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CASE NO.: Appeal (civil)  4891 of 2005

PETITIONER: M/s.  Amrit Paper

RESPONDENT: Commissioner of Central Excise, Ludhiana

DATE OF JUDGMENT: 25/07/2006

BENCH: ARIJIT PASAYAT & S.H. KAPADIA

JUDGMENT: J U D G M E N T

ARIJIT PASAYAT, J

       Challenge in this appeal filed under Section 35L of the  Central Excise Act, 1944 (in short the ’Act’) is to the legality of  judgment rendered by the Customs, Excise and Service Tax  Appellate Tribunal, New Delhi (in short the ’Tribunal’).  

The controversy lies within a very narrow compass.          Appellant is engaged in the manufacture of paper and  paper board falling in Chapter 48 of the Tariff. Notification  No.6/2000-CE dated 1.3.2000 was issued whereby the  product manufactured by the appellant was exempted from  payment of duty during the month of March, 2000. Appellant  availed credit as well as cleared goods under the said  exemption notification. Thereafter, it suo motu reversed the  credit of Rs.1,92,365/- to avail the exemption. It deposited the  duty on 30.8.2000 for the month of March, 2000 and also  applied for refund of the Modvat credit of Rs.1,92,365/- which  was already reversed by it. The claim of refund was allowed by  order dated 13.12.2001 passed by the Assistant  Commissioner. Thereafter, the appellant again suo motu  reversed the Modvat credit and filed the refund claim on  12.7.2001 in respect of the duty paid on 30.8.2000 for the  month of March, 2000, claiming benefit under the aforesaid  notification No.6/2000-CE. The claim for refund was rejected  by the Assistant Commissioner. An appeal was filed before the  Commissioner (Appeals) who also dismissed the appeal.  An  appeal was filed before the Tribunal, which was dismissed by  the Tribunal by the impugned judgment.     

       Contention of the appellant before the Tribunal was that  it had already reversed the credit taken during the month of  March, 2000 and, therefore, it is entitled for the benefit of  Notification and duty paid on 30.8.2000 by it was to be  refunded.  Reliance was placed on a decision of this Court in  Orissa Extrusions v. Collector of Central Excise, Bhubaneswar  (2000 (115) E.L.T. 30 (S.C.) where this Court while interpreting  the provisions of the Notification no.180-CE of 1988 observed  that it cannot be held that exemption notification will be  inapplicable insofar as it is not in accordance with Rule 57C of  the Central Excise Rules, 1944 (in short the ’Rules’).

       The contention of the Revenue was that the appellant  during the month of March, 2000 availed the credit and also

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cleared the goods at nil rate of duty under Notification  No.6/2000-CE. As the appellant cleared the goods and availed  the credit therefor, it is not entitled for the benefit of  exemption notification. The contention of the Revenue was  that thereafter the appellant reversed the credit and  subsequently paid the duty for the month of March 2000 and  filed the refund claim in respect of the credit reversed by it and  the refund was allowed.  As the appellant availed the benefit of  credit in respect of the inputs for the month of March 2000,  therefore, it is not entitled for benefit of Notification.    

       The Tribunal held that the decision relied upon by the  appellant was not applicable and in any event it having  claimed refund and credit which was allowed it cannot again  ask for exemption from payment of duty and the claim for  refund of duty was rightly rejected.   

       In support of the appeal, learned counsel for the  appellant submitted that the Tribunal was not justified in  holding that the entitlement to exemption under the  Notification in question was dependent upon whether the  assessee had availed Modvat credit of input duty under Rule  57A of the Rules. It is pointed out that the Notification which  was issued in exercise of powers conferred by sub-section (1)  of Section 5A of the Act granted exemption in respect of  excisable goods of the description specified in Column (3) of  the table read with concerned list appended to the Notification.  The exemption was subject to relevant conditions specified in  the Annexure to the Notification and referred to in the  corresponding entry in Column (6) of the table. It is further  pointed out that so far as the item manufactured by the  appellant is concerned, the condition applicable was condition  No.15 which reads as follows:

"15. (1) This exemption shall apply only to the  paper and paperboard cleared for home  consumption from a factory-

(a)     during the period from Ist  March 2000 to 31st March 2000,  upto first clearances of an aggregate  quantity not exceeding 210 Metric  Tonnes; and

(b)     on or after the Ist day of April,  2000, in any subsequent financial  year, upto first clearances of an  aggregate quantity not exceeding  2500 Metric Tonnes;

(2)     The exemption shall not be applicable to  a manufacturer of the said goods who avails of  the exemption under the notification of the  Government of India in the Ministry of Finance  (Department of Revenue) No.8/99-Central  Excise, dated the 28th February, 1999  published in the Gazette vide number G.S.R.  170(E) dated the 28th February, 1999, 9/99- Central Excise, dated the 28th February, 1999  published in the Gazette vide Number G.S.R.  171(E), dated the 28th February, 1999,  published in the Gazette vide 8/2000-Central  Excise, dated the Ist March, 2000 and 9/2000- Central Excise, dated the Ist March, 2000".

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       It is again pointed out that in certain other cases, for  example, condition No.27 the entry reads as follows:          "27. If no credit of duty paid, has been taken  under Rule 57A or Rule 57B or Rule 57Q of  the Central Excise Rules, 1944."

       Therefore, even if no credit of duty paid had been taken  under Rule 57A, 57B or 57Q of the Rules, the exemption was  available. Reliance is placed on a decision of this Court in  Orissa Extrusions’s case (supra).  It was held in the said case  as follows:

"Learned counsel for the Revenue drew our  attention to Rule 57C, which states that no  credit shall be allowed for duty paid on  inputs used in the manufacture of final  products which are exempt from the whole of  the excise duty leviable thereon or are  chargeable to nil rate of duty. It would appear  that it is for this reason that the said proviso  was included in the notification so that the  provisions of Rule 57C would not apply in  respect of goods not covered by the items  specifically mentioned therein. The exemption  notification must be assumed to have been  consciously so worded and due effect must be  given to the assessee thereunder. It cannot be  held that the exemption notification will be  inapplicable insofar as it is not in accordance   with Rule 57C.

       Therefore, it is submitted that exemption notification is  applicable.          In response, Mr. A. Subba Rao, learned counsel for the  respondent submitted that the decision referred to above is  not applicable to the facts of the case. In any event, Rule 57C  cannot be given a go by while interpreting the Notification.  Otherwise the said provision will become redundant.  

       In order to appreciate the rival submissions, it would be  appropriate to take note of the observations made by a three- Judge Bench of this Court in Ichalkaranji Machine Centre Pvt.  Ltd. v. Collector of Central Excise, Pune (2004 (174) E.L.T. 417  (S.C.). It was, inter alia, held as follows:

"9.     Modvat is basically a duty-collecting  procedure, which aims at allowing relief to a  manufacturer on the duty element borne by  him in respect of the inputs used by him. It  was introduced w.e.f. 1.3.1986. The said  scheme was regulated under rules 57A to 57J  of Central Excise Rules, 1944. Rule 57A  entitled a manufacturer to take instant credit  of the central excise duty paid on the inputs  used by him in the manufacture of the finished  product, provided that the input and the  finished product were excisable commodities  and fell under any of the specified chapters in  the tariff schedule. Under rule 57G, every  manufacturer was required to file a declaration  before the jurisdictional Assistant Collector,

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declaring his intention to take Modvat credit  after paying duty on the inputs. The object  behind rule 57A read with rule 57G and rule  57-I was utilization of credit allowed towards  payment of duty on any of the final products in  relation to manufacture of which such inputs  were intended to be used in accordance with  the declaration under Rule 57G. Rule 57-I  referred to consequences of taking credit  wrongly.

xxx                     xxx                     xxx

13. The above notification envisaged total and  partial exemption; it also categorized the  clearances into first clearances and  subsequent clearances; it also categorized  manufacturers: into those who took Modvat  credit and those who did not. Those who took  Modvat credit were entitled to only  concessional exemption, while whose who did  not avail of Modvat credit were entitled to total  exemption up to a specified limit. While  individual ceiling limits on clearances were  prescribed, there was an aggregate ceiling limit  of Rs.75 lacs, beyond which normal duty was  payable. Therefore, if a manufacturer effected  first clearances of specified goods up to Rs.30  lacs, he could avail the concession on such  clearances, but in respect of subsequent  clearances, he will get the concession only up  to Rs.45 lacs. The basic point is that those  who avail of Modvat credit were entitled to  concessional exemption only, while those who  did not avail such credit could get total  exemption up to a specified limit of Rs.15 lacs  (as it stood at the relevant time). Under para  (a)(i) of the notification, concession was not  admissible where Modvat credit was not  availed/admissible.  

14.     In the present case, as found by the  Adjudicating Authority and the Tribunal,  Modvat credit was not availed/admissible. In  respect of cast iron and castings, Modvat  credit was inadmissible as both these inputs  were exempted, whereas in case of steel bars,  the manufacturer did not avail of Modvat  credit. Therefore, the appellants were not  entitled to clear the final products at  concessional rate of duty. Lastly, without  reversing the credit, the appellants cleared the  final products at the concessional rate of duty,  in breach of the above notification, in favour of  their sister concern and consequently, the said  sister concern was not entitled to the benefit of  higher credit which was admissible to  manufacturers who bought goods as their  inputs from small scale industrial units  (appellants herein).

15.     It was argued on behalf of the appellants  that they had availed of the Modvat credit as  they had not withdrawn the declaration filed  by them with the department. That, there was

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no willful suppression as the department was  aware, on the basis of their accounts, about  the appellants not availing the Modvat credit  and, therefore, the department had erred in  invoking the proviso to Section 11A in relation  to the extended period for demanding excise  duty. We do not find merit in the above  arguments. The appellants never opted out of  the Modvat scheme. They partly cleared the  final products by paying duty at concessional  rate without utilizing the credit in the payment  of duty on final product and partly on the  basis of credit which was not admissible. It is  important to note that the underlying object  behind the notification was to utilize the credit  against payment of duty on the final product.  In the circumstances, the demand for  differential duty, penalty and confiscation  subject to payment of redemption fine is valid  and justified."                                                                          (underlined for emphasis)

       As rightly submitted by learned counsel for the  respondent the provisions of Rule 57C would be rendered  nugatory and redundant if the interpretation as suggested by  learned counsel for the appellant is accepted. It would mean  that primacy has to be given to the Notification over the  statutory provisions contained in Rule 57C.  

       Rule 57C reads as follows:

"57C. Credit of duty not to be allowed if final  products are exempt. -

No credit of the specified duty paid on the  inputs used in the manufacture of a final  product (other than those cleared either to a  unit in a Free Trade Zone or to a hundred per  cent Export-Oriented Unit) shall be allowed if  the final product is exempt from the whole of  the duty of excise leviable thereon or is  chargeable to nil rate of duty."

       It provides in mandatory and categorical terms that no  credit of the specified duty paid on the inputs used in the  manufacture of a final product (of the enumerated categories)  shall be allowed if the final product is exempt from the whole  of the duty of excise leviable thereon or is chargeable to nil  rate of duty.  Moreover on the facts of the case it is found that  the manufacturer had availed of the credit at the time of the  clearance of the goods and had suo moto reversed it to avail  the exemption later on almost after 11 months when it claimed  refund of modvat-credit, hence it was not entitled to  exemption.  Undisputedly factual position is so.    

       Moreover, on the facts of the case, it is found that the  manufacturer had availed of the credit at the time of the  clearance of the goods and had suo motu reversed it to avail  the exemption later on almost after 15 months when it claimed  refund of Modvat credit, hence it was not entitled to  exemption.   

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Though the decision in Orissa Extrusions’s case (supra)   supports the stand taken by the appellant, but in view of what  has been stated by a three-Judge Bench in Ichalkaranji’s case  (supra) the decision does not lay down the correct position in  law. In that view of the matter, the present appeal is sans  merit and is dismissed.  No costs.