ORDER
S.L. Peeran, Member (J)
1. These are four appeals of the different parties which raises a common question of law and facts, hence they are taken up together for disposal as per law.
2. In the case of E/178/2007 Ruchi Infrastructure Ltd., this Bench by Stay Order No. 672/2007 dated 17.8.2007 after due consideration of the Apex Court judgment rendered in the case of Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur and noting the fact that the appellants had reversed the credit along with interest before the issue of show cause notice allowed the stay application.
3. The learned departmental representative during the hearing of the stay application had pointed out to the Larger Bench judgment rendered in the case of Rallies India Ltd. v. CCE, Salem . It was distinguished by the learned Sr. Counsel arguing the stay application and pointed out to another judgment in the case of Texmo Industries v. CCE, Coimbatore 2007 (208) ELT 338 (Tri.-LB) which is also a Larger Bench judgment. In view of these judgments and the reversal of credit having been done in the case, therefore, the Revenue’s direction to the appellant to pay 10% of the value of the final products was not accepted and full waiver was granted by Stay Order No. 672/2007 dated 17.8.2007.
4. In other three appeals i.e., in appeal No. E/50/2007 of M/s. Kedia Overseas Ltd.; Appeal No. E/97/2007 of M/s. Sarda Agro Oils Ltd. and E/83/2007 of M/s. Sudha Agro Oils & Chemical Industries Ltd., the appellants manufactured final products edible oil. There was an emergence of by-product. They had reversed the credit in this case also and Revenue proceeded to direct the appellants to pay 10% of the value of the goods and relied on Larger Bench judgment rendered in the case of Rallies India Ltd. (supra). However, in view of the stay granted in the case of M/s. Ruchi Infrastructure Ltd., their stay applications were also allowed.
5. All the four appeals have come up for final hearing. The learned Sr. Counsel files a copy of the order rendered in the case of Ruchi Soya Industries Ltd. v. CCE, Mangalore rendered by this Bench by Final Order No. 588/2007 dated 18.5.2007 which deals with an identical situation. The said order has taken into consideration large number of judgments including the Apex Court judgment rendered in the case of Chandapur Magnet (supra) and other judgments of this Bench to hold that once the credit has been reversed along with interest, then they are not required to pay 10% of the value of the goods which were exempted. He submits that this ratio is required to be applied to the present cases. The findings given in Para 3 to 8 of this order are reproduced herein below.
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 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 Ltd. 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 fora 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.
4. 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.
6. 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.
5. 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 (P,) 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) E.L.T. 339 (S.C.)]. 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 Older No. 1260/2004 dated 21-7-2004 of CCE v. 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.
6. Learned senior counsel submits that in view of the issue being settled, the impugned is required to be set aside.
7. 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.
8. 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.
6. The learned JCDR submits that the Revenue has filed an appeal against the final order cited supra before the High Court. However, he submits that he has to check up as to whether the Hon’ble High Court has granted stay or not. The main contention is that the Larger Bench judgment in the case of Rallies India Ltd. (supra) has clearly held that they are required to pay 8% of the value of the final products. However on being pointed to the JCDR that this point was considered by this Bench in the case of Satyakala Agro Oil Products Ltd. by Final Order No. 1159/2007 dated 3.10.2007 wherein the learned departmental representative has made the same arguments and had strongly relied on the various other rulings of this tribunal, the learned JCDR submits that although this Bench in the case of Satyakala Agro Oil Products Ltd. has followed its earlier orders and the judgment of Supreme Court in the case of Chandrapur Magnet (supra) yet the Revenue is aggrieved with those orders. Revenue’s contention is that the contra orders of the Tribunal noted in the Final Order No. 1159/2007 dated 3.10.2007 ought to have been considered and the appellants were required to have paid 8% or 10% as the case may be. He points out that the Adjudicating Authority in the impugned orders has clearly distinguished the decision of the Supreme Court rendered in the case of Chandrapur Magnet (supra). He submits that this Chandrapur Magnet (supra) decision was rendered when there was no provision of law and there was provision for reversal of Cenvat credit, which is not the situation in the present case.
7. The learned Sr. Counsel refers to another Larger Bench judgment of 5-Member rendered in the case of Franco Italian Co. v. CCE wherein this very issue pertaining to reversal of modvat credit taken with regard to inputs which were utilized for the manufacture of duty free goods was considered and it was noted that once the credit has been reversed, then they are eligible for the benefit of notification. It is pointed out that this 5-Member Larger Bench order was again followed in the case of Icon Pharma and Surgical Pvt. Ltd. and Ors. v. CCE, Ahmedabad 2000 (40) RLT 918 (CEGAT-LB) headed by Hon’ble President. Revenue had raised these contentions in M/s. Satyakala Agro Oil Products Ltd. as noted in Final Order No. 1159/2007 dated 3.10.2007. That case clearly refers to the entire position and has noted that even after the amendment to the Rule 6, the assessee is not required to pay 8% or 10% of the value of the exempted goods in view of the reversal of the modvat credit.
8. The learned JCDR distinguished the 5-Member Larger Bench judgment cited by the Sr. Counsel as in the case of Franco Italian Co. (supra) and that of Icon Pharma and Surgical Pvt. Ltd. and Ors. (supra) on the ground that both the Larger Bench judgment was during the circumstance when there was provision of law for reversal of credit in respect of Rule 57I of the Cenvat Credit Rules.
9. The learned Sr. Counsel counters that the Revenue reliance on the Larger Bench of Rallies India Ltd. (supra) is not justified for the reason that the issue in that case did not deal with reversal of credit and the bench itself has categorically stated about it in Para 14. He also submits that the Rallies India Ltd. (supra) has been distinguished in M/s. Satyakala Agro Oil Products Ltd. which arose after amendment to the Rules and the situation is common in the present case.
10. The learned JCDR again presses for applying the ratio of the Tribunal’s order rendered in the case of Sidharth Soya Products Ltd. v. CCE 2007 (211) ELT 57 (Tri.-Del). In counter Sr. Counsel submits that the ratio of Sidharth Soya Products Ltd. (supra) stands distinguished in M/s. Satyakala Agro Oil Products Ltd. rendered by this Bench. The learned JCDR submits that as the Bench in M/s. Satyakala Agro Oil Products Ltd. has taken a different view and therefore, the matter should be referred to a Larger Bench of 5-Member.
11. We have carefully considered the submissions made by both sides. We take up the plea of the JCDR to refer this matter to Larger Bench of 5-Members, we are not agreeable with this proposition for the simple reason that the judgment of this Bench in the case of M/s. Satyakala Agro Oil Products Ltd. clearly refers to the facts in Rallies India Ltd. (supra) and has given a finding that it did not deal with the matter pertaining to reversal of credit. The findings given in para 4.3 to 4.4 of M/s. Satyakala Agro Oil Products Ltd. are reproduced herein below.
4.3 On a very careful consideration of the entire issue, we find that the Larger Bench in the Rallies case (Supra) has clearly held that provisions of Rule 6 would apply if two final products emerge out of use of common inputs are excisable and one of them is exempted irrespective of the fact whether the exempted product is intended by the manufacturer or unintended. Therefore, there is force in the contention of the Revenue that in terms of the Larger Bench decision Rule 6 would apply and the appellant is liable to pay 8%/10% of the sale value of the exempted goods. We do not want to discuss whether the decision of the Larger Bench is per incuriam or sub silentio., etc. However, one thing is clear that the question before the Larger Bench was whether Rule 6 would be applicable to the final product as well as the by product. The Larger Bench answered the question by saying that whether a product is a byproduct or final product, Rule 6 would be applicable. We do not want enter into a discussion of the same. However, we note that the question before the Larger Bench was not whether reversal of credit attributable to the exempted product would mean not taking the credit at all. This issue was not put up before the Larger Bench and this issue was not decided by the larger bench in the Rallies case (supra). However, we note that Supreme Court in the case of Chandrapur Magnet Wires Pvt. Ltd. (supra) which we had already mentioned held that on reversal of modvat credit assessee cannot be said to Have been taken credit of duty on the inputs utilized in the manufacture of exempted final products. In other words, a reversal of credit would amount to not taking the credit at all. The ratio of this decision has been followed by this bench in several cases. In the present case, even though the credit attributable to the exempted product is only Rs. 2,66,535/- the 8% comes to an exorbitant amount of Rs. 37,16,263/-, it is somewhat of the order of 13 to 14 times the credit attributable to the exempted products. It would be really unjust to demand such an enormous amount when the credit attributable to the exempted product is only a paltry sum of Rs. 2,66,535/-. Moreover, the learned advocate cited a Board Circular dated 16.10.2001, wherein it has been clearly held that when separate account is not maintained and when 8% of the sale value is not paid it has been stated that the recovery of credit attributable to the exempted product would be in order.
Circular: 591/28/2001-CX dated 16-Oct-2001
Recovery of amounts not duty paid under provisions of Rule 6 of CENVAT Credit Rules, 2001
Circular No. 591/28/2001-CX, dated 16-10-2001
F. No. 267/58/2001-CX.8
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi.
Subject: Recovery of ‘amounts’ which are not duty paid under the provisions of Rule 6 of the CEMVAT Credit Rules, 2001 (Rule 57CC of the erstwhile Central Excise Rules, 1944) – clarification regarding.
I am directed to say that a doubt has been raised regarding legal provisions for recovery of amount not paid by an assessee in terms of the provisions of Rule 6 of the CENVAT Credit Rules, 2001 (Rule 57CC of the erstwhile Central Excise Rules, 1944).
2. The matter has been examined in the Board. It is stated that the basic principle underlying the CENVAT scheme is that credit is admissible if duty is paid on final products. Attention is drawn to Sub-rule (1) of Rule 6 of the CENVAT Credit Rules, 2001, which clearly provides that CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in circumstances specified in Sub-rule (2). The provisions of Sub-rule (2) and (3) of Rule 6 provide as to how to deal with and account for the inputs and credit of duty in cases where the inputs are used in manufacture of both dutiable as well as exempt products. It follows from the provisions that if the manufacturer does not fulfill the requirements of either Sub-rule (2) (i.e. maintaining separate accounts) or Sub-rule (3) [i.e. paying 8% of total price of exempted goods, other than exceptions specified in Clause (a)] then in terms of Sub-rule (1) the assessee shall not be allowed credit on such quantity which is used in the manufacture of exempted goods. Consequently, where the assessee has not paid the amount, the availment of corresponding credit on inputs is incorrect. The recovery of such credit taken incorrectly is squarely covered by the provisions of Rule 12 (erstwhile Rule 571). Necessary action may be taken accordingly.
3. Please acknowledge receipt of this circular.
4. Trade and field formations may be suitably informed.
5. Hindi version will follow.
4.4 In the present case, it is not in dispute that the appellant had reversed the entire credit along with interest attributable to the exempted products. Therefore, following the ratio of the Chandrapur Magnet Wires case (supra), we hold that the appellants had not taken any credit at all in view of the reversal. If it is held that the appellants had not taken any credit of the inputs used in the exempted product, then Rule 6 would not be applicable. If Rule 6 is not applicable, the appellant is not required to pay 8% or 10% of the sale value of the exempted products. In view of the above observations, we set aside the impugned order and allow the appeal with consequential relief.
As can be seen from the above ruling the facts have been clearly noted which is identical to the facts in these cases. These facts have already been noted in the case of Ruchi Soya Industries Ltd. v. CCE, Mangalore rendered by this Bench by Final Order No. 588/2007 dated 18.5.2007 and applied the ratio of the Apex Court rendered in the case of Chandrapur Magnet (supra). The finding rendered in Ruchi Soya Industries Ltd. has already been extracted supra.
11.1 We note from the submissions of Sr. Counsel that the Larger Bench of 5-Members in the case of Franco Italian Co. (supra) has already dealt with this matter and has held that once credit is reversed then in that event the assessees are eligible for the benefit of exemption notification. This rule has also been followed by another Larger Bench judgment in the case of Icon Pharma & Surgical Pvt. Ltd. and Ors. v. CCE. We notice that all the four assessees have reversed the credit before the issue of show cause notice along with interest. Therefore, the ratio of the judgments relied by the counsels are required to accepted and there is no cause for further reference to another Larger Bench in view of Supreme Court judgment rendered in the case of Chandrapur Magnet (supra). We further notice that the Apex Court judgment rendered in the case of CCE, Mumbai-I v. Bombay Dyeing & Mfg. Co. Ltd. as reported in 2007 (82) RLT 117 (SC) has again examined the issue pertaining to reversal of the credit in light of the Notification No. 14/2002 CE dated 1.3.2002 and in Para 8 they have held that once the credit has been reversed, then the benefit of notification is required to be granted. Para 8 of this said judgment is reproduced herein below.
8. There is no merit in this civil appeal. Under the notification, mode of payment has not been prescribed. Further, exemption is given to the final product, namely, grey fabric under the Central Excise Act, 1944, levy is on manufacture but payment is at the time of clearance. Under the Act, payment of duty on yarn had to be at the spindle stage. However, when we come to the Exemption Notification No. 14/2002-CE, the requirement was that exemption on grey fabrics was admissible subject to the assessee paying duty on yarn before claiming exemption and subject to the assessee not claiming CENVAT credit before claiming exemption. The question of exemption from payment of duty on grey fabrics arose on satisfaction of the said two conditions. In this case, payment of duty on yarn on deferred basis took place before clearance of grey fabrics on which exemption was claimed. Therefore, payment was made before the stage of exemption. Similarly, on payment of duty on the input (yarn) the assessee got the credit which was never utilized. That before utilization, the entry has been reversed which amounts to not taking credit. Hence, in this case, both the conditions are satisfied. Hence item No. 1 of the table to Notification No. 14/2002-CE would apply and accordingly the grey fabrics would attract nil rate of duty.
It is also seen that the Apex Court has gone through the ratios of the judgments of High Court and Tribunal and it has been clarified that once credit has been reversed, the benefit of exemption notification is required to be extended. The same ratio applies to a situation arising in these appeals.
12. Although the learned JCDR attempted to distinguish the judgment of CCE, Mumbai-I v. Bombay Dyeing & Mfg. Co. Ltd. (supra) and also in the case of Franco India Ltd. (supra) and Icon Pharma & Surgical Pvt. Ltd. and Ors. v. CCE on the ground that in these cases the credit had been reversed after the goods were cleared, however, we notice that even though the assessee has delayed in reversing the credit, but they had paid interest for the delayed reversal. Therefore, the question of directing the assessee to pay 8% or 10% of the value of the exempted goods which runs to an exorbitant 340% is not justified and proper. The prayer of the appellants for availing the benefit as they have reversed the credit is required to be accepted in terms of the judgments cited by them. Thus, all these four appeals are allowed with consequential relief if any.
(Pronounced and dictated in open Court)