ORDER
P.G. Chacko, Member (J)
1. M/s. Tamil Nadu Petroproducts Ltd. (TPL, for short) are engaged in the manufacture of Caustic Soda and other chemicals. Ammonium Chloride is their by-product. A part of the Ammonium Chloride production was supplied, during the period of dispute (July ’02 to Jan. ’03), to Vikram Sarabhai Space Centre, Trivandrum, a Scientific Organisation figuring in Notification No. 10/97-C.E., dated 1-3-1997. Such clearances were made without payment of duty as they were wholly exempt from duty under the said Notification. The remaining quantity of Ammonium Chloride was cleared, on payment of duty, to other buyers. Thus, during the above period, there were clearances of both dutiable and exempt goods from the factory and, consequently, Rule 6 of the Cenvat Credit Rules, 2002 got attracted as M/s. TPL had availed Modvat credit on the inputs used in the manufacture of the entire quantity of Ammonium Chloride. The Rule required that, where input duty credit was availed in this manner, the manufacturer should pay 8% of the sale price of the exempted goods to the Revenue. M/s. TPL paid to Government 8% of the sale price of the Ammonium Chloride sold to VSSC. But they recovered this amount from the buyer. The Department treated this as a recovery of Modvat credit and, accordingly, issued a show cause notice to M/s. TPL asking them to pay the excess amount collected from VSSC, to the exchequer. This demand was raised under Rule 12 of the Cenvat Credit Rules, 2002. The original authority confirmed this demand and the first appellate authority sustained the order of the lower authority. Hence this appeal.
2. After examining the records, I find that, in the invoices issued by M/s. TPL to VSSC during the period of dispute, the above collection of 8% of sale price was shown against the entry “Excise Duty Payable”. These invoices had pre-printed entries against which the necessary particulars were computer-printed. “Notification No. 10/97, dated 1-3-1997” was so entered against Excise Duty Payable in the description column of invoice. It has been argued by Id. Counsel that the collection of 8% of sale price from the buyer was not as excise duty inasmuch as it was implicit in; the above entry “Notification No. 10/97 dated 1-3-1997” that the goods covered under the invoice was exempt from payment of duty. Ld. Counsel has, further, claimed that the buyer never considered the above payment to M/s. TPL as a payment of duty inasmuch as they had issued duty exemption certificates to them in respect of the goods covered under the invoices. It has been argued that since the amount collected as 8% of sale price from VSSC did not represent excise duty, the demand raised by the Department under Rule 12 ibid is not sustainable. Ld. Counsel has also referred to Board’s Circular No. 599/36/2001-CX., dated 12-11-2001 and has claimed support therefrom. Ld. SDR has also relied on this circular and has pointed out that the circular expressly barred Collection, by the manufacturer from his buyer, of the amount of 8% paid by the former to the Government under Rule 57CC. Ld. SDR has also reiterated the findings of the Commissioner (Appeals).
3. After giving careful consideration to the submissions, I find that it is not in dispute that Rule 6 (corresponding to erstwhile Rule 57CC) required M/s. TPL to pay to Government 8% of the sale price of Ammonium Chloride, which was supplied, without payment of duty, to VSSC during the period of dispute. They paid this amount also. Once this was done, the purpose of Rule 57CC stood served. The problem arose when M/s. TPL recovered equal amount from the buyer. The Revenue treated this as a recovery of duty. Treating the amount as input duty credit on the exempted product, the Department chose to invoke Rule 12 of the Cenvat Credit Rules to recover this amount from M/s. TPL. On the facts already stated, I find that this exercise was misconceived. Where a manufacturer, manufacturing both dutiable and exempted goods, chose to avail Modvat credit on the inputs used in the manufacture of both, he had to pay 8% of the sale price of the exempted goods, to the exchequer. Had M/s. TPL maintained separate Modvat accounts in respect of inputs used in the manufacture of dutiable goods and those used in the manufacture of exempted products, it would have been sufficient if they reversed the Modvat credit taken on the latter category of inputs. M/s. TPL was not maintaining such separate accounts and, therefore, they paid 8% of the sale price of the exempted goods as above, which was a liability in lieu of the liability not to avail Modvat credit on the inputs used in the manufacture of the exempted goods. Therefore, the 8% of sale price of the exempted goods, paid by M/s. TPL, cannot be equated in quantitative terms to the Modvat credit taken on the inputs used in the manufacture of such goods. Obviously, the Department equated the two and took the stand that the amount recovered by M/s. TPL from their buyer (equal to 8% of sale price of the exempted goods paid to the Government) was equivalent to the Modvat credit taken on the inputs used in the manufacturer of the exempted goods. Accordingly, they invoked Rule 12, which provided for recovery of irregularly availed Modvat credit, for recovering from M/s. TPL the amount which the latter had collected from their buyer. The amount collected by M/s. TPL from VSSC is not in the nature of Cenvat credit. Hence the demand under Rule 12 cannot be sustained.
4. At the same time, I am unable to accept the appellants’ claim that the above amount was not represented as duty of excise. The nature of the amounts collected from the buyer is clearly discernible from the invoices under which the amounts were collected. These invoices showed the amounts against “Excise Duty Payable”. The invoices were prepared by none other than the appellants. They never attempted to correct mistakes, if any, in these documents. I hold that, by their conduct, the appellants represented the above amounts as duty of excise. It is open to the Department to invoke Section 11D of the Central Excise Act for recovering this amount. The show cause notice in question did not invoke this provision.
5. As the demand is not maintainable under Rule 12 ibid, I vacate the same and allow this appeal with consequential relief if any. The Department may, if so advised, proceed to recover the amount under Section 11D.
(Dictated and pronounced in open Court)