) Assessees have not prayed for grant of Rebate. Hence, the Commissioner (Appeals) has gone beyond the scope of the appeal. Further, grant of rebate also depends on statutory provision of filing of declaration/certification by the Central Excise officers in ARE2 at the time of export. Having become ineligible to take Modvat Credit, the question of claiming a part of such credit as refund by the assessee or granting the rebate by the Commissioner (Appeals), without being prayed for by the assessee-respondents does not arise. The assessee-respondents by taking credit has rendered themselves liable to penalty under Rule 173Q.
3. Smt. Bhagyadevi, learned SDR appeared for the Revenue and reiterated the ground of appeal. She has further submitted that in the instant case, the assessee-respondents have opted to operate under Notification No. 75/87 dated 1.3.97 which envisaged exemption from payment of duty in respect of air conditioners and parts thereof cleared for home consumption and when they have cleared the goods which are exempted from payment of duty, in terms of Rule 57C, they are not entitled to take any credit. In terms of Rule 57H(7), the balance of credit if any lying in balance shall lapse and shall not be allowed for payment of duty on any excisable goods whether cleared for home consumption or for export. Therefore, the transfer of untilized credit of the previous financial year to the next financial year was not correct. She, therefore, prayed for setting aside the impugned order and allowing the appeal.
4. Heard Shri K. Ramachandran, learned Counsel for the appellants. He has pleaded that the impugned order is a reasoned order. He has also pleaded that the assessee-respondents have restricted their claim only to the duty paid on the inputs which have been used in the manufacture of the final products exported. He has further pleaded that the assessee-respondents are entitled to refund of the amount claimed in terms of Rule 57F(13). He has prayed for rejection of the Revenue appeal. He has also invited my attention to the Larger Bench decision in the case of Hotline Teletubes & Components Ltd. v. CCE, Bhopal, 2001 (77) ECC 301 (LB) : 2001 (131) ELT 300 (Tri-LB) wherein in similar circumstances the issue with regard to the plea for rebate, was remanded for consideration on merits.
5. I have considered the submissions made by both the sides and gone through the case records. I observe that in the instant case, the assessee-respondents have filed declaration under Rule 173B on 1.4.99 claiming exemption from payment of duty in respect of the goods viz. Air Conditioners and parts thereof, in terms of Notification No. 75/87 dated 1.3.87 which exempts refrigerating and air conditioning appliances and parts thereof, cleared for home consumption, on the basis of quantity and value based clearances. They have also been filing RT 12 returns regularly on quarterly basis. They have carried forward the unutilized credit lying in their RG23A Part II account to the extent of Rs. 4,06,594.30 when they opted to operate under Notification No. 75/87 dated 1.3.87. Apart from the above sum which they carried forward, they have also taken a fresh credit to the extent of Rs. 4,49,733.44 during the period from 1.4.99 to 30.9.99. The department has demanded the total sum of Rs. 8,56,367.74 as duty from the respondents. The contention of the department is that, once they have opted to operate under Notification No. 75/87 dated 1.3.87, with effect from 1.4.99, whatever credit remained unutilized as on date of 31.3.99 has lapsed in terms of Rule 57H (7). Therefore, the question of carrying forward of the unutilized credit and taking fresh credit does not arise, because the question of carrying forward of the unutilized credit would arise only when there was credit available and inasmuch as whatever credit, available, had lapsed, it cannot be said that there was credit available. The contention of the assessee-respondents, on the other hand is that, in terms of Notification No. 75/87 they were availing exemption only in respect of the goods cleared for home consumption and not for the goods exported out of the country. Their further plea is that even if the credit as it stood as on 31.3.99 has lapsed, the credit availed by them from 1.4.99 to 30.9.99 on the inputs used in the manufacture of the goods exported out of the country cannot be denied, in terms of Rule 57F(13). Their claim for refund is only for Rs. 3,53,075.82 which amount represented the credit availed on the, inputs they had already received and which inputs have been used in the manufacture of the final products exported out of the country under bond. From the impugned order, I find that the Commissioner (Appeals) has not discussed in detail about the lapsing of the credit except stating that “in the case of the appellants, there is no such provision to lapse the credit under Notification No. 10/99 in terms of which the assessee availed exemption from duty whereas in the issue on hand, the Notification under consideration is Notification No. 75/87-CE dated 1.3.87 and not Notification No. 10/99-CE dated 28.2.1999 as amended and effective up to 31.3.2000. However, for this discrepancy, I am not inclined to remand the matter to the Commissioner (Appeals) as all the materials are available before me to decide the issue. I have perused Notification No. 75/87 dated 1.3.87 which is a specific exemption Notification based on the value or quantity of clearances in a financial year, in respect of the goods cleared for home consumption and not for export under bond. I have also perused Rule 57H(7) which has been heavily relied upon by the Revenue in support of their plea to deny the benefit of modvat credit and refund. This Rule reads as under:
“A manufacturer who opts for exemption from the whole of the duty of excise leviable on goods manufactured by him under a Notification based on the value or quantity of clearances in a financial year, and who has been availing of the credit of the duty paid on inputs before such option is exercised, shall be required to pay an amount equivalent to the credit, if any allowed to him in respect of inputs lying in stock or used in any finished excisable goods lying in stock on the date when such option is exercised and after deducting the said amount from the balance, if any lying in his credit, the balance if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any excisable goods, whether cleared for home consumption or for export”
6. In the present case, the assessee has opted to operate under this Notification bearing No. 75/87-CE dated 1.3.1987 with effect from 1.4.99. It is clear from Rule 57 H(7) extracted above, that it is a notification based on value or quantity of clearances. Therefore, the provisions of Rule 57H(7) would apply to the assessee-respondents. Therefore, the credit taken by them, for the period up to 31.3.99, i.e. the date prior to the option to operate under Notification 75/87 dated 1.3.87, is not in accordance with Rule 57H(7) inasmuch as when the entire credit lying in stock on the crucial date i.e. 1.4.99 has lapsed, the question of carrying forward the untilized credit does not arise. Therefore, I hold that credit lying as on date of opting to operate under Rule 57H(7) has lapsed, I, however, observe that the show cause notice sought to deny credit on the ground that since the final products were cleared on payment of ‘nil’ duty and inasmuch as Rule 57C provides that credit of duty is not to be allowed if the final products are exempted, they are to eligible for Modvat Credit. In the present case, it cannot be said that the goods were totally exempted in terms of the cited Notification. On the other hand, it is an exemption Notification based on value and quantity of clearances in a financial year. Therefore, the rule which operates against the assessee-respondents is Rule 57H(7) and not Rule 57C, so far as lapsing of the credit is concerned, whether the final products are cleared for’ home consumption or for export.
7. Now I proceed to examine the claim of the appellants for refund of duty in respect of the duty paid on the inputs which have been used in the manufacture of the final products exported. The plea of the appellants is that they are entitled to refund of the said duty in terms of Rule 57F(13). The said rule is reproduced below for convenience of reference:
“Where any inputs are used in the final products which are cleared for export under bond or used in the intermediate products cleared for export in accordance with sub-rule (4), the credit of specified duty in respect of the input so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed to refund of such amount subject to safeguards, conditions and limitations as may be specified by the Central Govt, by Notification in the Official Gazette.”
7.1. I observe that this very question has been addressed by the Larger Bench in the case of Hotline Teletubes & Components Ltd. v. Bhopal, 2001 (131) ELT 300 wherein the Larger Bench has held as under:
“The provision for refund of the credit amount is a provision in lieu of utilization of the credit towards payment of duty on any final products cleared for home consumption or for export. Likewise, refund of duty credit amount can be allowed only if the credit of duty is lying in balance in the Modvat account. Without any such credit of duty lying in balance in the Modvat account, neither utilization nor refund will be possible”.
8. In the present case, admittedly the entire credit lying in balance in the Modvat account lapsed on and from 1.4.99 i.e. the day when the appellants opted to operate under the provisions of Notification No. 75/87-CE dated 1.3.87 which is a conditional Notification. Therefore, when there was no credit lying in their account, the question of claiming any refund of the credit does not arise. Rule 57F(13) will come into operation in a case where Modvat credit are otherwise admissible and in a situation where they are not able to adjust/utilise the same on account of the final product being exported under bond. Therefore, I am of the considered opinion that the assessee-respondents are not entitled to any refund of the duty paid on the inputs contained in the goods exported. Therefore, the conclusion reached by the lower appellate authority that their refund claim should not have been rejected, is hot correct.
9. Now coming to the next plea of the Revenue that the lower appellate authority has gone beyond the scope of the appeal in regard to grant of rebate as the assessee did not pray for granting rebate, I observe that the assessee-respondents have taken a specific ground in their appeal before the lower appellate authority, that the refund claim is nothing but a rebate of duty paid on the inputs and they have prayed for refund of duty as rebate. Therefore, the plea of the Revenue that the party has not prayed for rebate is incorrect. In the case of Hotline Teletubes & Components (supra), the Larger Bench in identical situation has remanded the aspect regarding grant of rebate. Therefore, following the ratio of the said decision, the remand of the matter for consideration of the prayer for grant of rebate on merits is in accordance with Rule 12 (1) (b), as held by the lower appellate authority, cannot be found fault with and I uphold that part of the order of the lower” appellate authority remanding the matter for consideration of the prayer for grant of rebate on merits, in respect of the duty paid on the inputs used in the manufacture of the final product exported, in accordance with law.
10. In the backdrop of the case as discussed above, there is no justification for imposition of penalty on the assessee-respondents under rule 173Q and so also demand of interest, under Section 11AB. In the result, the impugned order is modified to the extent indicated above and the appeal is disposed of in the above terms.