Judgment:
1. This appeal filed by CCE, Cochin seeks the setting aside of Order-in-Appeal No. 29/2000-C.E. dated 27-6-2000 of the Commissioner (Appeals), Cochin and Restoration of the Order-in-Original No. 111/97 dated 30-5-97 by the Assistant Commissioner of Central Excise, Muvattupuzha. Under the impugned order the Commissioner had set aside the duty demand of Rs. 3 Lakhs confirmed by the Assistant Commissioner.
2. Material facts relevant for consideration of the dispute are that the respondent in the present case M/s. Kerala Rubber and Reclaims Ltd. is a manufacturer of reclaimed rubber, which is liable to Central Excise duty under Chapter Heading No. 4003. Being a small-scale unit they availed themselves of total exemption from Central Excise duty up to an aggregate value of Rs. 30 Lakhs under Notification No. 1/93 dated 28-12-93. This was objected to by the Jurisdictional Central Excise Authorities on the ground that the assessee had availed themselves of Modvat credit under Rule 57Q in respect of capital goods and that under Notification No. 1/93 a manufacturer availing himself of the credit of duty paid on capital goods was not entitled to total exemption but was liable to pay duty at the rate of 10%. This objection was up held in adjudication by the Assistant Commissioner and the duty demand of Rs. 3 Lakhs was confirmed. The assessee moved Commissioner (Appeal) against the adjudication order. They contended that during the relevant year 1996-97 they had not availed themselves of any Modvat credit on capital goods and that the availing of credit was during the financial year 1994-95, on account of the purchase of a machine in January 1995. They also pointed out that during that year and subsequent year they did not avail of exemption under Notification No. 1/93 and at the beginning of financial year 1996-1997 they were left with only a balance of Rs. 1,838/- by way of Modvat credit on the capital goods, the remaining part of the total credit of Rs. 40,668/- having been utilized during the previous 2 financial years. It was contended that as no credit was availed during the year when exemption under Notification No. 1/93 was utilized, the objection taken by the Revenue authorities was not based on proper appreciation of facts. The assessee also sought to make distinction between availing of Modvat credit and utilizing it. Finally they also agreed to forgo the outstanding credit balance of Rs. 1,838/-. The impugned order-in-appeal was passed by the Commissioner on this appeal. The Commissioner noted that the provision fixing 10% duty upon availing credit on capital goods under Rule 57Q was deleted from Notification No. 1/93 under Notification No. 14/96 dated 23-7-96. Thus, the objection was applicable only for part of the financial year in question. He also noted that this clause in Notification No. 1/93 was in conflict with the other provisions relating to availing of Modvat credit on capital goods as contained in Rule 57R, Rule 57S & Rule 57T.He also noted that provisions relating to inputs and capital goods under the Modvat scheme are different and that the original mention of Modvat credit on capital goods under Rule 57Q in Notification No. 1/93 was inadvertent and was to be ignored. Accordingly, the appeal was allowed.
3. We have perused the records and have heard both sides. The basis of the present appeal is that during the relevant period when the appellant availed of total exemption on their first clearance up to an aggregate value of Rs. 30 Lakhs, Notification No. 1/93 contained in the provision relating to inputs on capital goods and that the Commissioner was in error in interpreting the notification after overlooking the relevant words in the Notification. The appeal also submits that occasion for invoking the principle of harmonious construction did not arise in the present case, inasmuch as the question of bringing out harmony arises only when there is conflict between provisions. It is the submission of the appellant that there was no conflict between the provisions of Rule 57Q and Notification No. 1/93. The Notification had only prescribed a different rate of duty for assessees availing of the benefit of Modvat credit on capital goods and had not prohibited the taking of credit.
4. We are not able to grant the relief sought in the appeal. The availment of the exemption notification by the assessee was during the financial year 1996-97. They had not taken any Modvat credit on machinery during the period when they were clearing the goods under total exemption. The credit was taken during 1994-95 and during that year and the next year the appellants did not take any benefit of exemption under Notification No. 1/93. The outstanding balance in the Modvat credit taken on capital goods was only Rs. 1,838/- in 1996-97 and the appellant was agreeable to returning this credit in view of the objection raised by the Revenue authorities. There could be no arguing that the return of that credit would have set at rest all disputes as to whether they were availing of Modvat credit on capital goods.
Instead, the adjudications order demanded duty of Rs. 3 Lakhs on the exempted clearances. This was clearly unjust and unwarranted. The Commissioner (Appeals) was, therefore, right in setting aside the Order-in-Original which raised the demand.