Commissioner
of Central Excise, Mumbai- I Vs. M/S Bombay Dyeing & Mfg. Co.Ltd [2007] Insc 811 (8 August 2007)
S.
H. Kapadia & B. Sudershan Reddy Kapadia, J.
Interpretation
of Notification No. 14/2002-CE arises for determination in this civil appeal
filed by the Department. The facts giving rise to this civil appeal are as
follows:
2. The
assessee has two textile mills in Mumbai known as the Spring Mills and the
Textile Mills. This civil appeal relates to the former. Spring Mills is a
composite name of the mill in which there is a spinning section where yarn is
spun from raw cotton, and a weaving section where grey fabrics is woven from
such yarn. The grey fabrics woven in the Spring Mills are not processed at
Spring Mills. Most of the grey fabrics manufactured by the assessee are
processed by the Textile Mill though some quantity thereof is sold to third
parties. In this civil appeal, we are concerned with the period 13.3.2002 to
15.9.2002. In this civil appeal, we are not concerned with quantification. That
question is even today pending adjudication.
3. At
the outset, we quote hereinbelow notification no. 14/2002-CE granting
exemption, both full and partial to a range of goods. As stated above, in this
civil appeal we are concerned with the item, namely, grey fabrics manufactured
by the assessee. In this civil appeal, we are concerned with the interpretation
of item 1 and item 2 of the table to the notification.
"Notification
No.14/2002-CE dated 01-Mar-2002 Processed textile fabrics Effective
rate of duty Notification No. 11/2001-C.E. superseded.
In
exercise of the powers conferred by sub-section (1) of section 5A of the
Central Excise Act,1944 (1 of 1944) read with sub-section (3) of section 3 of
the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of
1957) and in supersession of the notification of the Government of India in the
Ministry of Finance (Department of Revenue), No. 11/2001-Central Excise, dated
the 1st March, 2001, published in the Gazette of India vide number G.S.R. 136
(E), dated the 1st March, 2001, except as respects things done or omitted to be
done before such supersession, the Central Government being satisfied that it
is necessary in the public interest so to do, hereby exempts excisable goods of
the description specified in column (3) of the Table below and falling within
the Chapter, heading No.
or
sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5
of 1986), specified in the corresponding entry in column (2) of the said Table,
from so much of the aggregate of,
(a) the
duty of excise specified in the First Schedule to the said Central Excise
Tariff Act; and
(b)
the duty of excise specified in the First Schedule to the said Additional
Duties of Excise (Goods of Special Importance) Act, (hereinafter referred to as
the 'aggregate duty') as is in excess of an amount calculated at the rate
specified in the corresponding entry in column (4) of the said Table, subject
to the relevant conditions specified below the said Table, and referred to in
the corresponding entry in column (5) of the said Table:
Provided
that the aggregate duty of sixteen per cent. ad valorem leviable on the
excisable goods specified in S. No. 9 of the Table below shall be apportioned
equally between the duty leviable under the said Central Excise Act and the
said Additional Duties of Excise (Goods of Special Importance) Act:
Provided
further that-
(a) during
the period commencing from the 1st day of March, 2002 and ending on the 28th
day of February, 2005, the aggregate duty in respect of the goods specified
against S.Nos. 2, 3, 4, 5, 6, 7, 8, 11, 13, 15 and 16, shall be further
exempted in excess of three-fourths of the rate specified in the corresponding
entry in column (4) of the said Table; and
(b) during
the period specified in clause (a) above, the duty leviable on the excisable
goods specified therein, shall be apportioned in the ratio 2:1 between the duty
leviable under the said Central Excise Act and the said Additional Duties of
Excise (Goods of Special Importance) Act.
Explanation I.- For the purposes of this notification, the rates
specified in column (4) of the said Table are ad valorem rates, unless
otherwise specified.
Explanation
II.- For the
purposes of the conditions specified below, textile yarns or fabrics shall be
deemed to have been duty paid even without production of documents evidencing
payment of duty thereon.
Explanation
III.- For the
purposes of the exemption under S.No. 5 of the Table,-
(i)
the expression "independent processor" means a manufacturer who is
engaged exclusively in the processing of fabrics with the aid of power and who
has no proprietary interest in any factory engaged in the spinning of yarn of
cotton or weaving of cotton fabrics; and
(ii)
the value of the fabrics shall be equal to 40% of the value determined under
section 4 of the Central Excise Act, 1944.
Table S.No.
Chapter
or heading No., or sub- heading No.
Description
Rate of duty Condition (1) (2) (3) (4) (5) 1 5110.10, 5111.10, 5207.20,
5208.20, 5209.10, 5406.10, 5407.10, 5511.10, 5512.10, 5513.10, 5514.10, 5801.11
or 5802.51 Woven fabrics, not subjected to any process Nil 1 2 5110.10,
5111.10, 5207.20, 5208.20, 5209.10, 5406.10, 5407.10, 5511.10, 5512.10,
5513.10, 5514.10, 5801.11 or 5802.51 Woven fabrics, not subjected to any
process 16% 2 3 5207.10 or 5208.10 Denim fabrics, whether or not processed 16%
2 and 5 4 51.10, 51.11, 52.07, 52.08, 52.09, 54.06, 54.07, 55.11, 55.12, 55.13,
55.14, 5801.12, 5801.22, 5801.32, 5802.22, 5802.32, 5802.52 Woven fabrics, subjected
to any process 16% 5 5 52.07,52.08 or 52.09 Cotton fabrics woven on handlooms
and processed with aid of power or steam by an independent processor approved
in this behalf by the Government of India on the recommendation of the
Development Commissioner for Handlooms. 16% - 6 5801.21, 5801.31, 5802.21 or
5802.31 Woven fabrics, whether or not subjected to any process 16% 2 and 5 7
58.03 All goods 16% 2 and 5 8 5804.11 or 5804.12 All goods 16% 2 and 5 9 59.01
All goods 16% - 10 6001.11, 6001.21, 6001.91, 6002.42 or 6002.92 Knitted or
crocheted fabrics of cotton, not subjected to any process Nil 1 11 6001.11,
6001.21, 6001.91, 6002.42 or 6002.92 Knitted or crocheted fabrics of cotton,
not subjected to any process 16% 2 12 6001.11, 6001.21, 6001.91, 6002.42 or
6002.92 Knitted or crocheted fabrics of cotton, subjected to any process Nil 3
13 6001.11, 6001.21, 6001.91, 6002.42 or 6002.92 Knitted or crocheted fabrics
of cotton, subjected to any process 16% 4 14 6001.12, 6001.22, 6001.92,
6002.20, 6002.30, 6002.43 or 6002.93 Knitted or crocheted fabrics, other than
of cotton, not subjected to any process Nil 1 15 6001.12, 6001.22, 6001.92,
6002.10, 6002.20, 6002.30, 6002.43 or 6002.93 Knitted or crocheted fabrics,
other than of cotton, not subjected to any process 16% 2 16 6001.12, 6001.22,
6001.92, 6002.10, 6002.20, 6002.30, 6002.43 or 6002.93 Knitted or crocheted
fabrics, other than of cotton, subjected to any process 16% 5 Condition No.
Conditions
(1) (2) 1 If made from textile yarns on which the appropriate duty of excise leviable
under the First Schedule or the Second Schedule to the said Central Excise
Tariff Act read with any notification for the time being in force or the
additional duty of customs leviable under section 3 of the Customs Tariff Act,
1975, as the case may be, has been paid and no credit of the duty paid on
inputs or capital goods has been taken under rule 3 or rule 11 of the CENVAT
Credit Rules, 2002.
2 If
made from textile yarns on which the appropriate duty of excise leviable under
the First Schedule or the Second Schedule to the said Central Excise Tariff Act
read with any notification for the time being in force or the additional duty
of customs leviable under section 3 of the Customs Tariff Act, 1975, as the
case may be, has been paid.
3 If
made from knitted or crocheted textile fabrics of cotton, whether or not
processed, on which the appropriate duty of excise leviable under the First
Schedule to the said Central Excise Tariff Act and the Additional Duties of
Excise (Goods of Special Importance) Act, read with any notification for the
time being in force , or the additional duty of customs leviable under section
3 of the Customs Tariff Act, 1975, as the case may be, has been paid and no
credit of the duty paid on inputs or capital goods has been taken under rule 3
or rule 11 of the CENVAT Credit Rules, 2002.
4 If
made from knitted or crocheted textile fabrics of cotton, whether or not
processed, on which the appropriate duty of excise leviable under the First
Schedule to the said Central Excise Tariff Act and the Additional Duties of
Excise (Goods of Special Importance) Act, read with any notification for the
time being in force , or the additional duty of customs leviable under section
3 of the Customs Tariff Act, 1975, as the case may be, has been paid.
5 If
made from textile fabrics, whether or not processed, on which the appropriate
duty of excise leviable under the First Schedule to the said Central Excise
Tariff Act and the Additional Duties of Excise (Goods of Special Importance)
Act, read with any notification for the time being in force or the additional
duty of customs leviable under section 3 of the Customs Tariff Act, 1975, as
the case may be, has been paid." (emphasis supplied)
4. We
also quote hereinbelow Section 11AB of the Central Excise Act, 1944;
"Interest
on delayed payment of duty. –
(1)
Where any duty of excise has not been levied or paid or has been short-levied
or short-paid or erroneously refunded, the person who is liable to pay the duty
as determined under sub-section (2), or has paid the duty under sub-section
(2B), of section 11A, shall, in addition to the duty, be liable to pay interest
at such rate not below [ten per cent.] and not exceeding thirty-six per cent
per annum, as is for the time being fixed by the Central Government, by
notification in the Official Gazette, from the first date of the month
succeeding the month in which the duty ought to have been paid under this Act,
or from the date of such erroneous refund, as the case may be, but for the provisions
contained in sub-section (2), or sub-section (2B), of section 11A till the date
of payment of such duty:
Provided
that in such cases where the duty becomes payable consequent to issue of an
order, instruction or direction by the Board under section 37B, and such amount
of duty payable is voluntarily paid in full, without reserving any right to
appeal against such payment at any subsequent stage, within forty-five days
from the date of issue of such order, instruction or direction, as the case may
be, no interest shall be payable and in other cases the interest shall be
payable on the whole of the amount, including the amount already paid."
and, Rule 8(3) of the Central Excise Rules, 2002:
"If
the assessee fails to pay the amount of duty by due date, he shall be liable to
pay the outstanding amount along with interest at the rate specified by the
Central Government vide notification under section 11AB of the Act on the
outstanding amount, for the period starting with the first day after due date
till the date of actual payment of the outstanding amount."
5. The
assessee herein opted for exemption under notification no. 14/2002 under which
grey fabrics, not subjected to any process, were chargeable to nil rate of duty
subject to the condition that the said fabrics were made from textile yarn on
which appropriate duty of excise stood paid and no credit for duty paid on
inputs had been taken under CENVAT Credit Rules, 2002. However, the assessee
was not in a position to ascertain the variety and quantity of yarn entering
into the manufacture of export production of "grey fabrics" and grey
fabrics meant for home consumption.
The assessee
was not in a position to pay duty on yarn at spindle stage.
Therefore,
they opted to pay duty on yarn on deferred basis at the time of clearance of
grey fabrics for home consumption along with interest at the rate prescribed
under Section 11AB of Central Excise Act, 1944 read with Rule 8(3) of Central
Excise Rules, 2002. According to the Department, the assessee was liable to pay
duty at the rate of 12% under item 2 of the table to notification no.
14/2002-CE. According to the Department, the assessee had failed to comply with
twofold conditions mentioned in item 1 of the table to the said notification,
namely, payment of duty on yarn at the spindle stage and, secondly, no credit
of duty paid on inputs had been taken under CENVAT Credit Rules, 2002. In other
words, according to the Department, the assessee had failed to pay duty on yarn
at the spindle stage and, secondly, it had taken credit for the duty paid on
inputs under CENVAT Credit Rules, 2002, therefore, according to the Department,
the assessee was not entitled to claim nil rate of duty as, according to the
Department, the assessee had failed to comply with the aforestated twofold
conditions mentioned in item 1 of the table to the said notification. According
to the Department, the assessee herein had specifically applied for
clarification from the Department as to whether the assessee was entitled to
claim nil rate of duty under the said Notification since it was not in a
position to ascertain the variety and quantity of yarn going into the
manufacture of grey fabrics.
This
request for clarification was expressly turned down by the Department and
despite refusal by the Department to the request made by the assessee to pay
duty on yarn at the time of clearance of grey fabrics, the assessee reversed
the CENVAT credit, which, according to the Department, contravened the
provisions of the said notification. Accordingly, the assessee was held liable
to pay duty at the rate of 12% under item 2 of the table to notification no.
14/2002-CE and, consequently, a demand was raised for differential duty for the
period 13.3.2002 to 15.9.2002 on the ground that the assessee had failed to pay
the duty on the yarn at the spindle stage. The demand was confirmed by the
Deputy Commissioner. However, in appeal, the Commissioner (A) allowed the assessee
the payment of duty on yarn at the time of clearance of grey fabrics instead of
payment of duty on yarn at the spindle stage. In this connection, the
Commissioner (A) relied upon Trade Notice No. 40/96. This order of the
Commissioner (A) has been confirmed by the Tribunal, hence, the Department has
come to this Court by way of this civil appeal.
6. Shri
Vikas Singh, learned Additional Solicitor General, appearing on behalf of the
Department submitted that notification no. 14/2002-CE dated 1.3.2002 is an
exemption notification. Learned counsel cited several authorities in support of
his contention that the conditions mentioned in the exemption notification
should be strictly followed. Learned counsel contended that in the table to the
said notification, grey fabrics falling under Chapter Heading 5110.10 fell
under item no. 1 as also under item no. 2.
However,
if it fell under item no. 1 and if the assessee was to fulfil the twofold
conditions referred to above then the rate of duty was nil whereas if the said
item fell in item no. 2 then it would attract the rate of duty @ 12%.
Learned
counsel submitted that, in the present case, the assessee was not entitled to
claim nil rate of duty on the grey fabrics manufactured from yarn as the assessee
has not fulfiled the two conditions mentioned in item no. 1.
According
to the learned counsel, the assessee was required to pay duty on the yarn prior
to its claim for exemption. Secondly, according to the learned counsel, the assessee
was required to show as a second condition that it had not availed of credit
for the duty paid on inputs under CENVAT Credit Rules, 2002 prior to its claim
for exemption. Since these two conditions were not fulfilled, the assessee was
not entitled to claim nil rate of duty.
Learned
counsel submitted that the above two conditions were pre- conditions. They were
conditions required to be fulfilled prior to making of the claim for exemption.
Learned counsel submitted that since notification no. 14/2002-CE was an
exemption notification, it was not open to the assessee to submit that it had
substantially complied with the aforesaid two conditions. Learned counsel
further submitted that, in the present case, despite refusal by the Department,
the assessee had reversed subsequently the CENVAT credit. In this connection,
learned counsel submitted that the assessee had requested the Department to
allow the assessee to defer payment of duty on yarn from the spindle stage to
the stage of clearance of the grey fabrics for home consumption. This was
refused by the Department.
Despite
refusal, the assessee proceeded to reverse subsequently the CENVAT credit
availed of by the assessee earlier and, therefore, in the present case, the
Tribunal ought not to have allowed to the assessee the benefit of exemption.
Learned counsel further submitted that, in the present case, we are concerned
with the period 13.3.2002 to 15.9.2002. During this period, according to the
learned counsel, Rule 49A was not in force. Learned counsel pointed out that
originally we had Central Excise Rules, 1944. These Rules were repealed by
Central Excise Rules, 2001, which, in turn, were repealed by Central Excise
Rules, 2002. Learned counsel pointed out that since we are concerned with the
period 13.3.2002 to 15.9.2002 there was no question of invoking Rule 49A of the
earlier Rules as the earlier Rules were repealed and substituted by Central
Excise Rules, 2002. In other words, according to the learned counsel, it was
not open to the Appellate Authority and the Tribunal to rely upon Rule 49A of
Central Excise Rules, 1944 read with Trade Notice No. 40/96. According to the
learned counsel, Trade Notice No. 40/96 was based on Rule 49A of Central Excise
Rules, 1944 under which deferment of duty payable on yarn along with interest
could be postponed to the grey fabrics stage. That, since Rule 49A was not
applicable once the Central Excise Rules, 2002 came into force, it was not open
to the Commissioner (A) as well as the Tribunal to place reliance on Rule 49A
of the 1944 Rules read with trade notice no. 40/96. Learned counsel further
submitted that the judgment of the Allahabad High Court in the case of Hello
Minerals Water (P) Ltd. v. Union of India reported in 2004 (174) E.L.T. 422 was
also not applicable to the facts of the present case as the said judgment did
not deal with the question of exemption.
7. Shri
Atul Setalvad, learned senior counsel appearing on behalf of the assessee
submitted that Spring Mills is a composite mill, meaning thereby that there is
a spinning section where yarn is spun from cotton and a weaving section where
grey fabrics is woven from such yarn. Learned counsel submitted that in certain
cases it become difficult for a manufacturer to know at the spindle stage
whether grey fabrics were to be exported or cleared for home consumption.
According to the learned counsel, a manufacturer could pay duty on yarn in such
cases not when the yarn stood cleared but when the fabric was cleared. It is
under these circumstances that an option was given over the years under trade
notice no. 40/96 allowing the assessee to defer payment of duty on yarn from
spindle stage to the grey fabrics clearance stage subject to payment of
interest for such deferment.
Learned
counsel submitted that trade notice no. 40/96 did not flow from Rule 49A of the
1944 Rules. The said trade notice was based on certain unforeseen difficulties
in the operations. It was issued taking into account the trade representations.
Learned counsel submitted that till today the said trade notice has not been
revoked. Learned counsel further submitted that there was no difference
whatsoever between item no. 1 and item no. 2 of the table to notification no.
14/2002-CE. Both dealt with grey fabrics. However, item no. 1 attracted nil
rate of duty on fulfilment of twofold conditions, namely, payment of duty by
the assessee for claiming exemption and that assessee should not have taken
credit for duty paid on inputs under CENVAT Credit Rules, 2002. Learned counsel
submitted that yarn is an input used in the manufacture of grey fabrics.
Learned counsel urged that the said notification no. 14/2002-CE was an
exemption notification. Learned counsel submitted that exemption was in respect
of grey fabrics. Learned counsel submitted that duty was payable on yarn,
however, in certain circumstances, the assessee was entitled to claim deferment
of duty from spindle stage to the stage of clearance of grey fabrics subject to
payment of interest under Section 11AB of Central Excise Act, 1944 read with
Rule 8(3) of Central Excise Rules, 2002. Learned counsel submitted that in the
present case it is not in dispute that duty on yarn became payable at the
spindle stage, however, the assessee has deferred the payment to the stage of
clearance of grey fabrics and, therefore, it cannot be said that the assessee
has not complied with the first condition of item no. 1 to the table attached
with the notification. Similarly, learned counsel submitted that the assessee,
in the present case, has reversed CENVAT credit and the assessee has not taken
credit on account of such reversal. Learned counsel submitted that whenever
duty is paid on the input (yarn) the assessee is entitled to credit under the
CENVAT Credit Rules, 2002, however, availment of credit takes place later on
when the assessee makes adjustments of duty paid on input against duty paid on
final product (grey fabrics). In the present case, before the account could be
debited and before the assessee could avail of CENVAT credit, the assessee has
reversed CENVAT credit which would amount to the assessee not taking credit for
duty paid on input (yarn).
Learned
counsel submitted that the assessee was free to reverse the credit before
utilization of such credit. In the circumstances, it was urged that both the
conditions of item no. 1 of the table to the notification stood fulfilled and,
therefore, the assessee was entitled to claim the benefit of exemption at nil
rate of duty in this case.
8.
There is no merit in this civil appeal. Under the notification, mode of payment
has not been prescribed. Further, exemption is given to the final product,
namely, grey fabric under the Central Excise Act, 1944, levy is on manufacture
but payment is at the time of clearance. Under the Act, payment of duty on yarn
had to be at the spindle stage. However, when we come to the Exemption
Notification no. 14/2002-CE, the requirement was that exemption on grey fabrics
was admissible subject to the assessee paying duty on yarn before claiming
exemption and subject to the assessee not claiming CENVAT credit before
claiming exemption. The question of exemption from payment of duty on grey
fabrics arose on satisfaction of the said two conditions. In this case, payment
of duty on yarn on deferred basis took place before clearance of grey fabrics
on which exemption was claimed. Therefore, payment was made before the stage of
exemption.
Similarly,
on payment of duty on the input (yarn) the assessee got the credit which was
never utilized. That before utilization, the entry has been reversed which
amounts to not taking credit. Hence, in this case, both the conditions are
satisfied. Hence item no. 1 of the table to notification no. 14/2002-CE would
apply and accordingly the grey fabrics would attract nil rate of duty.
9. In
conclusion on the question of reversal of credit we quote hereinbelow the
following para from the judgment of this Court in Collector of Central Excise
v. Dai Ichi Karkaria Ltd. reported in 1999(112)E.L.T. 353.
"It
is clear from these Rules, as we read them, that a manufacturer obtains credit
for the excise duty paid on raw material to be used by him in the production of
an excisable product immediately it makes the requisite declaration and obtains
an acknowledgement thereof. It is entitled to use the credit at any time
thereafter when making payment of excise duty on the excisable product.
There
is no provision in the Rules which provides for a reversal of the credit by the
excise authorities except where it has been illegally or irregularly taken, in
which event it stands cancelled or, if utilised, has to be paid for.
We are
here really concerned with credit that has been validly taken, and its benefit
is available to the manufacturer without any limitation in time or otherwise
unless the manufacturer itself chooses not to use the raw material in its
excisable product. The credit is, therefore, indefeasible. It should also be
noted that there is no co- relation of the raw material and the final product;
that is to say, it is not as if credit can be taken only on a final product
that is manufactured out of the particular raw material to which the credit is
related. The credit may be taken against the excise duty on a final product
manufactured on the very day that it becomes available."
10.
Accordingly, the civil appeal filed by the Department fails and the same is
dismissed with no order as to costs.
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