Jyoti Balasundaram, Member (J)
1. The appellants herein are engaged in the manufacture of (a) narrow woven fabrics and manmade textile material (hook and loop tape fasteners) falling under CETA sub-heading 5806.10; and (b) narrow knitted fabrics (elastic tape) falling under CETA sub-heading 6002.10 and availed deemed credit facility under Notification 29/96 dated
03/09/1996 @ 60% of the excise duty leviable on inputs used in relation to the manufacture of hook and loop tape fasteners viz. LDO. They availed modvat credit in terms of Rule 57A of the Central Excise Rules, 1944 on light diesel oil used in the production of the above mentioned final products and such availment was contrary to the conditions stipulated in paragraph 4 of Notification 29/96 (deemed credit notification) which provided that the provisions of the deemed credit notification shall not apply to manufacturer (other than composite mill) who avails any credit under any notification issued under Rule 57A(1) of the Central Excise Rules, 1944 in respect of inputs used in the manufacture of the said final products. On this basis the department was of the view that the wrongly availed deemed credit was liable to be recovered under the provisions of Rule 57I of the Rules read with Section 11A of the Act. Therefore show cause notices were issued, dated 20/11/2000 for recovery of deemed credit of Rs. 88,51,280/- and 7th December, 2000 for recovery of Rs. 45,20,487/- together with interest and for imposition of penalties, covering the period from December, 1998 to November, 1999 (first show cause notice) and December, 1999 to March, 2000 (second show cause notice). Extended period of limitation was invoked in the first show cause notice. The notices were adjudicated by the Commissioner of Central Excise, Mumbai who confirmed the demands, together with interest and imposed penalties of equal amount on the assessees. Hence this appeal.
2. We have heard both sides. Para 4 of Notification 29/96-CE dated 03/09/1996 extends credit of duty paid on specified yarn and fibres on deemed basis used in the manufacture of specified final products. Dyes, Chemicals, Consumables, packing materials are among the specified (‘said’) inputs and fabrics of cotton or manmade fibres whether or not processed falling within Heading numbers 58.01, 58.02 and 58.06 (except sub-heading 5806.20) are among the specified (said) final products. Para 4 of the notification provides that deemed credit under the notification shall not apply to a manufacturer (other than a composite mill) who avails any credit under any notification issued under Rule 57A(1) of the Central Excise Rules in respect of the said inputs and the said inputs are used in the manufacture of the said final products. The appellants took actual credit under a notification issued in terms of Rule 57A(1) on LDO which was used in the manufacture of hook and loop tape fasteners i.e., narrow woven fabrics falling under CETA subheading 5806.10 which heading is specified under Notification 29/96. The contention of the appellants that deemed credit can be denied only if actual credit has been taken on consumables such as LDO which are not only used in the said final products but also contained therein and identifiable therein, is not tenable in the face of the language of Notification 29/96-CE wherein denial of deemed credit is not so restricted. The submission that LDO used as fuel is not consumable and the same would not be covered under the ambit of consumables specified at serial No. (iv) of the Table to Notification 29/96 in view of it not being contained in the final product, relying upon the apex Court judgement in the case of Maharashtra fur fabrics Vs. CCE 2002 (145) ELT 287 (SC) is also not tenable, in the face of the clear language of para 4 of the notification. The appellants also contend that deemed credit under Rule 57A(5) in exercise of the powers conferred by which, Notification 29/96 was issued, is available even if the declared inputs are not used directly in the manufacture of final products but are contained in the final products and therefore para 4 of Notification 29/96 is to be read as restricting denial of deemed credit to only those inputs which are used in the manufacture of final products and contained therein. However, we see nothing in the language of paragraph 4 of the notification which would lend itself to the above meaning. For the same reason we are of the view that reliance placed by the appellants on the apex Court judgement in the case of Coastal Chemicals Ltd Vs. CTO, AP 1999 (85) ECR 825 holding that the word ‘consumables’ takes colour from and must be read in the light of the neighbouring words namely ‘raw material’, ‘component part’, etc., and therefore the word consumables refers only to material utilised as an input in the manufacturing process but not identifiable in the final product by virtue of the fact that it has got consumed, does not advance the case of the appellants.
3. The appellants’ contention that LDO used as fuel is not a consumable covered by Notification 29/96 cannot also be accepted as the notification use the expression ‘consumables” which includes fuel and fuel has not been specifically excluded.
4, The next contention of the appellants is that although credit was taken on LDO it was not used/availed for payment of duty on woven fabrics falling under CETA sub-heading 5806.10 which is a notified final product, but was utilised for payment of duty on knitted fabrics falling under CETA sub-heading 6002.10 which is excluded from the coverage of final products under the notification, and therefore the bar contained in paragraph 4 of the Notification 29/96 is not attracted. They contend that at worst, actual credit taken on LDO can be denied as LDO was not used in or in relation to the manufacture of knitted fabrics but deemed credit taken under Notification 29/96 for woven fabrics cannot be denied. This argument is also not acceptable – the appellants have taken and availed actual credit of duly paid on LDO (specified input) and LDO is admittedly used in the manufacture of narrow woven fabrics falling under CETA sub-heading 5806.10 which is a specified final product. The fact is that para 4 of Notification 29/96 debars deemed credit facility to manufacturers (other than composite mill) who avail actual credit in respect of any of the inputs notified in the table to the notification (said inputs) and the said inputs are used in the manufacture of any of the final products specified in the table (said final products). The fact that the appellants availed credit of duty paid on LDO when discharging duty liability on knitted fabrics falling under CETA subheading 6002.10 which is not a ‘said final product’ does not alter the position set out above since what is relevant for exclusion from the benefit of deemed credit is the availment of actual credit in respect of a notified input and the use of that input in the manufacture of any notified final product The utilisation of the credit for payment of duty on a final product other than those specified in Notification 29/96 is not relevant.
5. The appellants’ plea that actual credit was taken on LDO in terms of Rule 57B and not Rule 57A of the Central Excise Rules and therefore they are not hit by the bar in para 4 of Notification 29/96 is also not acceptable, as the declaration filed by the appellants for taking credit on LDO was filed in terms of Rule 57A of the Central Excise Rules.
6. We therefore hold that deemed credit facility under Notification 29/96 is not available to the appellants.
7. However, we see force in the submission that since credit taken on LDO for the period December, 1999 to March, 2000 covered under show cause notice dated 06/12/2000 was reversed on 4/12/2000 as seen from the letter dated 08/12/2000, deemed credit cannot be denied, as on reversal of credit, if is as if credit was not taken at all in the first instance, in the light of the Supreme Court judgement in the case of Chandrapur Magnet Wires (P) Ltd. V. CCE, Nagpur 1996 (81) ELT 3 (SC) followed by the Tribunal in Kitply Industries Lid. Vs. CC, Kandla 2002 (42) RLT 877. The learned JCDR’s claim that subsequent reversal of credit does not cure the defect of having initially taken credit, relying upon the Supreme Court judgment in the case of Bharat Telecom Ltd. 2001 (134) ELT 273 SC is misplaced as that decision related to time bound amnesty scheme offered by the Government which is not so in the present case.
8. Coming to the applicability of the larger period of limitation, the Commissioner has held that the declaration dated 14/12/1994 for availing credit on LDO used in the manufacture of woven fabrics of Chapter 58 is of no consequence as the same was never acted upon, that the declaration relevant for the present case is the one dated 18/12/1998 for availing credit on LDO used in the manufacture of knitted fabrics of Chapter 60, that when a fresh/revised declaration is filed the earlier declaration becomes inoperative. We find that he has completely lost sight of the fact that the first declaration of December, 1994 is for availment of credit on LDO in the manufacture of goods of Chapter 58 while in the declaration dated December, 1998 the final product shown is goods of Chapter 60 and therefore they are two independent declarations and the earlier declaration does not get superseded by the later one. Since the fact of availment; of credit on LDO used in the manufacture of woven fabrics was declared in 1994 itself, the appellants cannot be held guilty of suppression of their availment of actual credit. We therefore agree with the appellants that the demand for the period December, 1998 to October, 1999 is time barred. This is also for the reason that in the Rule 57G declaration filed on 14/12/1994 the appellants had clearly shown LDO as an input in the manufacture of woven fabrics of Chapter 58 (final product) and there is no dispute thereon and in view of the fact that extracts of RG23A Part I and II maintained for knitted fabrics of Chapter 60 and deemed credit register maintained for woven fabrics of Chapter 58, along with copies of invoices were submitted along with monthly RT12 returns and records were audited without any adverse remarks. The demand for the month of November, 1999 is however, sustainable, as we do not see any merit in the appellant’s submission that the demand for this month would also be time barred for the reason that the period of six months had elapsed prior to the amendment of Section 11A on 12/05/2000 expanding the normal period of limitation from six months to one year.
9. We agree with the appellants that levy of interest under Section 11AB and imposition of penalty under Section 11AC cannot be sustained as the dispute relates to denial of deemed credit wherein the applicable provisions are Rule 57I(4) and 57I(5) and not Section 11AB and 11AC of the Central Excise Act, 1944 in the light of the Tribunal’s order in the case of W.S, Industries (India) Ltd. Vs. CCE 2002 (48) RLT 177 and Bhiwani Textile Mills Vs. CCE 2002 (53) RLT 782.
10. In the result we hold as under;
i. The benefit of deemed credit under Notification 29/96 is not available to the appellants;
ii. The demand for the period December, 1998 to October, 1999 is barred by limitation.
iii. The demand for the month of November, 1999 is upheld and the duty payable for this month is to be recalculated.
iv. The demand for the period December, 1999 to March, 2000 is not sustainable in view of reversal of credit by the appellants on 04/12/2000.
v, Levy of interest and imposition of penalty is not
11. The appeal is partly allowed as above.