2016 (6) TMI 354 - HC - Central Excise

Whether the bar imposed under Rule 57G(5) of the Central Excise Rules, 1944 for availment of credit within a period of six months would be applicable in relation to deemed credit availed under Rule 57G(5) and Notification No.29/96 issued thereunder - Held that - Rule 57G(5) of the rules provides for a period of limitation of six months from the date of issue of any document specified in sub-rule (3) thereof for the purpose of taking credit. Adverting to Notification No.29/96, it may be noted that the same specifically provides that credit of the declared duty deemed to have been paid shall be allowed to the manufacturer of final products, without production of documents evidencing payment of duty on the said inputs at the time of clearance of final products. Thus, under the scheme of the notification, deemed credit can be availed of without production of documents evidencing payment of duty on the inputs. Thus, for the purpose of applicability of sub-rule (5) of rule 57G, the limitation would commence from the date of issuance of the documents specified in sub-rule (3) thereof, whereas, insofar as the availment of deemed credit under Notification No.29/96 is concerned, provision is made for availing the same without any document evidencing payment of duty on the inputs. Under the circumstances, in the absence of any documents specified in sub-rule (3) of rule 57G of the rules being available for the purpose of availment of deemed credit, the limitation would not commence to run insofar as the deemed credit is concerned. Consequently, it would not be possible to apply sub-rule (5) of rule 57G of the rules to the facts of the present case. Sub-rule (5) of Rule 57G of the rules postulates that credit shall also not be taken by the manufacturer after six months of the date of issue of any document specified in sub-rule (3) thereof and where intermediate products manufactured by the user of inputs specified under rule 57 are received by the manufacturer, after nine months. But neither sub-rule (5) of rule 57A of the rules under which Notification No.29/96 has been issued provides for any limitation for availment of the benefit under the notification, nor does Notification No.29/96 provide for any such limitation. However, merely because rule 57A(5) or Notification 29/96 do not provide for a limitation for availing of the benefit of deemed credit, the limitation under rule 57G(5) of the rules cannot be read into the scheme of rule 57A(5). Therefore, the Tribunal, in the impugned order, has rightly held that rule 57G of the rules would not be applicable to the facts of the present case. - Decided against the Revenue

Summary

Issues Involved
1. Whether the bar imposed under Rule 57G(5) of the Central Excise Rules, 1944 for availment of credit within a period of six months is applicable to deemed credit availed under Rule 57A(5) and Notification No.29/96.

Detailed Analysis

Issue 1: Applicability of Rule 57G(5) to Deemed Credit under Rule 57A(5) and Notification No.29/96

Background:
The respondent, a manufacturer of Cotton Fabrics/Man Made Fabrics, availed deemed credit after a lapse of seventeen months for goods exported under bond. The Department issued a show cause notice demanding recovery of the deemed credit and imposed penalties, arguing that the credit was availed beyond the six-month limit prescribed under Rule 57G(5).

Arguments by the Appellant:
The appellant contended that Rule 57G(5) prescribes a mandatory six-month limit for availing credit. Despite Notification No.29/96 not specifying a time limit, Rule 57G(5) should apply as it existed prior to the notification. They argued that procedural restrictions are permissible and necessary to prevent indefinite claims. Reliance was placed on the Supreme Court decision in Osram Surya (P) Ltd., which upheld time limits for availing MODVAT credit.

Arguments by the Respondent:
The respondent argued that Rule 57G(5) applies to actual credit under Rule 57A(1) and not to deemed credit under Rule 57A(5). They highlighted that Notification No.29/96, issued under Rule 57A(5), does not specify a time limit for availing deemed credit. The respondent also cited various judicial precedents to support their claim that Rule 57G(5) is not applicable to deemed credit.

Court's Analysis:
1. Statutory Provisions:
- Rule 57A(1) allows credit of duty paid on inputs used in the manufacture of final products.
- Rule 57A(5) allows deemed credit on specified inputs, even if not used directly by the manufacturer, and is a separate provision from Rule 57A(1).

2. Notification No.29/96:
- Specifies inputs and final products eligible for deemed credit.
- Allows deemed credit without the need for documents evidencing payment of duty at the time of clearance of final products.
- Does not impose a time limit for availing deemed credit.

3. Rule 57G(5):
- Prescribes a six-month limit for availing credit based on documents specified in Rule 57G(3).
- The court noted that Rule 57G(5) applies to actual credit under Rule 57A(1) and not to deemed credit under Rule 57A(5).

4. Judicial Precedents:
- The court referred to various decisions, including the Gujarat High Court and Bombay High Court, which supported the view that Rule 57G(5) does not apply to deemed credit under Rule 57A(5).

Conclusion:
The court concluded that Rule 57G(5) of the Central Excise Rules, 1944, does not apply to deemed credit availed under Rule 57A(5) and Notification No.29/96. The Tribunal's decision to allow the respondent's deemed credit claim was upheld, and the appeal was dismissed. The question was answered in the negative, against the revenue and in favor of the assessee.