By TIOL News Service

MUMBAI, FEB 20, 2015: IN the appeal filed by the assesse against the order of the Tribunal, inter alia, the following substantial question of law was admitted by the High Court.

Whether the amendment to Rule 57C of the erstwhile Central Excise Rules, 1944 by Notification No.4/92 dated 1.3.1992 was clarificatory and retrospective in nature?

The rule 57C of CER, 1944 as it stood before the amendment read -

Rule 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 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.

By notification 4/92-CE(NT), dated 01.03.1992, the following amendment was made -

(i) in rule 57C, for the words "in the manufacture of a final product", the words "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 substituted;

The High Court after considering the elaborate submissions made by both sides observed -

++ A bare reading of the amendment would denote as to how after the words or rather for the words "in the manufacture of a final product", the words "in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hundred percent Export Oriented Unit)" were substituted.

++ Once their substitution is read and in the light of the un-amended rule, it would clearly emerge as to how credit of duty was not to be allowed if the final products are exempt. The intent was not to allow any such credit on the inputs used in the manufacture of a exempted final product. If the final product is exempted from whole of duty leviable thereon or is chargeable to nil rate of duty. However, upon manufacture if such final product is cleared either to a unit in a free trade zone or to hundred percent export oriented unit then the prohibition in rule 57C does not apply. This is really a substantive amendment.

++ This is to facilitate availment of credit of duty paid on the inputs used in a final exempted product which was otherwise inadmissible or non-exigible. This is a substantial departure from the earlier position. Now, the credit is not to be denied if the clearances are in the above terms. The intent and purpose was obvious.

++ A free trade zone or units therein or export oriented unit undertake activities which would facilitate the country in earning foreign exchange and which is considered extremely valuable. In that regard and to encourage such units to undertake the activities noted above, frequently, that this rule was amended. That was also enabling the suppliers of such duty free products and received in the free trade zone to claim credit on the basis of the clearances made. If such is the intent and purpose and the departure is specifically made from a particular date, then, such amendment cannot but be held to be prospective.

The support sought to be derived by the appellant from General Exemption No.21 which is applicable to excisable goods when brought into Kandla Free Trade Zone & Rule 191BB was also rejected by the High Court. The appellant also sought mileage from the amendment made to Notification No.217 of 1986 w.e.f 01.03.1992 but the High Court held that the intent and the purpose sought to be achieved by the two notifications is not identical.

Holding that the Tribunal had rightly held that the credit was inadmissible and could not have been availed of in the light of the legal provision prevailing at the time at which the credit was availed by the appellant assesse, the appeal was dismissed.

(See 2015-TIOL-416-HC-MUM-CX)