2018 (8) TMI 1669 - AT - Central Excise

MODVAT/CENVAT credit - bought out items (components, assemblies) - export of the items under bond as inputs / capital goods cleared as such - Department was of the view that the bought out items such as components and assemblies procured from other manufacturers were not used for manufacture or even intended for use in manufacture within the factory of appellant and therefore appellants are not eligible to avail credit on bought out items which were merely exported as such. Whether appellants are eligible for MODVAT / CENVAT credit on the bought out items which were later exported as such being parts / components / assemblies of Sugar Plant Machinery to be installed at Vietnam? Held that - Indubitably, the appellants have exported the entire Sugar Plant to Vietnam with core machineries manufactured by the appellant along with other bought out duty paid items brought into the factory; thereafter both categories of goods cleared and agglomerated together for the purpose of export. There is also no allegation that the combined value of both manufactured as well as bought out items have not been included in the export price declared by the appellants. There also appears to be no dispute that the assemblage of goods at the point of export was an omnium gatherum gathered of both self-manufactured and bought out items, all duty paid by the respective manufacturers, which was intended to constitute a complete sugar plant in Vietnam. The show cause notice dated 29.3.1996 at para 2.0, also narrates that the disputed bought out goods were used only for receipt and export, as such . The taxes cannot be exported; that it is not the intention or policy of the Government otherwise; that in such cases where the manufacturer procures some of the parts from other manufacturers and removes them along with the remaining self-manufactured goods, the clearances for all practical purposes has to be treated as effected from factory gate. The undeniable fact is that the earlier order of this Bench, in the appellant s own case 2003 (5) TMI 166 - CEGAT, CHENNAI had concluded, that bought out items both inputs and capital goods in question cannot be considered as eligible capital goods for availing MODVAT credit .. . The remand directions given by the Tribunal in that order dated 2.5.2003 was only for computing and confirming the amount of irregularly availed MODVAT credit . etc. based on the above conclusion reached by them. This decision has been upheld by the Hon ble Supreme Court in 2013 (9) TMI 98 - SUPREME COURT . As a lower court, here it is definitely required to follow the precedent on an issue, when it is already decided by Apex Court, as it has been in this case. Appeal dismissed - decided against assessee.

Summary

Issues Involved:
1. Eligibility of MODVAT/CENVAT credit on bought-out items exported as such.
2. Invocation of the extended period of limitation.
3. Imposition of penalties.

Detailed Analysis:

1. Eligibility of MODVAT/CENVAT Credit on Bought-out Items Exported as Such:
The appellants, manufacturers of machinery for sugar and cement industries, exported machinery and components, including bought-out items, to Vietnam. They availed MODVAT/CENVAT credit on these bought-out items, which were exported as such. The department contended that these items were not used or intended for use in the manufacture within the factory, making them ineligible for credit. The Commissioner initially dropped the demand, citing that the government’s intention is to export goods, not taxes, and that bought-out inputs and capital goods are eligible for credit if intended for use in the manufacture of the final product.

The Tribunal, however, held that the bought-out items did not qualify as eligible inputs or capital goods for availing MODVAT credit since they were neither used nor required to be used in the factory. This decision was upheld by the Supreme Court, which emphasized that the necessary condition for availing MODVAT credit is that the input must be used in the manufacture of the final product within the factory. The Supreme Court also noted that no excise duty was paid on the sugar plant set up in Vietnam, thus disqualifying the appellant from claiming MODVAT credit.

2. Invocation of the Extended Period of Limitation:
The department issued multiple show cause notices covering different periods, some of which overlapped with periods already adjudicated. The Commissioner initially dropped the demands, citing that the extended period was not invocable as the department had previously issued notices on the same issue, which were resolved in favor of the appellants.

However, the Tribunal and the Supreme Court did not address the limitation issue explicitly. The Tribunal, in its remand order, directed the adjudicating authority to recompute the credit without considering the time-bar plea, as the issue had merged with the Supreme Court’s decision. The appellants argued that the extended period of limitation should not apply, especially since the department had previously accepted their practices and issued circulars supporting their position. The Tribunal ultimately rejected the time-bar plea, adhering to the Supreme Court’s judgment.

3. Imposition of Penalties:
The original adjudicating authority imposed penalties, which were contested by the appellants. They argued that penalties should not apply as they had availed credit based on orders in their favor and that the details were declared in statutory registers. The Tribunal noted that penalties under Rule 57I and Rule 57U of the Central Excise Rules, 1944, were incorporated after 23.6.1996, and thus, no penalty for the period prior to that date was leviable.

The Tribunal remanded the matter for limited purposes, including the recomputation of credit and consideration of penalties, directing the adjudicating authority to afford the appellants an opportunity to present their case. The Tribunal also directed the authority to examine whether any depreciation was claimed on the bought-out items and to adjust the penalties accordingly.

Conclusion:
The Tribunal dismissed the appeals, upholding the Supreme Court’s decision that the appellants were not entitled to MODVAT credit on bought-out items exported as such. The Tribunal also rejected the time-bar plea and directed the adjudicating authority to recompute the credit and penalties as per the remand directions.