1. The appellants are manufacturers of various Aluminium Extrusion Products. They had declared Aluminium Ingots and Magnesium as the inputs and Aluminium Tubes and Pipes as the final products in the declaration filed under Rule 57G of the Central Excise Rules, 1944.
They cleared Aluminium Irrigation Tubes without payment of duty in terms of Notification No. 180/88-C.E., dated 13-5-1988. A show cause notice dated 112-3-1993 was issued to them alleging that before clearing the exempted goods as above during the period September 1992 to February 1993 they had not reversed Modvat credit amounting to Rs. 29,59.084.15 taken on the inputs but had utilised it towards clearance of other dutiable products and had thereby contravened the provisions of Rules 57A, 57C and 57F of the Central Excise Rules, 1944. The case was adjudicated by the Assistant Collector confirming the demand of duty equal to the Modvat credit in question. The Assistant Collector's order was confirmed by Collector of Central Excise (Appeals), Calcutta.
Hence this appeal.
2. The stay petition in this regard was heard by the East Regional Bench of the Tribunal who, after disposing of the same, referred the appeal for being heard by a larger Bench in view of the difference in views between the different Benches on the issue involved. Accordingly the appeal was heard by us when the appellants were represented by Shri Joseph Kodianthara, learned advocate while Shri Mewa Singh, learned Departmental Representative appeared for the respondent Collector.
3. Learned Counsel submitted that Modvat credit had been correctly taken by them in respect of specified duty paid on their inputs.
Aluminium Ingots and Magnesium. They manufacture a number of Aluminium Extrusion products which include pipes for use in the manufacture of Sprinkler equipment for agricultural irrigation purposes. These are exempt from duty under Notification 180/88-C.E., dated 13-5-1988 as amended. Such Aluminium Pipes figure at serial No. 16 of the Table annexed to the said Notification. He invited our attention to the second proviso in the Notification which lays down that in respect of goods mentioned against SI. Nos. 1, 5, 6, 7,10,11,12,14 and 15 of the Table, the exemption shall not apply if credit of the duty paid on the inputs used in their manufacture has been availed under Rule 56A or Rule 57A of the Central Excise Rules, 1944. He pointed out that SI. No.1.6 of the Table which covers the final product in question does not figure in this proviso and con-' tended that the effect of this will be that the requirement of non-availment of credit of duty under Rule 56A or Rule 57A does not apply in respect of their final product in question. Their availing Modvat credit does not affect their entitlement to the benefit of exemption from duty under this Notification. The learned counsel submitted that this exemption notification is not of the type contemplated under Rule 57C which will have the effect of disallowance of Modvat credit. It is a conditional exemption notification. The notification, in terms of the said proviso, implicitly permits availment of exemption and of Modvat credit. The notification is issued under Section 5A of the Act and is, as if, part of the Act. The Notification will override Rule 57C, if there is a conflict. The learned counsel relied upon the Tribunal's decision in Collector of Central Excise v. Premier Tyres - 1992 (62) E.L.T. 104 and Supreme Court judgment in Swadeshi Poltex Ltd. v. Collector of Central Excise - (1990) 2 Supreme Court Cases 358. He concluded his argument with the plea that the appeal be allowed.
4. Shri Mewa Singh, learned Departmental Representative rebutted the arguments and pleaded that the appeal be dismissed.
5. We have considered the submissions and perused the record. We find that a larger Bench of the Tribunal had held in Kirloskar Oil Engines Ltd. v. Collector of Central Excise, Pune - 1994 (73) E.L.T. 835 that they (Kirloskar) were not entitled to Modvat Credit in terms of Rule 57C in respect of such inputs which have been used by them in the manufacture of final products exempted' from the whole of the duty of excise leviable on such final product and that if any credit on such inputs had been taken it was wrongly taken contrary to the provisions of Rule 57C and, therefore, it is liable to be adjusted from RG 23A account or by recovery from the applicants, if adequate credit is not available in such account, subject to the limitation and procedure being followed under Rule 57-1. That decision was in respect of an exemption Notification existing at the time of receipt of the inputs and taking of Modvat credit. In coming to this conclusion the Bench observed that since Rule 57C places an embargo on initial giving of Modvat credit of duty paid on inputs used in the manufacture of fully exempted final product, the argument that the stage of utilisation, is different from the stage of giving credit is not of relevance, it was observed by the Bench that "insofar as an existing Notification is on the statute Book at the time of receipt of inputs for use in the manufacture of final products, it cannot be stated with any element of correctness that the manufacturer was not aware of availing of the said exemption Notification in the absence of any order on his hand for clearing the final product under the said Notification and that if a manufacturer wants to avail of the benefit of any Notification, he can do so even at a-later stage by filing a refund claim.
6. The present case is covered by the aforesaid decision of the Larger Bench. This decision was not available when the Premier Tyre case, relied upon by the learned counsel was decided. The exemption Notification was in force when the appellants received the inputs in question and took Modvat credit and hence credit was not allowable for the inputs used in or in relation to the manufacture of such exempted final products. The mere fact that at the time of taking the credit, the appellants did not know whether they would manufacture and clear exempted final products using the inputs in question is no impediment to the application of Rule 57C. We reject the stand taken that the instant exemption Notification is not of the type contemplated in Rule 57C. That Rule refers to a situation where the final product is exempt from the whole of the duty of excise. The products in question are wholly exempt from duty under the Notification. That it is a conditional exemption notification is not of any import as once the goods are cleared fulfilling the said condition, the goods become wholly exempt from duty.
7. A plea was taken that the second proviso in the Notification lays down that the exemption will not apply if credit of duty paid on the inputs has been availed under Rule 56A or Rule 57A and that such a condition has been applied only for certain products mentioned in the schedule to the Notification and not to the product in question. We see no merit in this contention. We find that the scope of such exemption Notifications has been set out in Trade Notice' No. 59-C.E./91, dated 30-7-1991 issued by the Chandigarh Collectorate 1990 (55) E.L.T. T49.
This explains the legal position with which we agree. Attention was invited in the said Trade Notice to the earlier Trade Notice No.10-C.E./91(Misc. 3), dated 14-2-1991, withdrawing the facility regarding the option to pay excise duty on exempted goods to enable the user of such goods as inputs to avail of Modvat benefit. It was indicated that in order to provide option to pay duty and avail Modvat, the exemptions have been made conditional, available only if the credit of duty paid on inputs had not been availed. The subject notification with the proviso thereto constitutes one example of such a case . The fact that SI. No. 16 of the appendix to the Notification covering the subject goods, does not figure in the proviso can only mean that the availment of exemption for such goods is not optional and once the exemption is availed, the Modvat credit will be subject to the provisions of Rule 57C. In the present case the appellants have availed the exemption and cleared Aluminium pipes for agricultural purposes.
The credit of duty taken in respect of the inputs used by them in their manufacture had been utilised by them for payment of duty on other goods cleared by them on payment of duty. This is what has been objected to by the department. The show cause notice has been issued within a period of six months from the date of taking the credit. The availment of credit is contrary to the provisions of Rule 57C and also not consistent with Rule 57F(4) regarding the utilisation of credit.
The first proviso to the latter Sub-rule lays down that credit of duty in respect of inputs used in the final products cleared for export under bond or used in the intermediate products cleared for export may be utilised towards payment of duty on similar final products cleared for home consumption or for export on payment of duty. In the present case, as has been discussed the inputs were utilised for the manufactured final products cleared free of duty. Credit of duty in respect of the said inputs used for such manufacture of products cleared duty free for home consumption has been utilised by them for payment of duty on other non-exempted goods. This is not in accordance with the facility provided under this particular provision, apart from the availment of exemption attracting the sting of Rule 57C. The demand of duty is consistent with the said Rule.
8. The question of reversal of credit and permissibility thereof came up for decision before the Supreme Court in Chandrapur Magnet Wires P.Ltd. v. Collector of Central Excise, Nagpur. [Since reported in 1996 (81) E.L.T. 3 (SC)]. The relevant exemption Notification that was considered in the said case also contained a similar provision that the exemption from payment of the whole of duty was subject to the condition that no credit of duty paid on the specified goods used in their manufacture had been taken under Rule 57A of the Rules. In that case the appellants had themselves reversed the credit of the duty paid on inputs utilised for manufacture of duty free goods. This was objected to by the department stating that reversal of credit entries are not permitted by the Rules. They sought to deny the exemption itself. However, the Supreme Court took note of a circular issued. The circular indicated that credit account under Modvat Rules may be maintained chapterwise and credit is not available if the' final products are exempt or are chargeable to nil rate of duty. Where a manufacturer produces dutiable final products and final products are covered by exemption notification and in respect of which it is not reasonable to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products. Relying on the circular, the Supreme Court held that the assessee can make a debit entry in the credit account before removal of the exempted final product and if such debit entry is permissible, credit entry for the duty paid on the inputs utilised in the manufacture of final exempted product will stand deleted in the account of the assessee and in such a situation, it cannot be said that the assessee has taken credit for duty paid for the inputs utilised in the manufacture of final exempted product under Rule 57A. Hence, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in the manufacture of these goods. Thus, it can be seen that there can be a reversal of the credit and consequently, the manufacturer will become eligible for exemption. The decision of the Supreme Court is relevant to the above extent. But then it is clear, as we have indicated that the appellant cannot avail Modvat credit as well as exemption.