2015 (3) TMI 746 - HC - Central Excise

Deemed credit denied to the re-rollers availing SSI Exemption - Benefit of Notification No.1/93-CE - Whether the re-rollers whose aggregate value of clearances in the current financial year had exceeded ₹ 75,00,000/- and who were paying full rate of central excise duty as applicable to re-rollers in respect of clearances exceeding ₹ 75,00,000/- in the current financial year, could still avail of the benefit of the Government of India Order - Held that - From the heading of the notification it is clear that the benefit thereunder is available to S.S.I. units provided they have not exceeded clearances of rupees two crores in the preceding financial year. What is stated in the heading is provided under clause (3) of the notification which limits the entitlement to the benefit of the notification to S.S.I. units, the aggregate value of whose clearances have not exceeded rupees two hundred lakhs. In effect and substance, clause (3) of the notification provides for the eligibility criteria for getting the benefit of the said notification and accordingly provides that such S.S.I. units whose aggregate clearances in the preceding financial year have not exceeded two hundred lakhs shall be eligible to get the benefit of the said notification. Assigning a plain meaning to the language used in the Government Order dated 1st March, 1994, the rerollers who are eligible to get the benefit of the Notification No.1/93 and are availing exemption thereunder are eligible to get the benefit of deemed credit thereunder. Provision whereby the benefit of notification No.1/93 is limited to the aggregate value of clearances of specified goods to the extent of rupees seventy five lakhs relates to the extent of benefit that can be claimed under the said notification. However, the same is not an eligibility criteria for availing of the benefit of the said notification. A reroller who avails of the benefit of Notification No.1/93 is by dint of such fact eligible for the benefit of deemed credit under the Order dated 1st March, 1994 and the benefit under the said order is not qualified by the limit provided for availment of the benefit of Notification No.1/93. The decision of the Tribunal in the case of Digambar Foundary v. Commissioner of Central Excise (supra), whereby it is held that the eligibility to avail of the benefit under the order would be only to the extent the clearances do not exceed ₹ 75,00,000/-, is, therefore, an incorrect interpretation of the Order dated 1st March, 1994 as well as the Notification No.1/93. - Tribunal was not justified in holding that the benefit of deemed credit available under Order TS/36/94--TRU dated 1st March, 1994 passed by the Central Government in exercise of powers conferred under rule 57G(2) of the erstwhile Central Excise Rules, 1994 could be denied to the re-rollers whose value of clearances have crossed ₹ 75,00,000/- in a particular financial year for the purposes of exemption Notification No.1/93 on the ground that such re-rollers could not be said to be availing of exemption under the Notification No.1/93 dated 28-2-1993. Respondent M/s Sonthalia Steel Re-Rolling Mills had availed the benefit of deemed modvat credit of ₹ 5,74,098/- on 24th December, 1995 for input lying in stock, after the Notification TS/36/94-TRU dated 1st March, 1994 came to be rescinded vide Notification TS/8/95-Tru.-CE (NT) dated 16th March, 1995 whereby the Central Government in exercise of powers under the second proviso to sub-rule (2) of rule 57G of the rules rescinded the order dated 1st March, 1994 with effect from 1st April, 1995. Thus, to the extent M/s Sonthalia Steel Re-Rolling Mills had availed the benefit of the order dated 1st March, 1994 after it came to be rescinded with effect from 1st April, 1995, it was not entitled to such benefit. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Interpretation of Notification No.1/93-CE regarding the deemed credit benefit for re-rollers exceeding Rs. 75,00,000 in clearances.
2. Eligibility of re-rollers to avail deemed credit without producing documents evidencing payment of duty.
3. Applicability of the deemed credit benefit after the rescission of Order No.TS/36/94-TRU dated 1st March, 1994.

Detailed Analysis:

Issue 1: Interpretation of Notification No.1/93-CE

The primary issue revolves around whether re-rollers, whose aggregate value of clearances in the current financial year exceeded Rs. 75,00,000, could still avail the benefit of the Government of India Order No.TS/36/94-TRU dated 1st March, 1994. This order allowed deemed credit without the production of documents evidencing the payment of duty. The Tribunal previously held that once the clearances exceeded Rs. 75,00,000, the re-rollers were not eligible for the deemed credit benefit under the said order. However, the High Court disagreed, stating that the eligibility criteria for availing the benefit of Notification No.1/93-CE should be based on the aggregate value of clearances in the preceding financial year not exceeding Rs. 200 lakhs. The court concluded that the benefit of deemed credit under the order dated 1st March, 1994 was available to re-rollers even after their clearances exceeded Rs. 75,00,000, as long as they met the eligibility criteria of Notification No.1/93-CE.

Issue 2: Eligibility of Re-rollers to Avail Deemed Credit Without Producing Documents

The court examined the provisions of rule 57G(2) of the Central Excise Rules, 1944, which allowed deemed credit without the production of documents evidencing payment of duty. The High Court emphasized that the second proviso to rule 57G(2) allowed the Central Government to deem certain inputs as duty-paid, even if they were recognizable as non-duty paid. The court rejected the revenue's argument that the government presumed the goods to be duty-paid, noting that the proviso explicitly allowed for the deemed credit without such presumption. The court held that the re-rollers were entitled to the deemed credit benefit under the order dated 1st March, 1994, as long as they were availing the exemption under Notification No.1/93-CE.

Issue 3: Applicability of Deemed Credit Benefit After Rescission of Order No.TS/36/94-TRU

The court addressed whether the deemed credit benefit could be availed after the rescission of the order dated 1st March, 1994. Specifically, in Tax Appeal No.466 of 2014, the respondent had availed deemed credit after the order was rescinded with effect from 1st April, 1995. The court held that the respondent was not entitled to the deemed credit benefit after the rescission date. The Tribunal's decision to allow the appeal without addressing the issue of admissibility of deemed modvat credit post-rescission was deemed incorrect. Consequently, the court partially allowed Tax Appeal No.466 of 2014, setting aside the Tribunal's order to the extent it allowed deemed credit availed after the rescission.

Conclusion:

The High Court allowed the tax appeals preferred by the assessees, setting aside the Tribunal's orders that denied the deemed credit benefit after clearances exceeded Rs. 75,00,000. The court held that re-rollers were entitled to the deemed credit benefit under the order dated 1st March, 1994, even after exceeding the Rs. 75,00,000 clearance limit, as long as they met the eligibility criteria of Notification No.1/93-CE. However, the court partially allowed Tax Appeal No.466 of 2014, denying the deemed credit benefit availed after the rescission of the order dated 1st March, 1994. Tax Appeals No.464 and 465 of 2014 were dismissed.