CX - Goods which are being cleared under Chapter X procedure have not suffered any duty payment - MODVAT Credit taken on inputs in r/o such goods is incorrect and has to be reversed: HC
By TIOL News Service
MUMBAI, JAN 04, 2017: THE petitioner sought the following reliefs:-
+ declare Rule 57C of the Central Excise Rules, 1944 unconstitutional and ultra vires Article 14 of the Constitution of India and/or Rule 57A of the Central Excise Rules, 1944;
+ issue a Writ of Mandamus directing the Respondents, their officers, subordinates, servants and agents to forthwith withdraw the demand of duty amounting to Rs.29,88,435/-.
At the hearing, the first relief is not pressed.
The facts go thus - In manufacturing castings, petitioner uses aluminium ingots. The petitioners filed a declaration for availing credit of duty paid on the inputs, namely aluminium ingots as required under Rule 57G. The buyer of castings has the choice to either purchase the castings against the duty paying document and then in turn avail MODVAT Credit or instead of following the procedure of MODVAT Credit, obtain remission of duty under chapter X and purchase the castings without payment of duty.
Three SCNs were issued calling upon the petitioners to show cause why the credit of duty wrongly availed by petitioner in respect of inputs used in the manufacture of castings cleared without payment of duty should not be recovered under Rule 57-I read with Section 11A of the Act.
The Assistant Commissioner while adjudicating the SCNs held -
++ The assessees were reversing proportionate MODVAT Credit in respect of inputs used in castings cleared under Chapter X procedure initially. However, this was discontinued later. The assessee was fully aware that MODVAT Credit cannot be taken on final products which are either exempt from the whole of the duty of excise leviable or are chargeable to nil rate of duty. The petitioners have resorted to jugglery. They are claiming that neither are the goods exempt or chargeable to nil rate of duty, but there is remission of duty. The goods, which are being cleared under Chapter X procedure have not suffered any duty payment. The MODVAT Credit taken on such goods is incorrect and has to be reversed.
The appellate authority referred to the larger bench decision of the tribunal, in the case of Kirloskar Oil Engines . In that the tribunal concludes that MODVAT Credit in terms of Rule 57C in respect of inputs, which have been used in manufacture of final product, fully exempted from the whole of duty of excise leviable on such products, is not available. Once the assessees have cleared the castings (final product) without payment of duty, their case is covered by the tribunal's decision. Therefore, the appeal was dismissed.
Before the High Court, the petitioner submitted that the SCNs are ex-facie untenable and should be quashed and set aside since -
++ Remission that the party or the buyer may claim is dependent upon satisfaction of the Collector/Commissioner of Customs. There are conditions, which have to be fulfilled and that is how Rule 192 of the Rules would read.
++ Therefore, the stand of the respondents that since the duty on castings was remitted by virtue of Rule 57C, it was entitled to seek reversal of the MODVAT Credit is incorrect.
++ Rule 57C had no application to the facts of the case, since the duty was being remitted and not exempted or chargeable at nil rate.
++ There is no one to one co-relation of inputs to the final products contemplated under the MODVAT Scheme. Once there is vested right to seek credit of the duty paid on inputs as against clearance of dutiable final products, then, that right cannot be denied or taken away by an interpretative process.
The High Court inter alia observed -
+ We have perused the entire paper book and found that there is no explanation provided, much less reasonable and plausible by the petitioners for the decision to initially reverse the MODVAT Credit, but later on shifting their stand and refusing to reverse it.
+ We are of the clear opinion that when the impugned order terms this exercise of the petitioners as jugglery, then, that finding and remark is fully justified.
+ It is for that the show cause notices were issued and the explanation was sought. It is in that process that the petitioners relied upon all the decisions referred above. Once they had no application to the facts and circumstances of the petitioners' case, then, we do not think that the concurrent findings in the orders impugned before us to be perverse or vitiated by error of law apparent on the face of the record.
+ In any event, the arguments that are now canvassed before us were all considered by the appellate authority. We do not think that the impugned order suffers from any serious legal infirmity requiring interference in writ jurisdiction.
The Writ Petition is dismissed.
(See 2017-TIOL-28-HC-MUM-CX)
