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TMI Blog1995 (4) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed into service for such a finding. It was noted that the said Rule makes dutiability of the final product mandatory for availment of Modvat. It was, therefore held that to the extent the final product was to be cleared at nil rate of duty by opting to switch over to exemption at the beginning of the financial year 1989-90, the credit taken on the inputs in question lying as such or contained in the process material or contained in the final products lying in stock on 1-4-1989 has to be recovered. This view [was] upheld by the Collector (Appeals) while disposing of their appeal. The relevant paragraph from the order of the Collector (Appeals) is extracted below :- "I observe that Rule 57C stipulates that no credit of specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty. This rule which is an amplification of the idea of `finished excisable goods' contained in the basic provision of Rule 57A, cannot be read in isolation. In the entire Modvat Scheme itself, the underlying ideal is that the credit of duty paid on inputs i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not correct and legal. They had taken the credit on the inputs correctly and utilised the same properly during the year 1988-89 when they were clearing their final product on payment of duty. At the commencement of the year 1989-90 i.e. on 1-4-1989 when they opted to avail exemption on the first clearance of Rs. 15 lakhs, they had inputs as such and also inputs in the process of manufacture and those contained in the final product. The duty involvement for such inputs was Rs. 1,06,277.01. The decision is not correct as Rule 57-I provided for recovery of only such credit which had been irregularly taken or availed. The credit in this case had been taken correctly and utilised correctly during 1988-89 and hence could not be recovered under the Central Excise Rules as it had not been irregularly or unauthorisedly taken and availed. It has, therefore, been pleaded the order be set aside. 3.Shri Rajesh Kumar, learned advocate appeared for the appellants during the hearing of the appeal. He reiterated the arguments contained in the appeal. He handed over a written note containing his submissions. He stated that when they opted for Modvat benefit from 24-11-1988 they took the credit on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the same does not squarely cover their situation. In that case a small portion of the final product was being cleared without payment of duty under Notification 217/86 and 75/86 under Chapter X of Central Excise Rules when the duty paid inputs were received in the factory. Their case is not hit by this decision. The aspect of limitation and application of Rule 57-I is also to be considered. Reliance has been placed on the Tribunal decisions reported in 1988 (33) E.L.T. 172, Collector of Central Excise v. Wipro Information Technology and 1989 (41) E.L.T. 181, Sawottam Ispat (P) Ltd. v. Collector of Central Excise. 5.Shri J.P. Singh, learned Departmental Representative disputed the contentions raised by the learned counsel in favour of the appellants and submitted that the Assistant Collector and Collector (Appeals) had correctly applied the provisions of Rule 57-C to the facts of the case and held them to be ineligible for Modvat benefit when their final product was being cleared by them without payment of duty under an exemption notification. He strongly relied upon the Tribunal decision in the East India Pharmaceutical Works Ltd. case reported in 1991 (54) E.L.T. 355. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us. That Larger Bench was constituted in view of the conflicting decisions of the Tribunal Benches. Thus, in the Wipro Information Technology the South Regional Bench held as follows [reported in 1988 (33) E.L.T. 172] :- ".....If there was no error or irregularity in the allowing of credit at that point of time, it does not appear to us that the credit becomes liable to be disallowed subsequently because the finished goods are subsequently exempted from duty. If this be the position recourse to clauses (v) and (vi) of sub-rule 3 would not help the Revenue. No other provision has been brought to our notice which would justify the taking back of the credit in a case of this nature. It is no doubt an unusual case. It may be that Government by oversight omitted to provide for cancellation of taking back of the credit in such case. But so long as no such provision exists and when it has not been shown or even alleged that there was any irregularity either at the time the credit was taken or at the time it was utilised we think the Collector (Appeals) was right in taking the view that he did and in setting aside the Assistant Collector's order. We accordingly reject this appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows him the same. It is here that the strict construction of the relevant provisions comes into play. In view of our discussion of Rule 57F(3), we feel the strict apportionment of credit of duty paid on inputs for utilisation for payment of duty on the final product arising from them is inherent therein. The liberal treatment of allowing the credit to be not only taken immediately on receipt of the inputs, but also to be utilised without looking into whether the inputs have been taken up for manufacture and whether the final products are made from that lot of the inputs is an extra-legal working arrangement based on executive instructions without statutory backing. The restriction imposed by Rule 57C will become otiose if a liberal construction is given to Rule 57F(3). The latter has got to be read down in the manner indicated by us to make the functioning of Rule 57C meaningful. The allowing of credit on receipt of the inputs is in anticipation of their use in the manufacture of the dutiable final products. The latter losing their dutiable status will have its effect on the credit of duty taken and utilised already. If such credit had been taken and also utilised already, then su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners are entitled to advantage of the Notification (Ex. B). As pointed out earlier, Rule 56A enables the Central Government to specify the excisable goods in respect of which the procedure laid down in sub-rule (2) shall apply. Sub-rule (2) provides for credit of duty in respect of any material or component parts used in the manufacture of finished excisable goods. The proviso to sub-rule (2) is crucial for determination of the dispute raised by the petitioners. It provides that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods if such goods produced by the manufacturer are exempted from the whole of the duty of excise leviable thereon. 7. Mr. Desai submits that the excisable goods produced by the petitioners are not wholly exempted from the duty and what Notification (Ex. B) provides is exemption only to clinical samples limited to a quantity not exceeding 5% by value of the total duty paid during the preceding months. It is not possible to accept the submission of the learned counsel. In my judgment, the two authorities below were right in holding that proviso (i) of sub-rule (2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods manufactured by using raw goods falling under Item 68 of the Central Excise Tariff as then applicable to the extent of duty paid on such inputs. Relevant extracts from paragraphs 28, 29, 30 and 31 are reproduced below:- "28. Mr. Rajinder Dutt, on the other hand, has contended that the direction, given by the Assistant Collector, is in accordance with law. As per the aforesaid Notification No. 201/79 and Rule 56A of Rules, nothing apply to the goods, which are exempted from the whole of the duty of excise and/or and chargeable to nil rate of duty. 29. In our view, there is a force in the contention of Mr. Ravinder Narain. It appears that the extent of credit, available in the account, maintained in R.G. 23, can be utilised, at the time of clearing of the product, and there is no provision in the appendix to the notification, as well as, in Rule 56A, that at every stage of clearance of the end-product, utilisation of credit has to be correlated to the quantum of inputs, used in the manufacture of the end-product. 30. In fact, the scheme provides that the credit can be utilised for payment of duty, against any excisable products, that are brought from the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of a notification having its enforcement with effect from a date subsequent to the receipt of the inputs of which credit has already been taken. The facts and circumstances of the case before them did not call for expressing an opinion on that aspect of the issue. 9. It was submitted by the learned Departmental Representative that the Larger Bench decision in the Kirloskar Oil Engines case would squarely apply to the present case while the learned counsel contended otherwise. In fact it was even indicated by him that the said case would actually support their case. We find that the Notification availed of by the appellants was clearly there when they received the inputs and took the credit. What happened was that when they so took the credit of duty paid on the inputs when they received the same, they were clearing the final products made therefrom on payment of duty. In the circumstances, their taking the credit and using it for payment of duty leviable on the said final products was perfectly in order. What has led to the present dispute is the fact that till 31-3-1989 they were removing the final products on payment of duty at which stage they opted out of the Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C de hors Rule 57-I. Such a situation was not argued before the Larger Bench. Moreover in that case the exemption from duty was being availed by the appellants therein along with clearance of goods on payment of duty utilising the credit when they opted for the Modvat scheme. In the present case the appellants were not availing of full exemption when they utilised the credit and cleared the goods on payment of duty even though the exemption notification was in existence even at that time. In other words, in the Kirloskar case, the availment of full exemption and clearance of goods on payment of duty availing the credit were going on side by side for different types of clearances of the same final product. Such a position was not there in the present case. Only after the financial year 1988-89 was over and the subsequent year 1989-90 started did they opt for full exemption. Rule 57C appears to have been correctly applied by the authorities below. The purpose and justification (raison d'etre) of Modvat credit is to avoid the cascading effect of duty paid on the inputs. Such duty paid on the inputs is to be relieved from the duty to be paid on the final products. If the latter are cle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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