By TIOL News Service
CHENNAI, MAR 22, 2013: THE appellants manufactured Castings. They took MODVAT credit on the inputs received for that purpose. Part of the Castings produced is captively used for the manufacture of exempted PD pumps and the remaining is sold in the market. The captively consumed castings are exempt from duty.
Issue that arose was as to what action is required to be taken in respect of the credits taken on the inputs used in the production of captively consumed castings. The appellant was making payment at the rate of 8% of the value of the Castings in terms of Rule 57CC of the CER, 1944.
The jurisdictional authorities were of the view that the assessee should be paying 8% of the price of the exempted PD pumps and so a demand notice was issued. However, the lower adjudicating authority dropped the proceedings by holding that the payment being made by the assessee was proper.
In an appeal by the Revenue, the Commissioner(A) set aside the order of the adjudicating authority.
The assessee, therefore, knocked the doors of the CESTAT and the Bench vide its order dated 22.03.2005 - (2005-TIOL-580-CESTAT-MAD) set aside the order of the Commissioner(A) by allowing the appeal and held thus -
"2. Even though the matter is posted today for consideration of the stay applications, after hearing both the parties, we find that this issue remains covered by the decision of this Tribunal in the case of Patel Field Marshal Industries Vs. Commissioner of Central Excise, Rajkot [2003 (158) E.L.T.483 (Tri-Mumbai)]. Therefore, we proceed with the appeal itself, after dispensing with the requirement for predeposit.
3. Payment at the rate of 8% under Rule 57 CC is in respect of the value of final product which is manufactured by using the input in question. In the present case, the final product is Casting and not the PD Pumps manufactured by using the Castings. Therefore, going by first principle itself, the demand is not sustainable. The issue also remains covered by the aforesaid decision of the Tribunal. In view of this, the appeals are allowed, with consequential relief, if any, to the appellant. Copy of the order to be given by "DASTI"."
So, the Revenue is in appeal before the Madras High Court and has raised the following substantial questions of law:-
1. Whether the Tribunal is correct in holding that the final product is castings and not PD pumps when castings are only captively consumed and not sold from the factory in order to bring within the purview of the word 'price' used under Rule 57CC of the erstwhile Central Excise Rules, 1944?
2. Whether the Tribunal is correct in holding that the payment of duty at the rate of 8% under Rule 57CC of the erstwhile Central Excise Rules, 1944 can be on the castings captively consumed when the word 'Price' used under Rule 57 CC has to be applied only in relation to sale and clearance of final products, i.e. P.D. pumps, which are exempted from payment of duty, thus over riding the legal provisions?
The Revenue representative submitted that the assessee manufactures both dutiable and non-dutiable final products viz., CI castings and submersible pumps, respectively. However, for manufacturing submersible pumps, the assessee captively consumed CI castings. When the assessee had used inputs both in the manufacture of dutiable final products as well as in the manufacture of exempted final products, they should maintain separate accounts showing the details of inputs received and consumed both in respect of manufacture of dutiable final products as well as exempted goods. If no such separate accounts are maintained as required under Rule 57CC (9), the assessee is bound to pay 8% of duty on the sale price of the exempted goods at the time of clearance.
It is further submitted that the finding of the Tribunal that the final product emerged from the assessee was only CI castings is factually incorrect and on the other hand the first appellate authority has rightly found based on the facts and materials placed before him that the assessee had cleared the CI castings as such apart from using the same in the manufacture of final products viz., mono bloc pumps etc, which are exempted. Reliance is placed on the Apex Court decision in Commissioner of Central Excise, Nagpur Vs. Ballarpur Industries Ltd. - (2007-TIOL-153-SC-CX) in support.
The assessee submitted that the Tribunal rightly found that the assessee cleared CI castings as final products and not the PD pumps and, therefore, the demand of duty at the rate of 8% on the sale price of the exempted final product viz. pumps cannot be demanded. In support the LB decision in Texmo Industries vs. Commissioner of Central Excise, Coimbatore - (2007-TIOL-144-CESTAT-DEL-LB) is cited.
The High Court observed -
"8. The point for consideration in this appeal is as to whether the assessee is liable to pay 8% on the price of the exempted final products viz., PD Pumps cleared from factory or 8% on the price of CI casting which was captively consumed by the assessee for the manufacture of those exempted goods viz., PD pumps.
9. It is an admitted case of the assessee that they are manufacturers of CI castings along with machineries, electric motors, centrifugal pumps etc., and were availing MODVAT credit on various inputs used in the manufacture of the above goods except the exempted goods. Rule 57CC (9) of the Central Excise Rules 1944, contemplates that the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon. If the assessee receives inputs in its factory which are meant for use in the manufacture of both dutiable products as well as exempted one, it should maintain a separate inventory and accounts in respect of the receipt and use of inputs which are used in or in relation to any goods exempted from the levy of duty. However, an option is given to the assessee to pay 8% ad valorem on the value of the price of such final products, if he fails to maintain a separate account. In this case, the original authority dropped further proceedings by holding that CI castings themselves are the final products as they were sold as such as well as captively consumed for the manufacture of PD pumps. Therefore, he found that that PD pumps are not final products. He further observed that when CI castings were cleared on payment of duty as such and the second category of the final products were used captively for the manufacture of PD pumps, the question of payment of an amount equivalent to 8% on the exempted PD pumps value does not arise.
10. On the other hand the first appellate authority found that the assessee was manufacturing both CI castings as well as monobloc pumps etc, while the former is a dutiable one and the latter is an exempted one. He also specifically found that the asessee used various inputs for the manufacture of their dutiable and non-dutiable final products. Insofar as the non-dutiable final products, viz., the pumps are concerned, the first appellate authority has found that the assessee had not followed Rule 57CC(9) as they have not admittedly maintained separate accounts in respect of the inputs received and used for the manufacture of exempted final products. The assessee has to necessarily maintain separate accounts as contemplated under Rule 57CC (9) and in the absence of maintaining such accounts, they have to pay 8% of duty on the sale price of exempted final products cleared by them.
11. Here in this case, admittedly, the exempted final products is the monobloc etc., and not CI castings. In order to escape from the liability, the assessee projected its case as though the final product cleared was only CI castings and not the monobloc pumps. Such contention was rejected by the first appellate authority by specifically going into all the facts and materials placed before him. Such factual finding rendered by the first appellate authority was rejected by the Tribunal by holding that what was cleared is only CI castings and not PD pumps. A perusal of the order passed by the Tribunal would only show that the factual aspect of the matter was not gone into in detail. The Tribunal being the final fact finding authority, ought to have considered the entire facts and materials and the findings of the first appellate authority. There is absolutely no reason given by the Tribunal as to how it has come to the conclusion that the final product which is manufactured is only CI castings and not PD pumps, whereas the first appellate authority had given detailed reasonings for arriving at such conclusion based on the materials placed before it. We are in total agreement with the order passed by the first appellate authority supported by well considered reasonings."
After holding so, the High Court distinguished the judgments cited by the assessee by noting that the Supreme Court decision in Ballapur Industries Ltd. is to the point and thus allowed the appeal filed by the Revenue.
In passing: Retrospective benefits - Rule 57CC and Rule 6 of the CENVAT Credit Rules were amended retrospectively by the Finance Act, 2010 to allow the manufacturers of dutiable and exempted goods to reverse the Credit attributable to exempted goods. The corresponding rules were amended retrospectively with effect from 1.9.1996 to the effect that where dutiable and exempted goods are manufactured, the assessee can pay the amount of credit attributable to the inputs (and input services with effect from 10.09.2004) used in the manufacture of exempted goods along with interest of 24%. (See 2012-TIOL-1181-CESTAT-MUM) & (2012-TIOL-1718-CESTAT-MUM). Probably, this is not the end of the story!
(See 2013-TIOL-222-HC-MAD-CX)
