ORDER
M.V. Ravindran, Member (J)
1. This appeal is preferred against the Order-in-appeal dated 24.12.2003 which upheld appellants rejection of refund claim by original authority.
2. The relevant facts that arise for consideration are that the appellants are manufacturer of readymade garments falling under Chapter 62 of Central Excise Tariff Act, 1985. The appellants manufactured and cleared readymade garments discharging the duty liability @ 16% i.e. Rs. 91,964/- on the said readymade garments. The purchaser of the appellants goods being Ministry of Defence, Govt. of India, deducted an amount of Rs. 18,593/- from the duty, being the deemed credit on the fabric used in the manufacture of readymade garments and paid the balance duty, referring to provisions of the notification No. 54/2001-C.E. (N.T.), dated 29.6.2001. The appellants preferred refund claim of Rs. 18,593/- on the ground that they have paid the excess duty by mistake. A show cause notice was issued to the appellants seeking to reject the refund claim on various grounds. The adjudicating authority rejected the refund claim mainly on the ground that the appellant has not paid any excess duty and the benefit of notification should not be confirmed as “exemption”. On an appeal preferred by the appellant, the appellate authority also upheld the order-in-original. Hence this appeal.
3. The ld. Consultant appearing for the appellants submits that the Commissioner (Appeals) has not considered the correct interpretation of the benefit of notification and has upheld the order without applying his mind. It was also submitted that the benefit of notification is available to the appellants and the benefit should not be denied to them for having not paid the duty alter deducting the deemed credit eligible to them.
4. The ld. DR submits that the duty payable on the readymade garments is 16% which is correctly paid by the appellants. There is no excess payment of duty and the benefit of the notification is not available to the appellants as the said notification only grants deemed credit.
5. Considered the submissions made by both sides and perused the records. It is not in dispute that the appellant is registered under Central Excise Laws und is also manufacturing readymade garments falling under Chapter 62 of the Central Excise Tariff Act. It is also not in dispute that the appellants are discharging duty liability on the final products during the relevant period.
5.1 The Central Government by the powers conferred under Rule 11 of the Cenvat Credit Rules, 2001, by notification No. 54/2001-C.E. (N.T.), dated 29.6.2001 allowed deemed credit on fabrics used in the manufacture of apparels of Chapter 62. To appreciate the correct position, the said notification No. 54/2001-C.E. (N.T.) is reproduced below:
Deemed Cenvat Credit on fabrics used in the manufacture of apparels of Chapter 62 @ 20% on the duty payable on the apparels, notified:
In exercise of the powers conferred by Rule 11 of the Cenvat Credit Rules, 2001, the Central Government hereby declares the following inputs (hereinafter referred to as the “declared inputs” and final products falling within the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) hereinafter referred to as the said First Schedule, as
specified in the Table below, namely:
TABLE
Inputs Final product
(i) Fabrics falling under Chapter Articles of apparel and clothing
50, 51, 52, 53, 54, 55, 58, 59 or accessories, not knitted or cro-
60 of the said First Schedule cheted, falling under Chapter 62
of the said first Schedule.
(ii) Other raw materials, part,
components, trimmings and embel-
lishments, consumables and pack-
aging materials falling within the
said First Schedule.
2. The Central Government further declares that-
(i) the duty of excise under the Central Excise Act, 1944 (1 of 1944); or
(ii) the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975),
(hereinafter referred to as the declared duty) shall be deemed to have been paid on the declared inputs and the same shall be equivalent to the amount calculated at the rate of 20 percent of the duty of excise leviable under the Central Excise Act. 1944 (1 of 1944) read with any notification for the time being in force, on the final products declared herein and credit of the declared duty so deemed to have been paid shall be allowed to the manufacturer of the final products, without production of documents evidencing payment of duty on the declared inputs, at the time of clearance of the said final products.
3. The credit of declared duty allowed in respect of the declared inputs shall be utilized towards payment of duty of excise leviable under the said Central Excise Act on the said final products:
PROVIDED that the credit of declared duty in respect of the declared inputs used in the final products cleared for export under bond shall be allowed to be utilised towards payment of duty of excise on the final products cleared for home consumption or for export on payment of duty and where for any reason, such adjustment is not possible, by refund the manufacturer subject to such safeguards, conditions and limitations as may be specified by the Central Government in the Official Gazette.
PROVIDED FURTHER that no credit or refund of such declared shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties (Drawback) Rules, 1971 or claims rebate of duty under Rule 18 of the Central Excise (No. 2) Rules, 2001, in respect of such duty.
4. The provisions of this notification shall not apply to a manufacturer who avails of any credit under Rule 3 of the Cenvat Credit Rules, 2001, in respect of the declared inputs and the declared inputs are used in the manufacture of the said final products.
Explanation : It is clarified that the Cenvat credit in respect of capital goods, under Rule 3 of the Cenvat Credit Rules, 2001, shall be allowed to the said manufacturer subject to the conditions as specified under Rule 4 of that rules.
5. The provisions of this notification shall not apply to final products on which duty of excise leviable under the Central Excise Act, 1944 (1 of 1944), has not been levied or paid or has been short-levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any provision of the said Central Excise Act or of the rules made thereunder with intent to evade payment of duty.
6. This notification shall come into effect on and from 1.7.2001.
Explanation I : For the purposes of this notification, the expression “manufacturer” shall include a person who is liable to pay the duty of excise leviable on the said final products under Sub-rule (3) of Rule 4 of the Central Excise (No. 2) Rules, 2001.
Explanation II : It is clarified that even if the declared inputs are used directly by a manufacturer of final products, the credit of the declared duty shall, notwithstanding the actual amount of duty paid on such declared inputs, be deemed to be equivalent to the amount specified in this notification and the credit of the declared duty shall be allowed to such manufacturer.
Explanation III : For the removal of doubt, it is clarified that the provisions of paragraph 4 shall not apply to a manufacturer who avails of any credit under Rule 3 of the Cenvat Credit Rules, 2001, in respect of the declared inputs where the said declared inputs are used in manufacture of final products other than the said final products.
Explanation IV : It is hereby clarified that credit of the declared duty shall be allowed in respect of final products lying in stock as on 30.4.2001 in the premises of the manufacturer registered under Rule 174 of the Central Excise Rules, 1944 and removed on or after 1.7.2001
It can be seen that the Government has granted the manufacturers of readymade garments a benefit of deemed credit of 20% of the duty payable on the finished products i.e. readymade garments. From para 2 of the said notification, it is very clear that the manufacturer shall be eligible for deemed credit of 20% of the duty without production of any duty paying documents. It can be construed from para 2 that, to avail the benefit of this notification, the appellants are not required to follow the rigmoral of the Cenvat Scheme. It is enough for the appellant to show that they are manufacturer of readymade garments and that they are discharging the duty liability on such readymade garments.
5.2 The benefit of notification No. 54/2001-C.E. (N.T.) can be availed by the appellants to the extent of 20% of the duty payable on the readymade garments. In other words, the appellants has to calculate the duty payable on the consignment of the readymade garments and deduct from it 20% of such duty payable. In effect, the net duty payable by the appellants is 12.8% and not 16%. This is very evident from Para 3 of the said notification No. 54/2001-C.E. (N.T.) as reproduced above. The said para categorically states that the credit of declared duty in respect of the inputs shall be utilized towards the payment of duty of excise, the correct interpretation of said Para 3 would be that the amount of 20% deemed credit of the duty declared i.e. 16% will be utilised towards payment of duty of excise means that the appellant has to in effect pay duty @ 12.8% of the value of the readymade garments. To my mind, there is no scope of any other interpretation. If this being so, the appellants in this case have paid duty @ 16% instead of 12.8%. It is admitted that appellants have not recovered the excess paid duty from their customers. The lower authorities have themselves agreed that the refund claim is not barred by limitation not there is unjust enrichment.
6. To my mind, interpreting the beneficial notification No. 54/2001-C.E. (N.T.) in a narrow sense, as the lower authorities have tried to do, will defeat the purpose of granting deemed credit to the readymade garments. Further, in the absence of the rigmorality of the procedures of Cenvat in the notification itself is a pointer to the direction, that the total duty payable is to be worked out and paid after availing the deemed credit eligible under notification No. 54/2001-C.E. (N.T.). In this case, the appellants have by mistake not availed the benefit of notification No. 54/2001-C.E. (N.T.) and have paid excess duty, which they have noticed in time and filed refund claim.
7. In view of the above circumstances, the order-in-appeal dated 24-12-2003 is not proper and legal and liable to be set aside. I set aside the impugned order, allow the appeal, with consequential relief, if any.
(Pronounced on 13.2.2006)