Shroffs Engineering Ltd. Vs. the Commissioner of Central - Court Judgment

Excerpt:
1. the appellants are engaged in the manufacture of submersible pumps falling under chapter 84. they were receiving electrical stampings and laminations manufactured by one m/s. guest keen & williams ltd. (gkw) without payment of duty in terms of the notification no. 64/86-ce dated 10/02/86 and against ct-2 certificate. however, the department entertained a view that such exemption was not available, inasmuch as the appellant was using the said stampings and laminations in the manufacture of motors and not in the manufacture of power driven pumps.for the said purposes, show cause notices were issued in the year 1992.simultaneously, ct-2 certificates were also cancelled. as such, the appellants started obtaining the electrical stampings and laminations from their manufacturers supplier on payment of duty.2. subsequently, the show cause notices issued to the appellants were dropped by the assistant commissioner laying down that the said electrical stampings and laminations were eligible for duty exemption under notification no. 64/86 on the ground that the same were being used in the manufacture of motors, which in turn were used in the manufacture of power driven pumps. on resolving of the above dispute, the appellants filed refund claims for refund of duty paid on the said goods, by their supplier m/s. gkw ltd. the said refund claim stands rejected by the authorities below on the ground that since the manufacturer of laminations and stampings had not reversed the modvat credit, there would be loss to the department and the refund cannot be sanctioned. the commissioner (appeals) observed that if refund claim is sanctioned, the stampings and laminations would attain the status of the exempted products and the modvat credit availed by the manufacturer is not allowable on the inputs used in the manufacture of such exempted goods. the above orders are appealed against.3. i have heard shri prakash shah, ld. advocate, appealing for the appellants and shri p.k. katiyar, ld. sdr appearing for the revenue.4. the dispute in the present appeal was as regards the availability of exemption notification no. 64/86 to stampings and laminations. the said dispute was resolved in favour of the assessee. as a consequence of holding in favour of the assessee, the goods became liable to return of duty paid on the same. in the present case the appellants who is a buyer of the goods has claimed the refund. it may be noticed here that as a consequence of granting of refund, the excise authorities can also approach the manufacturer for reversal of the modvat credit. but refund cannot be denied on the ground that the manufacturer has not reversed the credit. the refund has arisen as a consequence of decision on the dispute in favour of the appellants and the reversal of the credit would arise as a consequence of grant of refund. modvat credit cannot be asked to be reversed first, inasmuch as the goods at that particular point of time stand duty paid and do not become exempted, till the refund is granted.5. support for arriving at above view can also be taken from the provisions of rule 57e, which provide for adjustment of the amount of credit where refund of duty paid by the manufacturer on inputs has arisen subsequent to the removal of the goods. this leads to an inevitable conclusion that refund has to be granted first and then the adjustment in the amount of credit has to be made.6. in view of the foregoing, it is held that the refund claim due to the appellants cannot be rejected on the ground that modvat credit does not stand reversed by the manufacturer. the said refund claim is admissible subject to other conditions, etc., which have not been examined by the authorities below, inasmuch as the refund has been rejected on the above short ground itself. it is also made clear that the authorities are at liberty to approach the manufacturer of inputs for reversal of the modvat credit after grant of refund to the appellants. appeal is disposed off in above terms.

Judgment:
1. The appellants are engaged in the manufacture of submersible pumps falling under Chapter 84. They were receiving electrical stampings and laminations manufactured by one M/s. Guest Keen & Williams Ltd. (GKW) without payment of duty in terms of the Notification No. 64/86-CE dated 10/02/86 and against CT-2 certificate. However, the department entertained a view that such exemption was not available, inasmuch as the appellant was using the said stampings and laminations in the manufacture of motors and not in the manufacture of power driven pumps.

For the said purposes, show cause notices were issued in the year 1992.

Simultaneously, CT-2 certificates were also cancelled. As such, the appellants started obtaining the electrical stampings and laminations from their manufacturers supplier on payment of duty.

2. Subsequently, the show cause notices issued to the appellants were dropped by the Assistant Commissioner laying down that the said electrical stampings and laminations were eligible for duty exemption under Notification No. 64/86 on the ground that the same were being used in the manufacture of motors, which in turn were used in the manufacture of power driven pumps. On resolving of the above dispute, the appellants filed refund claims for refund of duty paid on the said goods, by their supplier M/s. GKW Ltd. The said refund claim stands rejected by the authorities below on the ground that since the manufacturer of laminations and stampings had not reversed the modvat credit, there would be loss to the department and the refund cannot be sanctioned. The Commissioner (Appeals) observed that if refund claim is sanctioned, the stampings and laminations would attain the status of the exempted products and the modvat credit availed by the manufacturer is not allowable on the inputs used in the manufacture of such exempted goods. The above orders are appealed against.

3. I have heard Shri Prakash Shah, Ld. Advocate, appealing for the appellants and Shri P.K. Katiyar, Ld. SDR appearing for the revenue.

4. The dispute in the present appeal was as regards the availability of exemption Notification No. 64/86 to stampings and laminations. The said dispute was resolved in favour of the assessee. As a consequence of holding in favour of the assessee, the goods became liable to return of duty paid on the same. In the present case the appellants who is a buyer of the goods has claimed the refund. It may be noticed here that as a consequence of granting of refund, the excise authorities can also approach the manufacturer for reversal of the modvat credit. But refund cannot be denied on the ground that the manufacturer has not reversed the credit. The refund has arisen as a consequence of decision on the dispute in favour of the appellants and the reversal of the credit would arise as a consequence of grant of refund. Modvat credit cannot be asked to be reversed first, inasmuch as the goods at that particular point of time stand duty paid and do not become exempted, till the refund is granted.

5. Support for arriving at above view can also be taken from the provisions of Rule 57E, which provide for adjustment of the amount of credit where refund of duty paid by the manufacturer on inputs has arisen subsequent to the removal of the goods. This leads to an inevitable conclusion that refund has to be granted first and then the adjustment in the amount of credit has to be made.

6. In view of the foregoing, it is held that the refund claim due to the appellants cannot be rejected on the ground that modvat credit does not stand reversed by the manufacturer. The said refund claim is admissible subject to other conditions, etc., which have not been examined by the authorities below, inasmuch as the refund has been rejected on the above short ground itself. It is also made clear that the authorities are at liberty to approach the manufacturer of inputs for reversal of the modvat credit after grant of refund to the appellants. Appeal is disposed off in above terms.