IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 01.11.2007
C O R A M :
The Honourable Mr.Justice K.RAVIRAJA PANDIAN
and
The Honourable Mrs.Justice CHITRA VENKATARAMAN
C.M.A. No.2081 of 2005
and
C.M.P. No.10977 of 2005
The Commissioner of Central Excise
Chennai I
No.121
Uthamar Gandhi Road
Nungambakkam
Chennai 34. ..Appellant
Vs
1. M/s.ITC Limited
Packaging and Printing Limited
Thiruvottiyur
Chennai
2. Customs, Excise and Service Tax Appellate Tribunal
South Zonal Bench
Shastri Bhavan Annexure
I Floor
No.26
Haddows Road
Chennai. ..Respondents
Civil Miscellaneous Appeal filed against the Final
Order No.131 of 2005 dated 24.1.2005 passed by the Customs,
Excise and Service Tax Appellate Tribunal, South Zonal
Bench, Chennai.
For Appellant : Mr.S.Udayakumar,SCGSC
For Respondents : Mrs.L.Maithili
J U D G M E N T
(Judgment of the Court was delivered by K.RAVIRAJA PANDIAN,J)
This Appeal is filed against the Final Order No.131 of
2005 dated 24.1.2005 made by the Customs, Excise and
Service Tax Appellate Tribunal, South Zonal Bench, Chennai.
2. The question of law formulated for entertainment of
the appeal are as follows:
“1. Whether the
credit of duty on capital goods can be allowed when the respondents
have not filed statutory declarations which is a mandatory provisions
under Rule 57T(1) of CER 1944?
2. Whether credit of
duty on capital goods can be allowed when the respondents have not
intimated about the date of receipt of capital goods into the factory
which is a mandatory provisions under Rule 57T(2) of CER 1944?
3. Whether the
Hon’ble Tribunal is right in holding that the Revenue has no case
that any of the substantive conditions for capital goods credit was
not fulfilled by the respondents when the respondents have violated
to sub-rules namely Rule 57T(1) and 57T(2)?”
3. Though the questions of law are framed as above, the
facts of the case proceed as follows:
The first respondent herein being manufacturers of
coated boards, printed boards, printed cartons and printed
slides falling under Chapter 48 of the Central Excise Tariff
Act, 1985, taken capital goods credit of a sum of
Rs.19,92,778/- in their RG 23C Part II Register during the
period July to November 1995 in respect of capital goods
received by them from time to time and taken into use. The
appellant/Department was of the view that the
respondent/assessee have not fulfilled the statutory
obligation prescribed under Rule 57T of the Central Excise
Rules, 1944 by not filing statutory declaration before
receipt of capital goods and by not giving intimation in
respect of receipt of capital goods into their factory.
Therefore, the amount of Rs.19,92,778/- taken as credit was
irregular. Accordingly, the Revenue issued a show cause
notice dated 18.1.2006 calling upon the respondent assessee
to show cause as to why a sum of Rs.19,92,778/- erroneously
taken credit of should not be disallowed under Rule 57U and
as to why penalty should not be imposed under Rule 173Q(i)
(bb). After due enquiry, the Assistant Commissioner of
Central Excise by his order dated 10.3.1998 allowed the
credit for a sum of Rs.4,46,436/- and disallowed the
remaining amount of Rs.15,46,362/- (Rs.14,43,365 +
Rs.1,02,997) under Rule 57U and imposed penalty in a sum of
RS.3 lakhs under Rule 173Q(i)(bb). Aggrieved by the order of
the Assistant Commissioner, the respondent filed a statutory
appeal before the Commissioner (Appeals), who by his order
dated 16.3.2000 allowed the credit of Rs.1,02,997/- for
which statutory declaration was filed late but before
condonable time limit of three months and confirmed the
remaining part of the order of the Assistant Commissioner.
The respondent carried the matter on further appeal before
the Customs, Excise and Service Tax appellate Tribunal,
which by its order dated 24.1.2005 set aside the order of
the Commissioner (Appeals) impugned therein by allowing the
appeal. The correctness of the same is put in issue in this
appeal by formulating the above questions of law for
entertainment of the appeal.
4. Learned counsel appearing for the revenue/appellant
submitted that Rule 57T as was obtaining during the relevant
time required the manufacturer to file a declaration
indicating the particulars of the capital goods, the
description of the final product manufactured in his factory
and such other information as the Assistant Commissioner
might require. If the manufacturer was not in a position to
make declaration within the period, he could make an
application within a period of one month or such further
period as might be allowed by the Assistant Commissioner
within the maximum period of two months from the date of
receipt of the capital goods in the factory. The
manufacturer intending to take credit of the duty paid on
capital goods under Rule 57Q shall intimate the particulars
regarding the full description of the capital goods along
with brand name and identification marks and any other
particulars as the Collector might require. But in the facts
of the present case, the respondent manufacturer infringed
the conditions prescribed under the Rules. That aspect of
the matter has been totally lost sight of by the Tribunal.
5. We heard the argument of the learned counsel
appearing for the Department/appellant.
6. It could be seen from the order of the Tribunal that
in the instant case the capital goods credit was disallowed
to the assessee on the ground that the relevant modvat
declarations under Rule 57T were filed beyond the
prescribed period of three months. The Tribunal has also
recorded a finding to the effect that no other reason has
been cited for denial of the credit. Thus, the final fact
finding authority has recorded a finding to the effect that
the capital goods credit was disallowed to the assessee on
the ground that the relevant modvat declaration under Rule
57T was filed beyond the period prescribed. The Tribunal has
taken note of the amendment notification No.7 of 1999
C.E.(N.T) dated 9.2.1999, which amended Rules providing that
Modvat credit should not be disallowed for procedural lapses
like declaration having not been filed in time, all
particulars having not been stated in duty paying document
etc., held in favour of the assessee.
7. The Notification No.7/99 C.E. (N.T) dated 9.2.1999
reads as under:
“In exercise of the powers conferred by
Section 37 of the Central Excise Act, 1944 (1 of
1944), the Central Government hereby makes the
following rules further to amend the Central
Excise Rules, 1944, namely:
1. (1) These rules may be called the Central
Excise (3rd Amendment Rules, 1944.
(2) They shall come into force on the date of
their publication in the Official Gazette.
2. In the Central Excise Rules, 1944, –
(a) in rule 57G, after sub-rule (10), the
following sub-rule shall be inserted, namely, –
“(11) Credit under sub-rule (2) shall not be
denied on the grounds that –
(i) any of the documents, mentioned in sub-
rule (3) does not contain all the particulars
required to be contained therein under these
rules, if such document contains details of
payment of duty, description of the goods,
assessable value, name and address of the factory
or warehouse;
(ii) the declaration filed under sub-rule (1)
does not contain all the details required to be
contained therein or the manufacturer fails to
comply with any other requirements under sub-
rule(1).
Provided that the Assistant Commissioner of
Central Excise having jurisdiction over the
factory of manufacturer intending to take credit
is satisfied that duty due on the inputs has been
paid and such inputs have actually been used or
are to be used in the manufacture of final
products, and such Assistant Commissioner shall
record the reasons for not denying the credit so
in each case.”
(b) in rule 57T, after sub-rule (12), the
following sub-rule shall be inserted, namely:
(13) Credit under sub-rule (6) shall not be denied
on the grounds that –
(i) any of the documents specified under sub-rule
(3) of rule 57G does not contain all the
particulars required to be contained therein under
these rules, if such document contains details of
payment of duty, description of the capital goods,
assessable value, name and address of the factory
or warehouse;
(ii) the declaration filed under sub-rule (1) does
not contain all the details required to be
contained therein or the manufacturer fails to
comply with any other requirements under
sub-rule (1):
Provided that the Assistant Commissioner of
Central Excise having jurisdiction over the
factory of the manufacturer intending to take
credit is satisfied that the duty due on the paid
and such capital goods have actually been used or
are to be used in the manufacture of final
products, and such Assistant Commissioner shall
record the reasons for not denying the credit so
in each case.”
The said notification was followed by Guidelines in
Circular No.441/7/99- CX dated 23.2.1999 which reads as
under:
“Modvat rules – Guidelines to be followed in
respect of Notification NO.7/99-C.E. (N.T.), dated
9-2-1999 or amendment to Rule 57G and 57T
I am directed to refer to Notification
NO.7/99-C.E. (N.T.), dated 9-2-1999 issued to
amend Modvat Rules. The aforesaid notification has
been issued to insert sub-rule (11) in Rule 57G
and sub-rule (13) in Rule 57T of the Central
Excise Rules, 1944 so as to empower the Assistant
Commissioner of Central Excise having jurisdiction
over the factory of the manufacturer to allow
credit of duty paid on inputs/capital goods
ignoring minor procedural lapses in filing the
declaration or in the invoice/document based on
which credit is to be taken. However, the
Assistant Commissioner should ensure that
inputs/capital goods have suffered duty and are
being used/are to be used in the process of
manufacture. The Assistant Commissioner is also
required to record the reasons in file for
allowing Modvat credit in each case.
2. The Assistant Commissioner, before issuing
Show Cause Notice for wrong availment of Modvat
Credit by the assessee on any procedural grounds,
shall conduct enquiries with regard to duty paid
nature of the goods at the suppliers and, ensure
that necessary information as mentioned in the
Notification are available on the invoice and
satisfies himself whether the goods have been used
or are intended to be used as contemplated in the
Modvat Rules. In case the assessee’s invoice
contains the details viz., description of the
goods, assessable value, name and address of the
factory or warehouse where the goods are to be
received, and if the assessee has filed a
declaration as contemplated in the Modvat rules,
the Assistant Commissioner having jurisdiction
over the factory would allow the credit of duty so
paid after making enquiries as above.
3. It should hereafter be ensured that Show
Cause Notices are not issued for procedural lapses
as mentioned in the Notification without making
proper enquiries. Wherever the Assistant
Commissioner, after making enquiry due, is
satisfied that the Modvat credit taken by the
assessee is incorrect, adjudication proceedings in
the normal course should be initiated. Efforts,
however, should be directed towards reduction of
litigation.”
8. From the above, it is clear that the modvat credit
should not be disallowed for procedural lapses and the
circular further instructed the authorities that the minor
procedural lapses in the matter of filing modvat declaration
should be ignored while considering the modvat claim in
respect of capital goods in pending cases, where the
substantive conditions of modvat credit were fulfilled to
the satisfaction of the original authority.
9. Having regard to the above said amendment brought
out in notification No.7/99-CE (N.T.) dated 9.2.1999 and the
subsequent circular No.441/7/99-CX dated 23.2.1999 and
taking note of the fact that the instant case is not even
one of non-filing of the modvat declaration, but one of
belated filing of such declaration, as per the finding
recorded by the Tribunal, we are of the view that the
amendment notification dated 9.2.1999 and the circular dated
23.2.1999 followed by it, would squarely covers the issue
and the order of the Tribunal is in accordance with the
amendment notification No.7/99-C.E. (N.T.) dated 9.2.1999
and the Circular No.441/7/99 dated 23.2.1999. Therefore, the
appeal is dismissed. However, there is no order as to costs.
Consequently, the connected C.M.P. is also dismissed.
usk
To
1. The Customs, Excise & Service Tax Appellate Tribunal
South Zonal Bench
Shastri Bhawan Annexe
1 Floor
No.26
Hadddows Road
Chennai 6.
2. The Commissioner of Central Excise (Appeals)
Chennai 600 034.
3. The Asst.Commissioner of Central Excise
D Division
Chennai Commissionerate
Chennai 34.