2011 (2) TMI 575 - HC - Central Excise

Reversal of credit - Rule 57CC of the Central Excise Rules 1944 - Retrospective amendment - introduction of new Rule 57CCC - No separate accounts are maintained - whenever they utilised ink in the manufacture of printed labels they debited the proportionate amount of Modvat credit taken thereon to comply with the provisions of Rule 57C of the Rules - At the relevant time in the light of the provisions of Rule 57CC of the Rules the entitlement of the petitioner to reverse the credit to the extent of common inputs used in the manufacture of goods which carried nil rate of duty was in doubt - It is the case of the petitioners that they are not required to make any such application since they have already reversed the amount of credit taken in respect of the common input used in the manufacture of product carrying nil rate of duty - Matter remanded back - Petition is allowed by way of direction to the petitioner

Issues Involved:
1. Constitutional validity of Rule 57CC of the Central Excise Rules, 1944.
2. Reversal of MODVAT credit on common inputs used in the manufacture of both dutiable and exempted goods.
3. Application of Section 69 of the Finance Act, 2010 and newly inserted Rule 57CCC.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Rule 57CC:
The petitioners initially sought to challenge the constitutional validity of Rule 57CC of the Central Excise Rules, 1944, arguing it was ultra vires Section 3 of the Central Excise Act, 1944, and Article 19(1)(g) of the Constitution of India. However, during the proceedings, the petitioners did not press for this relief, thus the court did not address this issue further.

2. Reversal of MODVAT Credit on Common Inputs:
The petitioners, engaged in manufacturing both dutiable and nil-rated goods, used common inputs such as printing ink. They took MODVAT credit on the duty paid for these inputs but reversed the credit proportionately when the inputs were used for nil-rated goods, complying with Rule 57C. Despite this, show cause notices demanded 8% of the value of the nil-rated goods under Rule 57CC(1), which led to the confirmation of the demand by the adjudicating authority. The petitioners argued that they had already reversed the proportionate credit, thus complying with the rules.

3. Application of Section 69 of the Finance Act, 2010 and Rule 57CCC:
The court noted the amendment introduced by Section 69 of the Finance Act, 2010, which inserted Rule 57CCC into the Central Excise Rules, 1944, with retrospective effect. This new rule allowed manufacturers to reverse the actual credit attributable to inputs used in the manufacture of exempted or nil-rated goods, thus aligning with the petitioners' practice. The court observed that the petitioners had not made an application under the new provisions due to the ongoing litigation but had already reversed the credit.

Judgment:
1. The impugned order dated 30th March 2000 by the Assistant Commissioner, Central Excise, Ahmedabad, was quashed and set aside.
2. The matter was remanded to the adjudicating authority to re-determine the credit taken on the common input, i.e., ink, in light of the newly inserted Rule 57CCC.
3. The petitioners were directed to produce necessary evidence, including a certificate from a Chartered Accountant or Cost Accountant, certifying the amount of input credit attributable to the inputs used in the manufacture of nil-rated goods.
4. If any further credit reversal was required, it was to be done within four weeks from the receipt of the communication from the respondents.

The court ruled in favor of the petitioners, making the rule absolute to the extent mentioned, with no order as to costs.

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