2015 (2) TMI 836 - HC - Central Excise

Clearance to Free Trade Zone - Denial of MODVAT credit-Rule 57C - Clarificatory amendment have restropective effect - Held that - The settled principle is that if any amendment is clarificatory in nature the same is retrospective in operation. What is material to note is the application thereof to the given facts and circumstances. That general principle is no doubt laid down in several decisions but whether a particular amendment is clarificatory or substantive will depend on the amendment, the statute in which it is brought in and the object and purpose sought to be achieved. A bare reading of the amended provisions would denote as to how after the words or rather for the words in the manufacture of a final product , the words in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hundred percent ExportOriented Unit) were substituted. Once their substitution is read and in the light of the unamended rule, it would clearly emerge as to how credit of duty was not to be allowed if the final products are exempt. The intent was not to allow any such credit on the inputs used in the manufacture of a exempted final product. If the final product is exempted from whole of duty leviable thereon or is chargeable to nil rate of duty. However, upon manufacture if such final product is cleared either to a unit in a free trade zone or to hundred percent export oriented unit then the prohibition in rule 57C does not apply. This is really a substantive amendment. A free trade zone or units therein or exportoriented unit undertake activities which would facilitate the country in earning foreign exchange and which is considered extremely valuable. In that regard and to encourage such units to undertake the activities noted above, frequently, that this rule was amended. That was also enabling the suppliers of such duty free products and received in the free trade zone to claim credit on the basis of the clearances made. If such is the intent and purpose and the departure is specifically made from a particular date, then, such amendment cannot but be held to be prospective. In the light of the above discussion, we find that the Tribunal was justified in dismissing the appeal of the assessee. The Tribunal rightly held that the credit was inadmissible and could not have been availed of in the light of the legal provision prevailing at the time at which the credit was availed by the appellant assessee. In such circumstances and the view taken, not being perverse or vitiated by any error of law apparent on the face of the record, this appeal fails. - Decided against the assessee.

Summary

Issues Involved:

1. Whether goods supplied to a unit in a free trade zone are exempted goods within the meaning of Rule 57C of the erstwhile Central Excise Rules, 1944.
2. Whether the amendment to Rule 57C by Notification No.4/92 dated 1.3.1992 was clarificatory and retrospective in nature.
3. Whether goods supplied to a unit located in a free trade zone without payment of duty under Notification No.272 of 1979 against the imprest licence are covered by Rule 57C or Rule 191BB of the erstwhile Central Excise Rules, 1944.
4. Whether the goods cleared to a unit located in a free trade zone are intermediate products and as such not covered by Rule 57C of the erstwhile Central Excise Rules, 1944.

Detailed Analysis:

1. Exemption of Goods Supplied to Free Trade Zone:

The appellants manufacture Multilayer Plastic Laminates Tubes and supplied them to Hindustan Lever Limited (HUL) in the Kandla Free Trade Zone. They claimed credit for duty paid on inputs used in manufacturing these goods. The revenue issued show cause notices alleging wrongful availment of credit, arguing that goods cleared to the Free Trade Zone were exempt and thus credit was not admissible under Rule 57C. The Assistant Commissioner and Commissioner of Central Excise (Appeals) upheld this view, stating that Rule 57C, as it stood before the amendment on 1st March 1992, did not allow such credit.

2. Clarificatory and Retrospective Nature of Rule 57C Amendment:

The appellants argued that the amendment to Rule 57C, effective from 1st March 1992, was clarificatory and retrospective. They contended that the intent was to allow credit for goods cleared to units in Free Trade Zones or export-oriented units. However, the court found that the amendment was substantive, not clarificatory, and thus prospective. The amendment specifically allowed credit for goods cleared to these zones, which was not previously permitted. The court emphasized that the amendment was intended to facilitate exports and earn foreign exchange, thus it could not be applied retrospectively.

3. Coverage under Rule 57C or Rule 191BB:

The appellants also argued that their case should be considered under Rule 191BB, which allows duty-free removal of goods for manufacturing articles meant for export. However, the court distinguished between Rule 57C, which deals with credit on inputs used in manufacturing final products, and Rule 191BB, which facilitates duty-free removal of goods. The court concluded that Rule 191BB did not apply to the appellants' case, as it did not pertain to credit availment on inputs.

4. Intermediate Products and Rule 57C:

The appellants claimed that the goods cleared to the Free Trade Zone were intermediate products and thus should not be covered by Rule 57C. However, the court found that the goods were final products cleared to HUL for use in manufacturing export goods. The court rejected the argument that the goods were intermediate products, reaffirming that the credit was not admissible under the unamended Rule 57C.

Conclusion:

The court upheld the Tribunal's decision, dismissing the appeal and confirming that the credit availed by the appellant was inadmissible under the prevailing legal provisions at the time. The amendment to Rule 57C was found to be prospective, and the appellants could not claim credit for goods cleared to the Free Trade Zone before the amendment. The appeal was dismissed without any order as to costs.