Full Judgment
2. The relevant facts that arise for consideration are that the appellant are manufacturers of embroidered products falling under chapter heading No. 5805.19 of the schedule to Central Excise Tariff Act, 1985 and opted for the discharging the duty liability under the provisions of Rule 96ZH of the Central Excise Rules, 1944 and also availed Modvat credit on the capital goods and utilized the same for discharge of the duty liability. A show cause notice was issued for wrong utilization of Modvat credit and demand of the duty and also for imposition of penalty, on the ground that the appellant is precluded from availment of benefit of any other provisions of the Central Excise Rules, 1944. Appellant resisted the show cause notice on two grounds i.e. that the benefit of beneficial legislation like Modvat should not be denied and also on the demand being time barred. Adjudicating authority did not agree with the contentions of the appellant and confirmed the demand and imposed penalties under different rules.
Appellant preferred an appeal to Commissioner (Appeals) on the same grounds, as taken by them during the defense of the show cause notice.
Learned Commissioner (Appeals) also concurred with the findings of the adjudicating authority and upheld the order-in-original, but modified the same so as to set aside the penalty imposed on the appellant under Rule 209 of the Central Excise Rules, 1944. Hence appellant has filed this appeal.
3. Learned advocate appearing for the appellant submits that the impugned order is wrong on the ground that the beneficial legislation like Modvat credit on the capital goods should not be denied when the appellant is discharging the duty and also on time bar issue. It was also his submission that the imposition of the duty on the capacity of production under the Rules 96ZH to 96ZM of Central Excise Rules 1944 is ultra vires of the Act. It was his submission that during the relevant period Section 3 provided for the levy and collection of the duty and did not provide for the imposition of the duty under the capacity of production.
4. Learned SDR on the other hand submits that division bench of the tribunal in the case of United Leasing & Industries Ltd. v. CCE, Delhi II availment of the benefit of the provisions of Rules 96ZH to 96ZM and Modvat and held against the assessee. As regards the ultra vires of the impost on capacity of production it was his submission that there is no conflict. The impost is on the production of the goods and the levy and collection is under Section 3 of the Central Excise Act, 1944. For this propostion he relies upon the decision of the Hon'ble High Court of Madhya Pradesh in the case of Shree Synthetics Limited v. UOI as reported at .
5. Considered the submissions made by both sides and perused records.
It is undisputed that the appellant is discharging the duty liability on the embroidered products manufactured by him under the provisions of Rule 96ZH of the Central Excise Rules 1944 and that it is also not disputed that the appellant during the relevant period availed the benefit of Modvat credit on the capital goods under Rule 57Q of the Central Excise Rules 1944. In order to appreciate the rival claims it is necessary to read the provisions of Rule 96ZH as amended, during the relevant period by notification No. 15/98 and applicable to the current case. I may read the same: Provided further that no credit of duty paid on inputs used in the manufacture of the embroidery and capital goods used within the factory of manufacture of such embroidery shall be allowed under Rule 57A, 57B or 57Q as the case may be.
It can be noticed that the proviso very clearly precludes the appellant from availing the benefit of the Modvat under Rules 57A and 57Q. If that be so, then the appellant's contention that they should not be denied the beneficial legislation falls flat on the face of the fact that the duty payment on the capacity of the production of the embroidery machines is an optional one. I find that the division bench in the case of United Leasing & Industries (supra) decided identical issue. The division bench held as under: Modvat - Compounded Levy Scheme - Manufacturer of embroidery opting to work under erstwhile Section E-IX of Chapter V of Central Excise Rules, 1944 for period prior to 2.6.98 is not entitled to avail of modvat credit on inputs or capital goods - Second proviso to erstwhile Rule 96ZI(1) of Central Excise Rules, 1944 is clarificatory and prospective in operation.
6. It is noticed that the issue on merits is squarely covered by the decision of the division bench and respectfully following the same, the appeal of the appellant is devoid of merits.
7. As regards the time bar issue I find the show cause notice is for the demand of clearances made during the period September 1998 to February 1999. The show cause notice is issued to the appellant on 11.3.99, which is well within the period as indicated under the provisions of Section 11A of the Central Excise Act, 1944. The monthly returns for the month of September 98 are to be filed by the appellant on or before 5^th October 1998 and the limitation period starts from that date. The demand on the appellant being of the duty on the clearances made by them without discharging the duty and not for the reversal of the Modvat credit, hence the appeal fails on this count also.
8. As regards the argument of the learned advocate that the imposition of the duty on the capacity of production is ultra vires, this argument is totally misconceived. It is seen that Rules 96ZH to 96ZM were introduced by notification No. 115/68 dated 14.5.1968 in exercise of the powers conferred by Section 37 of the Central Excise and Salt Act, 1944. The said rules were introduced under the heading "F-IX Embroidery, in the piece, in strips or in motifs - special procedure" and any assessee intending to avail the benefit under these rules has to first make an application under Rule 96ZH. I may read specifically Rule 96ZH(1): (1) Where a manufacturer who manufactures embroidery, in the piece, in strips or in motifs (hereinafter referred to as the embroidery) with the aid of vertical type automatic shuttle embroidery machine or machines (hereinafter referred to as the machine or the machines, as the case may be), makes in the proper form an application to the Collector in this behalf, the special provisions contained in this section shall, on such application being granted by the Collector, apply to such manufacturer in substitution of the provisions contained elsewhere than in this section for the period in respect of which the application has been so granted.
9. It can be noticed that the discharge of the duty liability under the said rules were optional and that also after the permission is granted by the jurisdictional Commissioner. If the duty liability is to be discharged at the option of the assessee and the assessee having full knowledge of the same opts for observing the provisions of the Rules 96ZH to 96ZM cannot turn around now and say that the impost under these rules are ultra vires. Section 3(1) of the Central Excise Act, 1944 read as under: Section 3 Duties specified in the First Schedule to be levied: (1) There shall be levied and collected in such a manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in (India) and a duty on salt manufactured in, or imported by land into, any part of (India) as, and at the rates, set forth in the First Schedule.
10. It can be noticed from the above-reproduced sub-section that it contemplates levy and collection of the duty as may be prescribed on the goods produced and manufactured in India. It is not in dispute that the products manufactured by the appellant will fall under the category of manufactured goods. The provisions of the Rules 96ZH to 96ZM were introduced for smoother way of collection of the duty and is for proper assessment of the duty on embroidered goods. The said rules cannot be considered as ultra vires for levy and collection of the duty, more so on the fact that the working under these rules were optional.
11. Their lordships in the case of Shree Synthetics Limited (supra) were considering the challenge of the petitioner as to the vires of the Government's authority for imposition of duty under Rule 9 of Central Excise Rules by exercise of powers under Section 37 of Central Excise Act, 1944 wherein their lordships have held as under: It is not correct to say that the qualifying words 'in such manner as may be prescribed' in Section 3 of the Central Excises Act qualify only 'collected' and 'not levied'. The term 'levy' is wider and includes all stages upto assessment but does not include 'collection' which is separately referred to in Section 3 of the Act.
The term 'levy' is a word of very wide import while the term 'imposition' is narrower and is generally used for the levy of a tax or duty by legislative provisions indicating the subject matter of the tax and the date at which it has to be taxed.
12. Respectfully following the ratio as laid down by the Hon'ble High Court of Madhya Pradesh, it has to be held that the appellant's contention on this ground of appeal also fails.
13. Accordingly, in view of the facts and findings as mentioned above the appeal fails on all counts and impugned order is upheld.