TIOL-DDT 15
22 12 2004
Wednesday
 
Manufacturing dutiable and exempted goods? No need to maintain separate accounts, no need to pay 10% on the exempted goods and even refund can be claimed on the amounts already paid.

The Central Excise department busy with arrears clearance is soon going to be flooded with refund claims.
 
A recent judgment of the Hon'ble Tribunal has thrown me out of gear for the past few days. After going through it, I was so absorbed that, I spent most of my time discussing only about it with experts in the field.  It is a decision, which I honestly feel, is going to create, nothing short of a fiscal fiasco. The decision is rendered following a decision of the Hon'ble Supreme Court, rendered way back in 2000. It is highly surprising and unfortunate that, the said decision of the Apex Court, has not been either relied by the Trade or appealed by the Revenue till date. The decision of the Tribunal is in the case of M/s Andhra Pradesh Paper Mills Ltd v Commissioner of Central Excise, Vizag (2004-TIOL-1056-CESTAT-BANG) and its fulcrum is the decision of the Apex Court in the case of M/s Orissa Extrusions - (2002-TIOL-240-SC-CX).
 
A brief on the Apex Court decision. The assessee availed an exemption under notification 180/88-Central Excise for the goods manufactured and cleared by him. The said notification exempted various goods listed against various serial numbers of the table to the said notification, from payment of excise duty.  There was a proviso to the said notification, wherein, for certain serial numbers, a prohibition was provided for, from availing the benefit of  Modvat Credit. In other words, the proviso said that, the benefit of the notification shall not be available to the goods mentioned in certain specific serial numbers in the table to the notification, if the  Modvat credit has been availed on their inputs. The assessee was manufacturing and clearing a product under a specific serial number, which did not have the Modvat embargo. Hence the assessee  availed the benefit of the Modvat credit in respect of the inputs used in the manufacture of such exempted goods and utilised the same for payment of duty on the other dutiable goods manufactured and cleared by him. The department objected to that and denied the credit availed on the inputs used on such exempted goods, invoking the provisions of Rule 57C of the erstwhile Central Excise Rules,1944. The Quasi judicial authorities confirmed the demand against the assessee and the Hon'ble Tribunal upheld the contentions of the Revenue. The aggrieved assessee appealed to the Hon'ble Supreme Court and the Apex Court in the said decision has allowed the appeal of the assessee holding that "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."
 
This means:-

1. The specific bar to avail the Modvat credit, cast on certain serial numbers of the said notification, liberates the rest from the prohibition of availing the input credit.

2. Where a notification is so  carefully worded to disallow Modvat credit only to certain goods, Rule 57 C cannot be invoked to disallow input credit on the rest of the goods where there is no explicit bar.

3. Thus the Modvat credit is allowed on the inputs used in the exempted goods which do not have the bar.

4. The credit so availed can be utilised for payment of duty on the various other goods manufactured and cleared on payment of duty.

This rocking decision, which has a monumental effect on the Revenue, was in utter hibernation till the recent decision of the Hon'ble Tribunal. Following the above ratio laid down by the Apex Court, the Tribunal in the said case, has allowed the benefit of Modvat credit on inputs used in the manufacture and clearance of  goods exempted under the notification 6/2000. In the present decision, the Hon'ble Tribunal has concluded that, the credit shall be admissible on inputs used in the manufacture of exempted goods and such exempted goods are not hit by the provisions of either earlier Rules 57C, 57 CC or the present Rule 6.
 
In other words, as per the latest decision,

1. The CENVAT credit on inputs used in the manufacture of exempted goods is allowed, if there is no explicit bar on such availment in the said notification,

2. Such credit can be utilised for payment of excise duty on other dutiable goods manufactured and cleared,

3. There is no requirement of either reversal of credit, or payment of 10%, on such exempted goods under Rule 6(2)&(3) of the Cenvat Credit Rules, 2004.

Then where at all would the provisions of Rule 6 of the Cenvat Credit Rules, 2004 (and its earlier versions) shall apply? After this decision, it appears that the provisions of  Rule 6 would apply only in cases, where there is an explicit and specific bar to avail the CENVAT credit in the notification itself, and to a manufacturer who is engaged in the manufacture of excisable goods chargeable to 'nil' rate of duty. In other words, the term 'exempted goods' under Rule 6 of CCR,2004 is only restricted to the excisable goods having the tariff rate as 'nil'.
 
The above proposition shall throw the Revenue table topsy-turvy. It is anybody's guess that the intention of the Revenue in providing for such restrictions is only a dose of extra caution. But the over cautious and superfluous drafting of the notifications has cost the Revenue dear. Further the Hon'ble Apex Court, in a recent decision in the case of M/s Parle Biscuits (2004-TIOL-105-SC-CT) had observed  that any legislative intention shall be expressive and it cannot fill up the inadequacies of improper drafting. Moreover the present decision of the Hon'ble Tribunal is reinforced with the decision of none-other-than the Paramount Court. It also appears that the Revenue has slept on the said decision but their slumber is definitely going to cost them timber.
 
Parting Shot :
 
Mr. Evergreen: Fine Sir, So far so good. What about the credit already reversed and the amount already paid under erstwhile Rule 57CC of CER,1944 and the present Rule 6 of CCR, 2004?
 
DDT: Refund bhaiya, refund! Both the reversal of credit and the amount paid under Rules 57CC or 6 are not Excise duties. As it cannot be collected from the buyer, there is no question of either unjust enrichment or Section 11D. Moreover, as it is not an excise duty, the same is not covered by the time limit prescribed under Section 11B. If at all there can be a legal restriction on time frame it shall be three years which is the general limitation provided for in the Limitation Act.
 
With such an explosive judgement, do you need anything else for the day?
 
Congress should know how to levy taxes, and if it doesn't know how to collect them, then a man is a fool to pay the taxes. - J. Pierpont Morgan
 
Until tomorrow with more of DDT
 
Have a Nice Day