1. The above matter has been listed for final order in terms of the directions of the Hon'ble High Court of Madras by their order dated 24.8.2001 in reference case No. 5/97. The matter had been referred to the Hon'ble High Court for answering the following question under Section of the CE Act, 1944: "When Modvat credit is allowed under the provisions of rule 57H in respect of goods received from small manufacturers, whether the benefit of higher Modvat Credit can be allowed or not at the same time under the provisions of Rule 57B" and the High Court after due consideration of the matter has passed the following order : The question referred is as to whether Rule. 57-B of the Central Excise Rules as it existed in the year 1991 is applicable in respect of the inputs lying in stock at the time the manufacturer obtained acknowledgment of declaration made under Rule 57-B. 2. The assessee is a manufacturer of paints and warnishes which fall under chapter XXXII of the Central Excise Tariff, 1985. During the financial year 1991-92 after availing full basic exemption upto NIL rate under the notification No. 175/1986 the assessee filed declaration under Rule 57-G and opted for MODVAT Scheme on 12.8.1991. The assessee also claimed transitional credit of Rs.4,45,460/- and Rs.20,499/- under Rule 57-B in respect of the stock on inputs held by them as on 12.8.1991. That claim though initially allowed was subsequently rejected by the Asst.Collector.
Collector having allowed the appeal of the assessee, the matter was carried to the Tribunal which even while correctly exponding the object and scope of Section 57-B, ultimately held that the assessee was not entitled to the transitional credit under S.57-B. The Tribunal took the view that Rule 57-B is inapplicable for the purpose of determining the transitional credit under Rule 57-B. "Rule 57-B credit of duty in respect of inputs obtained from scale manufacturers:- Notwithstanding anything contained in rule 57-A credit of specified duty or inputs may, in a case here the duty on inputs has been paid under a Notification issued under sub-rule(1) of Rule 8 or Sub-Section (1) of Section 5A of the Act or Section 5A of the Act.
as the case may be exempting such inputs from a part of the duty leviable thereon on the basis of value of clearances of such inputs during any specified period, be allowed at the rate otherwise applicable to such inputs but for the said notification.
Provided that the said notification provides for grant of credit in respect of such inputs at such higher rates as may be specified therein." 4. The credit at the rate at which the duty would have been payable though not actually, paid by the manufacturer on inputs by reason of the manufacturer being a small scale industry, is to be allowed to the purchase of such inputs, who uses the input in the manufacture of other excisable products, not withstanding the fact that under Rule 57-A the duty allowable as credit, is the duty paid on the goods used in the manufacture of the final product. Rule 57-H after giving it over riding effect in relation to 57-G states the procedure to be observed by the manufacturer for obtaining Modvat credit and empowers the Asst.Collector to allow "Credit of duty paid on inputs received by the manufacturer immediately before obtaining the acknowledgment of the declaration, subject to the conditions set out in the Rule".
5. R.57-A does not unfortunately for the assessee give it over riding effect one Rule 57-H as a whole. Had 57-B not been a part of Rules, credit could have ben taken only for the amount of duty actually paid as provided for in Rule 57-A. Rule 57-G permits the manufacturer of final product to take credit of the duty on the inputs received by him, Only after no obtains acknowledgment of the declaration required to be made under Rule 57-G. Rule 57-H deals with the period anterior to the date of obtaining of the acknowledgement of declaration. For that period, at the discretion of the appropriate officer, credit may be allowed on the inputs lying in stock to the extent of the duty paid on the inputs. Rule 57-B is not made applicable to the amount of credit that the manufacture may avail of in respect of the inputs lying in stock prior to the date of filing of the declaration and obtaining acknowledgment.
6. The submission of the learned counsel for the assessee that in the absence of any provision in 57-H to exclude the applicability of R.57-B, the latter rule should be read into the former is untenable and has to be rejected. The rule making authority has made a conscious distinction with regard to the quantum of credit to be allowed on the inputs obtained from Small-scale manufacturers keeping in view, the time at which he inputs of manufactured by such small scale manufacturers were acquired by the assessee. In cases where the assessee had acquired the inputs even prior to the date of declaration, the fact that a higher rate of credit could be availed of under R.57-B, subsequent to the declaration could not be regarded as having in any way affected the earlier acquisition of the inputs manufactured by such small scale industries. The assessee, prior to the filing of the declaration acquired inputs and at the time, the inputs were acquired, it could not have envisaged that at some point of time, in the future they would become entitled to the benefit by setting off the duty otherwise payable but not paid on these inputs against the duty which the assessee would have to pay on the final product. The decision to obtain goods from the Small scale manufacturer was at the time at was acquired, not in any way influenced by the existence of Rule 57-B. The Rule Making authority has therefore while allowing the credit to be taken for the duty paid on inputs, which was lying in stock at the time of the filing of the declaration has limited the credit to the amount of the duty actually paid.
7. The true purpose of Rule 57-B can be said to be served only when the manufacture of the final product is induced to buy the inputs from small scale manufacturers by reason of the opportunity provided by law to avail a higher amount of credit even while actually paying a lesser amount by reason of the inputs having been manufactured by the small scale manufacturers. Such decision would be made by the manufacturers of the final product only after he decides to avail of the Modvat scheme and mades the necessary declaration. Rule 57-B therefore is not applicable in respect of the inputs lying is stock with the manufacturer of the final product at the time such manufacturer obtains the acknowledgement of the declaration made by him under Rule 57-B. We therefore, answer the question referred to us in favour of the Revenue and against the assessee.
2. The matter has since been listed for final order in terms of Section 35K r/w S35C of the CE Act. 1944. The Hon'ble High Court has answered the question in favour of the Revenue and against the assessee. In view of this the Tribunal's final order No. 183/93 dated 15.2.96 allowing the Revenue appeal is confirmed and it is held that he assessee is not entitled to the benefit of Higher Modvat credit as held by the Tribunal in the cited final order.