ORDER
A.C.C. Unni, Member (J)
1. These are a batch of 18 appeals referred to this Larger Bench for consideration of an important question of law. The question raised relates to continued availability of Modvat Credit under the Central Excise Rules, 1944 and the legality of the assessee’s claim to retain the said credit when the final product becomes fully exempt from payment of duty. Or, on the flip side, was it legal and proper for Revenue to seek recovery of Modvat Credit correctly taken and utilized by an assessee on (a) inputs lying in stock and (b) inputs used in manufacture of final products lying in stock, when the final products become exempt from duty or when the assessee opts for full exemption under a notification. There were conflicting views expressed by different Benches of this Tribunal on these questions. While some of the decisions supported the view that Rule 57C would require reversal/recovery of credit taken others have held that the Rules do not provide for any such recovery or demand for reversal of such credit.
2. We had the benefit of hearing Ld. Advocates Shri J.P. Khaitan, who appeared in Appeal No. E/72/92-Cal (Khan Bhai Esoofbhai v. C.C.E., Calcutta), Shri Gopal Prasad, Consultant, who appeared in three Appeals No. E/3090/90-NB, E/936/97-NB and E/1272/97-NB (all Appeals filed by Vidya Plywood (P) Ltd. v. C.C.E., Kanpur), Shri L.P. Asthana, Advocate, who appeared in Appeal No. E/74/94-MAS (JM. Bottling (P) Ltd. v. C.C.E.), Shri V. Sridharan and Shri M.P. Devnath, Advocates, who appeared in Appeal Nos. E/3080, 3081/94-NB, E/1681 to 1683/94-NB, E/2687/94-NB (filed by C.C.E., Meerut v. Super Electronics and Super Electronics v. C.C.E., Meerut) and Appeal No. E/1296/96-NB (filed by Brooke Bond Upton (I) Ltd. v. C.C.E., Kanpur). In other Reference matters mentioned above, no one was present for the assessees when the cases were called.
3. Shri B.K. Gupta, Ld. Jt. CDR along with Shri Sanjeev Srivastava, Ld. JDR, represented the Department and made submissions on behalf of Revenue.
4. Shri J.P. Khaitan, Ld. Counsel, who led the arguments for the asses-sees submitted that the various Benches of the Tribunal had taken conflicting decisions on the question whether Modvat credit once validly taken under Rule 57A can be disallowed/recovered when the final product had subsequently become non-modvatable by virtue of an exemption notification. In this connection, he referred to the following decisions of the Tribunal, holding in favour of the assessees :
In Delhi Bottling Co. Ltd. v. C.C.E., 1997 (96) E.L.T. 608 (Tribunal) the Tribunal had taken the view that reversal of credit taken on inputs for manufacture of final products lying in stock was not warranted where the final product (aerated water) become exempted subsequent to the availment of Modvat credit following the decision in Pearl Drinks (P) Ltd. v. C.C.E. 1993 (68) E.L.T. 209 holding that Modvat credit taken in respect of unutilised inputs would not be recoverable, there being no specific provision under Modvat rules for recovery of Modvat credit. The Tribunal had also noted the Gujarat High Court decision in Dipak Vegetable Oil Industries Ltd. v. Union of India, 1991 (52) E.L.T. 222 wherein it was held that the right to credit accrues as soon as the inputs enter the factory. In C.C.E. v. Beama Manufacturers (P) Ltd., 1996 (82) E.L.T. 562 (Tribunal), it was held by the Tribunal that Modvat Credit taken on the inputs lying unutilised need not be reversed where exemption notification is issued during pendency of utilisation of inputs. The Tribunal had, in Vikrant Tyres v. C.C.E., 1988 (38) E.L.T. 301, while dealing with a claim for proforma credit under rule 56A held that final products were not necessarily be duty paid for inputs to be eligible for proforma credit. In another decision relating to claim for proforma credit it was held that credit was not liable to be disallowed if finished goods become exempted (C.C.E. v. Wipro Information Technology Ltd., 1988 (33) E.L.T. 172. In Triply Drinks (?) Ltd. v. C.C.E., 1993 (63) E.L.T. 101 (Tribunal). The Tribunal had held that Modvat credit already availed of and utilised need not be reversed in relation to unutilised inputs. The Apex Court in H.M.M. Ltd. v. C.C.E., 1996 (87) E.L.T. 593 had held that the assessee will be eligible to take credit on entire duty paid on inputs received under set off Notification No. 201 /79-CE. In two further decisions of the Tribunal relating to Modvat credit on aerated waters the Tribunal had taken the view that Modvat credit already availed and utilised in respect of unutilised inputs need not be reversed [C.C.E. v. Black Diamond Beverage (P) Ltd., 1998 (101) E.L.T. 48 (Tribunal) and C.C.E. v. Ludhiana Bottling Co., 1998 (99) E.L.T. 671 (Tribunal)]. He referred to and explained the provisions of Section AA of the Central Excise Rules, 1944 incorporating the Modvat scheme. Ld. Counsel contended that the Modvat scheme was introduced for avoiding the cascading effect of excise levy and the Rules provided for taking of credit on any duty of excise or additional duty paid by a manufacturer on the goods used by him in or in relation to the manufacture of final products and for utilising the credit so allowed towards payment of duty leviable on the final products. Rule 57C barred allowing of credit if the final product is exempted from the whole of excise leviable thereon or when it becomes chargeable to nil rate of duty. Rule 57F further provided that the inputs in respect of which the credit had been allowed under Rule 57A may be used in or in relation to the manufacture of the final products for which such inputs have been brought into the factory or if they are removed from the factory for home consumption or for export only on the payment of appropriate duty of excise or under Bond when removed for export as if such inputs had been manufactured in the said factory.
5. Ld. Counsel submitted that, the only High Court decision holding that Modvat credit taken in respect of inputs which are in stock has to be reversed when the final product becomes exempt or liable to Nil duty was the decision of the Allahabad High Court in Super Cassettes Industries v. Union of India, 1997 (94) E.L.T. 302, which was delivered without taking note of the Apex Court decision in H.M.M., 1996 (87) E.L.T. 593 (S.C.). The said decision of the Allahabad High Court was therefore passed per incuriam in relation to the Apex Court decision and therefore it did not have precedent value and therefore not binding on the Tribunal. Ld. Counsel, S/Shri L.P. Asthana, Gopal Prasad, V. Sridharan and M.P. Devnath adopted and endorsed the submissions made by Shri Khaitan with to the reference matters which they represented.
6. The Ld. Jt. CDR, Shri Gupta appearing for Revenue submitted at the outset that the Tribunal was bound by the decision of the Allahabad High Court in Super Cassettes Industries case which was a direct decision on the point at issue. He submitted that among the other decisions relied on by the Ld. Counsel some decisions related either to Proforma Credit or Money credit. Besides, the Apex Court decision in H.M.M. case, supra, related to interpretation of an Exemption Notifications and not to the availability of Modvat credit under Rule 57A when the final product became exempted from duty. Since the Apex Court decision in H.M.M. case did not relate to the question of disallowance/reversal of Modvat credit under Rule 57A when the final product became a non-modvatable item, there was no question of the Allahabad High Court judgement in Super Cassettes Industries case becoming per in curiam.
7. Further, Modvat scheme under Section AA of the Central Excise Rules was intended to prevent cascading effect of excise levy on manufactured goods. Its effect was only to prevent imposition of duty upon duty. He emphasised the fact that Rule 57A specifically provided that credit is required to be ‘allowed’ and there was no concept under the Rules of credit being availed of unilaterally by the assessee. Rule 57A specifically provided that the duty that may be specified by Notification has to be first paid on the inputs for utilising such credit towards payment of duty payable on the final products. He submitted that the credit is available only for utilising it towards payment of duty of excise payable on the final products and not for anything else. When no duty is leviable on the final products in terms of an exemption Notification or when the final product becomes leviable to nil rate of duty, there can be no question of any credit being available or being allowed. On a reading of Rules 57 A to 57-1 it would be clear that the credit on inputs available to the assessee is to be utilised for payment of duty on the final products manufactured by him out of such inputs. Rule 57C specifically sets an embargo on allowing credit of the duty paid on inputs if final product is exempted from payment of duty. Even in a situation envisaged under Rule 57F where the inputs are not used in or in relation to the manufacture of the final product and where it is allowed to be cleared for home consumption or for export, it is imperative that duty is paid on such goods as if they were manufactured and cleared from the factory. Ld. Jt. CDR referred to the Apex Court decision in Chanderpur Magnets v. C.C.E. 1996 (81) E.L.T. 3 and the Larger Bench decision in Kirloskar Oil Engines v. C.C.E., Pune 1994 (73) E.L.T. 835 and contended that these decisions had correctly interpreted the Modvat scheme. In Chanderpur Magnets case the Apex Court had held that the bar of Rule 57C was absolute and for clearing any goods under exemption, utilising of the said inputs against which Modvat credit have been taken, reversal of Modvat credit was a condition precedent. Where inputs are being used for manufacture of final products which are cleared without payment of duty under an exemption notification, the inputs would be deemed to have been accounted for having regard to the bar of Rule 57C. Hence the demand for reversal of credit would be in the nature of demand of duty on inputs. In the Larger Bench decision in Kirloskar Oil Engines, supra, the Tribunal had taken the view that even if the exemption notification in respect of final product is received subsequently after credit on the inputs had been taken, the embargo under Rules 57C would still operate. In any event, since the Allahabad High Court has now handed down a clear decision on the question and held that there was no warrant for the view that Modvat credit once availed by making the necessary entries was irrevocable. He submitted that all the previous decisions of the Tribunal would now stand over-ruled by the said judgment of the Hon’ble Allahabad High Court and this Larger Bench was bound by the said position. Ld. Jt. CDR also submits that it would be quite clear from the above decisions that any credit taken on inputs received prior to the final product becoming exempt from duty/nil rate of duty, any such credit lying with the assessee have to be disallowed or reversed.
8. Further, since the Modvat scheme is intended to reduce the burden of excise levy on the final consumer, any interpretation which gives a manufacturer assessee the benefit of credit of duty on inputs where the final product for the manufacture of which the credit had initially been taken by the manufacturer becoming subsequently exempt/subject to nil rate, this would result in an unjust enrichment of the manufacturer assessee at the cost of the consumer/State. He quoted from the Apex Court decision in Mahabir Kishore v. State of Madhya Pradesh, 1989 (43) E.L.T. 205 (S.C.) (Para 10) wherein the Apex Court had held that the principle of unjust enrichment can take the form of direct advantage to the recipient by way of receipt of money or by way of an indirect benefit where inevitable expenses have been saved.
9. We have considered the elaborate submissions made on behalf of the assessees and the Department. We do not feel it necessary to advert to in detail to all these submissions since for purposes of deciding the limited question which has been raised for our consideration, reference to the decision given by Hon’ble Allahabad High Court in Super Cassettes Industries Limited v. Union of India, 1997 (94) E.L.T. 302 (All.) would suffice since it directly covers the issue and is binding on us. In the said case the assessee manufacturer had in a Writ Petition under Article 226 of the Constitution challenged the decision of the Collector of Central Excise (Appeals), Ghaziabad, rejecting the assessee’s claim for refund of certain amounts on the ground of limitation. The appellants had taken credit on certain inputs used in the manufacture of final products, audio cassettes. By Notification No. 117/90, dated 16-5-1990 the final products became exempt from excise duty. On the date on which audio cassettes became exempted from duty, the assessee had certain inputs in stock in respect of which they claimed credit of a sum of Rs. 1,97,243.157- by crediting the same in their PLA account. Subsequently, on 28-6-1990 and 2-7-1990 they adjusted the PLA Account by debiting the said sum. Thereafter the assessee filed a refund claim for the said sum on realising that there was no provision in the Central Excise Rules for recovery of credit correctly taken under Rule 57A. Assessee thereafter filed a refund claim on 15-1-1991 contending that the said amounts had been debited in PLA Account by mistake. The Assistant Collector rejected the refund claim on the ground that the same was not maintainable on merits and also on the ground of time bar under Section 11B. The Collector (Appeals) also dismissed their appeal against the order of the Assistant Collector on the ground of limitation. The assessee thereupon took up the matter before the Hon’ble High Court in a Writ Petition. After analysing the provisions of relevant rules and Section 11B of the Central Excise Act, 1944 and some of the decisions of the High Courts on the question of limitation, the Hon’ble High Court observed that the judgements relied on by the assessee in their support related to cases where sums had been illegally realised by the Department and where the Department had claimed that refund cannot be allowed on ground of limitation provided under Section 11B. The Hon’ble High Court distinguished the said judgements since they related to cases where the payment/recovery was patently mistaken and not authorised by law. As regards the Tribunal decisions holding that since Rule 57G contained no provision for reversal of credit once taken by manufacturer and that the dealer was not legally required to reverse the credit already taken by it by making debit entries in the PLA Account, the Hon’ble High Court noted that other than certain orders passed by the CEGAT, no High Court had dealt with the said controversy. Though, in paragraph 10 of the said judgement the Hon’ble High Court had primarily dealt with only the aspect of debiting all the amounts in PLA Account, its relevance in the context of continued availability of credit taken under Section AA of the Rules has been dealt with in the following manner :-
10. As is evident, entries in PLA account and other documents are at times provisional in nature and become final after certain events take place. For example a personal ledger account is commenced with a credit entry represented by a cash deposit in the treasury as required under Rule 9. When the first deposit is made in the treasury there is no payment of any excise duty. The deposit and the corresponding credit in the PLA account is only a provision for making payments of excise duty on the goods that are manufactured and are to be removed. Therefore, when a person makes the cash deposit in the treasury he does not actually pay excise duty he only makes a provision for the payment thereof and the actual excise duty stands paid only when it becomes payable in accordance with the Act and the Rules. Rule 57A clearly shows that Modvat credit is available for utilising the credit so allowed towards payment of excise duty leviable on the final products. 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 product is paid or the inputs are otherwise disposed of for home consumption or export etc. Till such event occur the Modvat credit is only provisional and cannot be said to be final and irrevocable. It is only for certain accounting purpose that the amount is credited to the PLA Account and can be used as a credit balance for actual payment of duty on manufactured goods at the time of their removal. The final settlement would, however, happens only when such inputs have actually been used for the purposes of specified and/or excise duty has been paid on the final product. It is true that Rule 57G does not specifically contemplate a reversal of the credit but this is implied from purpose of the Scheme and the nature of the Rules.
11. As already stated, Rule 57C clearly states that no credit of duty paid on inputs shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty. This provision clearly contemplate a situation like the one before us. There is another provision in Rule 57-1 where the officer can demand the reversal of the credit which has been taken on account of an error, omission or mis-construction. It was contended that when the credit was taken the final product was not exempted from excise duty and it is only subsequently that the final product became exempt from excise duty and, therefore, Rule 57C was not attracted. This contention is not correct. The whole Scheme is in respect of excisable goods and, therefore, if the product is exempted from excise duty from a particular date the Modvat credit taken in respect of inputs which are in stock has to be reversed. Even the inputs that have been used in the manufacture of final products which have become exempt from excise duty. Modvat credit in respect of such inputs also becomes inadmissible and will have to be reversed. In my view there is no warrant for the view that Modvat credit once availed by making the necessary entries is irrevocable. This would amount to unjust enrichment and cannot be conceived of in the light of the rules on the subject. I am, therefore, of the view that the debit entries made by the petitioner for reversing the Modvat credit availed by it were in compliance of its legal obligation and it cannot be said that by making such entries the petitioner has made any illegal payment to the Union of India. On the other hand, the net result is that the Union of India has received only what it was justly entitled to receive i.e. the duty on the inputs. What was exempt from excise duty was only the final product and not the inputs.
12. In view of the above discussions, I find no merit in the petitioner’s claim for refund and it was patently barred by time as well. It is not necessary in the circumstances of the case to deal with the plea of alternative remedy because that is not a complete bar to the jurisdiction of this Court under Article 226 of the Constitution of India. The writ petition is, accordingly, dismissed with costs.
10. We are of the view that the above extracts of the Allahabad High Court judgment, fully covers the issue raised before us. Respectfully following the ratio we hold that Modvat credit taken in respect of inputs which are in stock as well in respect of inputs used in the manufacture of final products which have become exempt, would be inadmissible and will have to be reversed.
11. It is settled law that in the absence of any decision of a High Court holding a contrary view, the decision given by a High Court is binding on the Tribunal vide:
– CIT v. Godavaridevi Sara 1978 (2) E.L.T. (J 624) (Bombay);
– Amritlal Lalubhai v. Collector 1985 (21) E.L.T. 908 (Tribunal);
– Associated Cement Co. Ltd. v. Collector 1987 (27) E.L.T. 746 (Tribunal);
– Collector v. Mansingker Bros. 1988 (38) E.L.T. 105 (Tribunal);
– Collectors. United Glass 1987 (31) E.L.T. 786 (Tribunal); and
– Collector v. Stallion Shox Ltd. 1996 (85) E.L.T. 139 (Tribunal).
It is common ground between the parties that the only High Court decision directly on the issue raised in these Reference Applications is the Allahabad High Court judgement, referred to above. Respectfully following the above judgement of the Allahabad High Court, we hold as under:-
– Credit taken/utilised in respect of inputs,-
(a) used in the manufacture of exempted final products lying in stock or in the process of being used in manufacturing such final products, and
(b) lying in stock in the factory, has to be reversed or recovered, as the case may be.
12. We do not accept the contention of the Ld. Counsel for the assessees that the Allahabad High Court judgement in Super Cassettes Industries Limited, supra, could be considered a judgement in curiam for not having taken note of the Apex Court decision in H.M.M. case, supra.
13. We observe that the facts on controversy in H.M.M. case (supra) are different from the facts and the controversy raised before us in these cases.
That case dealt with the controversy whether there was exact correlation between inputs on which credit was taken and the final products manufactured out of such inputs for the purpose of utilising the credit towards the duty payable on final products. This controversy is best illustrated in the words of the Apex Court in an example given in the said report :-
“The manufacturer (Respondent) purchases 100 tons of barley malt on which, the respondent manufactures one thousand tons of Horlicks. Out of this one thousand tons, if clears 250 tons of Horlicks from the Rajahmundry factory on paying duty. The remaining 750 tons is sent to the factory situated at Bangalore without paying duty under a bond. The 750 tons is put in unit containers and packages at the Bangalore factory and cleared from there on payment of excise duty. According to the appellant, he is entitled to take credit for the entire duty of Rs. 10,000/- (paid on 100 tons of barley malt) from out of the duty payable on 250 tons of Horlicks cleared from Rajamundry factory, whereas according to the Revenue since the quantity cleared at Rajamundry on payment of duty is only 1/4th of the total quantity manufactured using 100 tons of barley malt, the appellant is entitled to take credit of only Rs. 2500/- against the duty payable at Rajamundry. Revenue also says that the respondent is not entitled to take credit of balance of Rs. 7500/- (duty paid on 75 tons of barley malt) from out of the duty paid on 750 tons at Bangalore. The question is who is right?”
[We may respectfully point out that the word ‘respondent’ in the above quotation is not correct; it should be ‘appellant’ because the manufacturer H.M.M. is an appellant and not respondent]. Further, vital difference in facts is that ‘Horlicks’, the final product was not exempt in H.M.M.’s case, unlike the final products in these cases. Therefore, the learned advocate’s reliance on H.M.M. urging that Hon’ble Allahabad High Court’s judgment in Super Cassette Industries is per incuriam H.M.M. is not at all tenable. He would have been correct, had the controversy been that after ‘Horlicks’ had become exempt from duty, whether the credit of duty taken on barley malt (i) lying in stock, (ii) in Horlicks in stock and (iii) in process of manufacture of Horlicks, is liable to be reversed or recovered as the case may be.
14. All the Appeals which have been kept pending by the various Benches of this Tribunal in view of this Larger Bench reference on the issues considered in this case shall be disposed of by the respective Benches in the light of our observations above.
15. The references stand disposed of in the above terms.