Raja Ram Maize Products Vs. Cce - Court Judgment

Excerpt:
1. the applicant seeks interim stay of the order of the commissioner and waiver of pre-deposit of rs. 3,11,10,4257-, being the amount ordered to be recovered thereunder, and also of the penalty of rs. 15,00,000/- imposed on the applicant.2. on facts, it has not been disputed that the applicant was required to maintain separate inventory and accounts of the receipt and use of inputs as contemplated by sub-rule (9) of rule 57-cc. under rule 57-cc, unless the provisions of sub-rule (9) are complied with, the assessee was liable to pay an amount equal to 8% of the price (excluding sales tax and other taxes, if any, payable on such goods) of the category of final products which are exempt from the whole of the duty as contemplated by sub-rule (1) of rule 57-cc of the central excise rules, 1944.3. the learned counsel, appearing for the applicant, contended that the applicant had reversed the amount of credit, which was about rs. 2 lacs, after the final products were removed. according to him, the reversal made by the applicant was not appreciated by the learned commissioner in the light of the decision of the supreme court in the case of chandrapur magnet wires (p) ltd. v. cce, nagpur 1996 (81) elt 2 (sc); the decision of the allahabad high court in the case of hello minerals water (p) ltd. v. union of india ; and the decisions of the tribunal in the case of (1) wipro limited v. cce, bangalore 2004 (175) elt 219 (t); (2) abc paper v. cce, jalandhar 2006 (194) elt 328 (t); and (3) cce, hyderabad-iii v. swastic vegetable oil products ltd. applicant is required to pay the full amount, it would work harshly on the applicant and it would be disproportionate to the amount of modvat credit taken and subsequently reversed.4. the learned authorized representative for the department, on the other hand, supported the reasoning and findings of the commissioner and contended that, in a similar situation, this tribunal had taken a view in the case of national information technologies ltd. v. cce, bhopal , to the effect that under rule 57-cc(9) an assessee was duty bound to maintain separate inventory and accounts, and on failure, was required to pay duty @ 8% of the price of the exempted goods, which liability could not be avoided by reversing the modvat credit.5. under rule 57-cc(9), which is reproduced hereinunder, there is no scope for making any reversal and there is no provision dealing with any reversal of credit: in respect of inputs (other than inputs used as fuel) which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the aforesaid purpose and shall not take credit of the specified duty paid on such inputs.it is clear from sub-rule (9) of rule 57-cc that, it is obligatory on the manufacturer to maintain separate inventory and accounts of the receipt and use of inputs, and that no credit can be taken of the specified duty paid on such inputs. admittedly, there has been violation of the provisions of sub-rule (9) of rule 57-cc.chandrapur magnet wires (p) ltd. v. cce, nagpur (supra), the hon'ble supreme court was dealing with the contention of the revenue that the reversal of credit entries was not permissible by the rules. in that case, the assessee was not entitled to remove the copper wires without payment of duty since credit of the duty, paid on the inputs used in the manufacture of copper wire, had already been taken in accordance with rue 57-a. the assessee had not maintained separate accounts or segregated the inputs utilized for the manufacture of dutiable goods and duty free goods, as should have been done.however, the attention of the apex court was drawn to a departmental circular, according to which, in a case where the manufacturer produces dutiable final products and also final products which were exempt from duty, and it was not reasonably possible to segregate the inputs utilized in the manufacture of dutiable final products from the final products which were exempt from duty, it was held that, manufacturer may take credit of duty paid on all the inputs used in the manufacture of the final products on which duty will have to be paid and this could be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products. (emphasis supplied), [see paragraph 6 of the judgment]. it would appear to us that, the emphasis by the hon'ble supreme court was on debiting the amount in the credit (i.e.reversal of credit) only if that was done before the removal of the exempted final products. if after the removal of final products, whenever the breach of sub-rule (9) is detected, the assessee is allowed to reverse the credit that will mock at the provisions of rule 57-cc. it appears to us that, in the decisions on which reliance is placed by the learned counsel for the applicant, the last sentence of paragraph 6 of the hon'ble supreme court's judgment, which lays emphasis on the aspect of reversal of credit that would be permissible only if it is done before the removal of exempted final products, have been over looked.7. the learned counsel for the applicant submits that, having regard to the amount of modvat credit, which was taken and subsequently reversed, the condition of rs. 5 lacs was acceptable to them. since we are considering only the question of waiver of pre-deposit, we are not dilating on the issue any further at this stage. in our opinion, no case for total waiver of pre-deposit is made out. therefore, having regard to the facts and circumstances of the case, we direct that there shall be an interim stay of the impugned order on the condition that the applicant deposits rs. 5 lacs (rupees five lacs only) within eight weeks from today, failing which the appeal will stand dismissed. on the amount being so deposited, there shall be waiver of the deposit of the rest of the amount payable under the impugned order during the pendency of the appeal. the stay application stands disposed of accordingly.

Judgment:
1. The applicant seeks interim stay of the order of the Commissioner and waiver of pre-deposit of Rs. 3,11,10,4257-, being the amount ordered to be recovered thereunder, and also of the penalty of Rs. 15,00,000/- imposed on the applicant.

2. On facts, it has not been disputed that the applicant was required to maintain separate inventory and accounts of the receipt and use of inputs as contemplated by Sub-rule (9) of Rule 57-CC. Under Rule 57-CC, unless the provisions of Sub-rule (9) are complied with, the assessee was liable to pay an amount equal to 8% of the price (excluding sales tax and other taxes, if any, payable on such goods) of the category of final products which are exempt from the whole of the duty as contemplated by Sub-rule (1) of Rule 57-CC of the Central Excise Rules, 1944.

3. The learned Counsel, appearing for the applicant, contended that the applicant had reversed the amount of credit, which was about Rs. 2 lacs, after the final products were removed. According to him, the reversal made by the applicant was not appreciated by the learned Commissioner in the light of the decision of the Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur 1996 (81) ELT 2 (SC); the decision of the Allahabad High Court in the case of Hello Minerals Water (P) Ltd. v. Union of India ; and the decisions of the Tribunal in the case of (1) Wipro Limited v. CCE, Bangalore 2004 (175) ELT 219 (T); (2) ABC Paper v. CCE, Jalandhar 2006 (194) ELT 328 (T); and (3) CCE, Hyderabad-III v. Swastic Vegetable Oil Products Ltd. applicant is required to pay the full amount, it would work harshly on the applicant and it would be disproportionate to the amount of modvat credit taken and subsequently reversed.

4. The learned authorized representative for the Department, on the other hand, supported the reasoning and findings of the Commissioner and contended that, in a similar situation, this Tribunal had taken a view in the case of National Information Technologies Ltd. v. CCE, Bhopal , to the effect that under Rule 57-CC(9) an assessee was duty bound to maintain separate inventory and accounts, and on failure, was required to pay duty @ 8% of the price of the exempted goods, which liability could not be avoided by reversing the modvat credit.

5. Under Rule 57-CC(9), which is reproduced hereinunder, there is no scope for making any reversal and there is no provision dealing with any reversal of credit: In respect of inputs (other than inputs used as fuel) which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the aforesaid purpose and shall not take credit of the specified duty paid on such inputs.

It is clear from Sub-rule (9) of Rule 57-CC that, it is obligatory on the manufacturer to maintain separate inventory and accounts of the receipt and use of inputs, and that no credit can be taken of the specified duty paid on such inputs. Admittedly, there has been violation of the provisions of Sub-rule (9) of Rule 57-CC.Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur (supra), the Hon'ble Supreme Court was dealing with the contention of the Revenue that the reversal of credit entries was not permissible by the Rules. In that case, the assessee was not entitled to remove the copper wires without payment of duty since credit of the duty, paid on the inputs used in the manufacture of copper wire, had already been taken in accordance with Rue 57-A. The assessee had not maintained separate accounts or segregated the inputs utilized for the manufacture of dutiable goods and duty free goods, as should have been done.

However, the attention of the Apex Court was drawn to a Departmental Circular, according to which, in a case where the manufacturer produces dutiable final products and also final products which were exempt from duty, and it was not reasonably possible to segregate the inputs utilized in the manufacture of dutiable final products from the final products which were exempt from duty, it was held that, manufacturer may take credit of duty paid on all the inputs used in the manufacture of the final products on which duty will have to be paid and this could be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products. (emphasis supplied), [see paragraph 6 of the judgment]. It would appear to us that, the emphasis by the Hon'ble Supreme Court was on debiting the amount in the credit (i.e.

reversal of credit) only if that was done before the removal of the exempted final products. If after the removal of final products, whenever the breach of Sub-rule (9) is detected, the assessee is allowed to reverse the credit that will mock at the provisions of Rule 57-CC. It appears to us that, in the decisions on which reliance is placed by the learned Counsel for the applicant, the last sentence of paragraph 6 of the Hon'ble Supreme Court's judgment, which lays emphasis on the aspect of reversal of credit that would be permissible only if it is done before the removal of exempted final products, have been over looked.

7. The learned Counsel for the applicant submits that, having regard to the amount of modvat credit, which was taken and subsequently reversed, the condition of Rs. 5 lacs was acceptable to them. Since we are considering only the question of waiver of pre-deposit, we are not dilating on the issue any further at this stage. In our opinion, no case for total waiver of pre-deposit is made out. Therefore, having regard to the facts and circumstances of the case, we direct that there shall be an interim stay of the impugned order on the condition that the applicant deposits Rs. 5 lacs (rupees five lacs only) within eight weeks from today, failing which the appeal will stand dismissed. On the amount being so deposited, there shall be waiver of the deposit of the rest of the amount payable under the impugned order during the pendency of the appeal. The stay application stands disposed of accordingly.