Per : P.Karthikeyan
Appeal No.E/849/07 is filed by the Revenue.Vide the impugned order, the Commissioner dropped proposals to disallow credit of Additional Excise Duty under Goods of Special Importance Act, 1957 [AED (GSI) for short] taken by the respondent CEAT Ltd (CEAT), on payment of equal amount of BED on tyres in PLA which had been initially discharged using accumulated Cenvat/Modvat credit of AED(GSI). M/s Balakrishna Industries Ltd seeks relief by way of appropriate orders of this Tribunal against the impugned order which demanded such AED earned prior to 1.4.2000 and utilized for payment of BED in terms of rule 3(6)(b) of Cenvat Credit Rules,2002 (CCR) as amended vide Notification No.13/03NT dated 1.3.03. This appeal No. E/92/05 assails the order of the Comissioner confirming demand of duty paid on tyres using credit under AED (GSI) . After filing the appeal, M/s Balakrishna Industries Ltd paid the duty along with interest as per the order impugned. Revenue seeks to deny the credit allowed by the Commissioner to CEAT; M/s Balakrishna Industries Ltd seeks relief against demand of duty discharged using AED(GSI) in similar circumstances. The issues involved in both the appeals are essentially the same.
Appeal No.E/849/07
2. We examine the Revenue appeal in detail. Respondent paid AED (GSI) on one of its major inputs, tyre cord fabrics, and accumulated the credit as its final products were automotive tyres and the same did not attract AED (GSI).The relevant Modvat rules/Cenvat rules prohibited utilization of credit of one category of duty for payment of another category of duty . By Notification No.13/03 NT dated 1.3.03, government allowed utilization of AED(GSI) for payment of BED by an amendment of Explanation to rule 3 of CCR. By Section 88 of Finance Act 2004, this Explanation was retrospectively amended to prohibit use of credit of AED (GSI) earned prior to 1.4.2000 for payment of BED.Vide Finance Act 2005, government directed that such credit utilized for payment of BED shall be paid back in 36 equal instalments alongwith interest @ 13%.CEAT therefore paid the credit of AED (GSI) so utilized, through TR6 Challans. They debited equal amount in PLA after taking credit of deposits made through challans.On such debit, they took credit of the same amount under AED(GSI) in their Cenvat account . The present proceedings relate to Rs. 6,83,00364/- paid between July 05 to June 06 and taken credit under AED(GSI). Vide the impugned order, the Commissioner held that the respondent discharged the liability to BED on tyres through PLA initially cleared using credit of AED (GSI); hence they were entitled to the credit of equal amount of AED (GSI). The said credit could be used only for payment of AED (GSI) in view of the Explanation to rule 3 to Cenvat Credit Rules introduced under Finance Act , 2004. He found that the total credit the respondent had utilized and since taken in the account had been available in their account as on 1.3.03. Had they not used the same for payment of BED following the changes introduced under Notification No.13/03NT, the credit sought to be denied in the proceedings would have been available to the respondents as balance in their Cenvat account.Moreover, the ground raised in the Show Cause Notice to deny the credit was that the respondent had taken credit against payment under TR 6 Challans . TR6 Challan was not a document prescribed for taking credit. The Commissioner observed that the impugned credit had initially been taken against prescribed documents. The impugned credit was restored vailidly as they had since paid duty from PLA which had been initially discharged using the credit.
3. Arguing the case of the revenue, the Ld JCDR submitted that the respondents had suo motu taken recredit of duty paid a second time; this was not permissible. They should have filed claim for refund of the credit.He cited the larger bench decision of the Tribunal vide Final Order No.M/159/08/SMB/C.I dated 9.7.2008 in the case of BDH Industries Ltd. in support. Moreover credit was taken against documents not prescribed for the purpose.The Ld Counsel for the respondents submits that CEAT had validly taken the credit against appropriate prescribed documents; the same was utilized as per the Notification No.13/03 NT issued by the government . The payment of duty utilizing credit irregularly was since made good by payment from PLA as per the prescriptions in Finance Act, 2005. Once the payment was made from PLA , the credit initially utilized to pay the same liability deserved to be restored. He cited the following case laws in which the Tribunal had ordered that the assessee was entitled to restoration of credit initially utilized in an irregular manner, after payment of the dues in cash or from PLA.
1. Friends Wire Inds. vs. CCE - 1995(80)ELT 219 (Tri)
2. Steel Authority of India vs. CCE -2001(127)ELT 749 (Tri)
3. Mahindra and Mahindra vs. CCE - 1995(79)ELT 151(Tri)
4. CCE vs. Punjab Maize Prioducts - 1996(84)ELT 360(Tri)
5. We have perused the case records and carefully considered the rival submissions. The common case of the parties is that the assessee CEAT had procured tyre cord fabrics paying AED (GSI) and used in the manufacture of its final product automotive tyres. As tyres and flaps did not attract AED (GSI) and since the relevant modvat/cenvat provisions prohibited utilization of AED(GSI) for discharge of BED payable on tyres and flaps, credit of such AED paid on inputs could not be utilized and accumulated in its account. As per Rule 3(6)(b) of CCR, cenvat credit in respect of, interalia, Additional Duty of Excise leviable under Sec.3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, shall be utilized only towards payment of duty of excise leviable under the said AED(GSI)Act . By issue of Notification No.13/2003-C.E(NT) dated 1.3.03, this prohibition was relaxed and the assessee was allowed use of AED(GSI) to discharge BED payable on tyres. The assessee had accumulated credit of Rs. 32,78,21329/- which it utilized for payment of BED. Vide Sec.88 of the Finance Act, 2004, Government restricted use of AED (GSI) for payment of BED and barred use of such AED (GSI) earned prior to 1.4.2000. Vide Sec.124 of Finance Act, 2004, Government issued detailed directions for payment of BED discharged by the assessee alongwith interest @13% in 36 equal installments. The assessee accordingly paid an amount of Rs.65,54,373/- every month from July 2005 to June, 2006. On payment of BED from PLA the appellant took suo motu credit of equal amount in the AED (GSI) account. Through the impugned proceedings, the department sought to disallow credit taken by the assessee under AED (GSI) account on the ground that the same was taken against TR.6 Challans and not against valid documents prescribed under the Rules. The proper procedure to take recredit of Cenvat credit wrongly used was to file refund claim under Sec.11B of the Central Excise Act. Vide the impugned order, the Commissioner held that the appellants were entitled to restoration of the AED (GSI) equal to the amount it paid towards BED on tyres, which had been initially discharged using accumulated credit under AED (GSI) available as on 1.3.2003.
6. Under Sec.88 of the Finance Act, 2004, the following explanation was introduced in Rule 3(6)(b) of Cenvat Credit Rules, 2004 effective from 1.3.03 :
“Explanation - For the removal of doubts, it is hereby declared that the credit of the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and paid on or after the 1st day of April, 2000, may be utilized towards payment of duty of excise leviable under the First Schedule or the Second Schedule to the Central Excise Tariff Act, 1985( 5 of 1986).
As per these provisions, the appellants were barred from using the accumulated AED(GSI) credit earned on procurement of tyre cord fabrics prior to 1.4.2000. As on 1.3.2003, the assessee had a total credit of about Rs. 32,78,21329/-, out of which an amount of Rs. 20,49,01,087/- had been earned prior to 1.4.2000. Had the Rule 3(6)(b) of CCR not been amended with effect from 1.3.2003, the assessee would have continued to have a balance of Rs. 32,78,21329/- including Rs. 20,49,01,087/- earned prior to 1.4.2000. Since the Finance Act 2004 prohibited use of AED(GSI) for payment of BED, the credit balance of AED(GSI) would remain undisturbed in its account. During July, 2005 to June 2006, the assessee had paid an amount of Rs. 65,54,373/- every month from AED(GSI) and later discharged the same liability by payment of duty from PLA. We find that credit is intended to be spent only to pay duty. The department had not recognized debits from AED (GSI) as payment of BED. Therefore, such debits cannot be held to have affected the balance of AED (GSI) in the accounts of the assessee. Therefore, once the appellant discharged the duty liability on tyres by debiting PLA, the appellant s account stood credited with the debits initially made. A refund claim is warranted when duty is excess paid. In the instant case, the payment from AED(GSI) was not recognized as payment of duty. Therefore, there was no question of the assessee claiming refund of the same. The transaction utilizing AED(GSI) should be held to have been cancelled. We find that that the Commissioner properly allowed the appellant to retain the AED(GSI) credit and maintain status-quo ante once the debits made towards BED during July 2005 to June, 2006 was held to be not payment of duty.
7. We have considered the case laws cited by the ld.counsel for the respondents. We discuss them below seriatim.
(i) In the Friends Wire Industries’ case the appellant had utilized modvat credit for payment of duty on a final product which was not declared under Rule 57G of the Central Excise Rules. While upholding demand of duty due on the final product cleared by debiting modvat credit, the Tribunal held that duty was to be paid from PLA or in cash. When the duty was so paid, the modvat credit which was utilized wrongly had to be restored. Its utilization for payment of duty for an eligible product could not be objected to.
(ii) In the Mahindra and Mahindra Ltd. case, dealing with a similar case of utilization of modvat credit towards payment of duty on I.C.engines and M.V.parts, which had not been declared as final product by the assessee , the Tribunal held that while duty involved on I.C.engines and M.V parts could be ordered to be paid through PLA that had to be simultaneous with restoration of an equivalent amount in RG.23 A Part.II for utilization towards the duty on the declared final product viz. motor vehicles.
(iii) In Punjab Maize Products case supra, the Tribunal granted the relief of restoration of the credit which had been held by the authorities to have been wrongly utilized for payment of duty on glucose for which the particular raw material in question had not been declared as the input. The Tribunal held that the application made for restoration of the credit which had been admittedly utilized wrongly should be allowed once the respondents had rectified the error by payment of duty from PLA.
(iv) In Kumar Auto Cast Limited case supra, the Tribunal found that the respondents had wrongly availed modvat credit for payment of duty on MCI inserts by debiting their RG 23 A Part II account. The Tribunal ordered that once they had regularized such wrong utilization of modvat credit by payment of duty from their PLA, the RG.23 A account had to be credited with the amount debited earlier.
8. We find that the judicial authorities cited by the appellants are to the effect that once the utilization of modvat/cenvat credit for payment of duty was found to be irregular and the duty was then paid from PLA, the assessee became automatically entitled to credit of equivalent amount in its RG.23 A account.
11. We find that the Tribunal had dealt with a different dispute in Final Order No.M/159/08/SMB/C.I dated 9.7.2008 in the case of BDH Industries Ltd. In the said decision, the Tribunal had considered two cases:
(a) Motorola India Pvt.Ltd. (2005(71)RLT 334)
In this case the appellant had paid excess duty by mistake and thereafter sought permission to take credit of the amount paid by mistake. The Tribunal held that the amount involved was not duty and limitation did not apply for its refund.
(b) Comfit Sanitary Napkins (I)Pvt.Ltd. - 2004 (174) ELT 220)
In this case it was held that the assessee cannot suo-motu take credit without applying for refund, when excess duty was paid.
The conflict of views entailed the following reference to a Larger Bench of the Tribunal :-
“If an assessee avails suo motu credit of the amount of duty paid in excess by him, whether the view taken by the Tribunal in the case of Comfit Sanitary Napkins(I) Pvt.Ltd. 2004(174)ELT 220 will apply or the views taken by the Tribunal in the case of Motorola India Pvt.Ltd. - 2005 (71) RLT 334 will apply”.
The Tribunal answered the reference holding that all types of refund have to be filed under the Central Excise Act and Rules made thereunder and no suo- motu credit of the duty paid in excess may be taken by the assessee . We find that the ratio of the BDH Industries Ltd case relates to excess duty paid and the procedure to be followed for getting back such excess duty paid. Ratio of that case does not apply to the subject case.
9. The impugned credit had been legitimately earned by the assessee on procurement of inputs on payment of duty and used for payment of duty following the amendment of Cenvat Credit Rules under Budget 2003. Vide Circular No. 7/16/2003- CX dated 6.3.03, the CBEC had also clarified that it was considered appropriate not to put any cap on the use of the AED (GSI) credit accruing prior to 1.3.2003. In terms of the provisions enacted in Finance Act, 2004, the debits were held not amounting to payment of duty and the assessee was required to meet the same obligation by payment from PLA. In the instant case, the debits were held to be of no consequence when the assessee was required to pay duty initially discharged using AED(GSI) credit . Therefore, the credit needed to be restored and was correctly ordered so by the Commissioner. We find considerable merit in the finding of the Commissioner that but for the statutory changes introduced with effect from 1.3.03 following which the assessee had discharged the duty liability on tyres using AED(GSI) , it would have continued to have the impugned credit in its account. We also find that the Commissioner correctly held that the respondent had taken the impugned credit under valid duty paying documents under cover of which inputs had been received. Accordingly, we sustain the impugned order and reject the appeal filed by the Revenue.
Appeal No.E/92/05
14. Appellants M/s. Balkrishna Industries Ltd., a manufacturer of automotive tyres, had paid during March, 2003 to February 2004 BED to the tune of Rs. 1,39,71,940/- using AED(GSI). Vide the impugned order, the Commissioner demanded equal amount of BED for the reason that the credit utilized had been earned prior to 1.4.2000. The appellants assail the order relying on the clarification issued by the CBEC, according to which, the assessee was free to use the credit accumulated prior to 1.3.03 without any cap. The impugned order was contrary to the instructions of the CBEC and was not sustainable in view of the ratio of the Apex Court judgment in CCE, Vadodara vs Dhiren Chemical Indistries - 2002(139)ELT 0003 (T) . The appellants have sought to vacate the impugned order and prayed for issue of directions deemed fit by the Tribunal.
15. In the view we have taken in Appeal No.E/849/07 filed by the Revenue, we order that the appellants shall be entitled to credit of an amount of Rs. 1,39,71,940/- which it had paid pursuant to the impugned order. The appeal filed by M/s. Balkrishna Industries Ltd. is allowed.
16. The cross objection filed by the department seeks to sustain the impugned order. The same is rejected.