9911796707
TMI Blog2006 (12) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... availed capital goods and appeared to have withheld the fact of exclusive use of those goods in the manufacture of exempted goods, a show cause notice was issued to the assessee proposing to recover Rs. 57,94,586/- under Rule 57AH of the Central Excise Rules, 1944 and Rule 12 of the Cenvat Credit Rules, 2001 read with the provisions of Section 11A of the Central Excise Act, 1944 (the Act). It was also proposed to demand interest on the above amount under Rule 57AH of the Central Excise Rules and Rule 12 of the Cenvat Credit Rules, 2001 read with Section 11AB of the Central Excise Act. Notice proposed also to penalize the assessee under Rules 57AH(2) and 173Q of Central Excise Rules, 1944 and Rule 13(2) of Cenvat Credit Rules, 2001 and under Section 11AC of the Act. After allowing sufficient opportunity to the assessee to present their case, the Commissioner passed the impugned order disallowing Modvat/Cenvat credit of Rs. 57,94,586/- and ordering its recovery under Rule 57AH of Central Excise Rules, 1944 and Rule 12 of Cenvat Credit Rules, 2001 read with Section 11A of the Central Excise Act, 1944. The Commissioner imposed a penalty of Rs. 57,94,586/- under Section 11AC of Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them for getting grey fabrics processed by the job workers. The assessee argued that the Modvat credit could not be denied on the capital goods for the reason that they would also be used in the manufacture of dutiable goods over the life span of the factory, though initially they had been deployed in the manufacture only the exempted goods. 3. In the proceedings before the Commissioner, they had contested the allegation that they had not disclosed that credit availed capital goods had been exclusively used in the manufacture of exempted product and the same had been with an intention to evade payment of duty. They had informed the department about the range of manufacture and the Certificate of Registration issued had indicated manufacture of dutiable goods falling under various Chapters. They had paid duty of excise on processed fabrics as well as articles of apparel manufactured using grey fabrics produced with the impugned capital goods. They had intimated taking of Modvat credit and had disclosed the entire manufacturing details in their letters to the department, when the impugned credit had been taken by them. Therefore, there was no question of levy of penalty and interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that no dutiable final product was manufactured within the premises was not based on facts, as was obvious from the ER1 returns filed by them. The grey fabric used in the manufacture of processed fabric and articles of apparel were intermediate products manufactured by the appellants using the impugned capital goods. The Assistant Commissioner of Central Excise, Pollachi Division, Coimbatore Commissionerate had referred to the following directions contained in the Board's Circular No. 267/94/99-Cx.-8 dated 30-9-2002, in his Order-in-Original No. 49/2004 dated 4-4-2003, in a similar case pertaining to them, dealing with balance credit on same capital goods taken in 2002 - 2003. "....... That usage of the capital goods in the manufacturing process of dutiable goods is not in dispute. Therefore, if the credit is to be denied under Rule 57R, during the period 1-3-97 to 31-8-97, the credit shall still be available on the same capital goods under Rule 57Q for being used in the manufacturing of dutiable goods. Further the intention behind Rule 57R has been to deny credit on such capital goods used exclusively for manufacturing of exempted goods only. It is therefore, clarified that cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CCR, 2001 was unsustainable in view of the ratio of the decision in the case of Agarwal Pharmaceuticals - 2002 (146) E.L.T. 190 (Tri. - Del.), which was as under : "Penalty not sustainable for want of apportionment of Section 11AC of the Central Excise Act, 1944 and Rule 173Q of erstwhile Central Excise Rules, 1944". 7. The appellants further submitted that the credit had not been utilized and the question of penalty did not arise as there was no revenue loss to the Government. In Bata India Limited - 2001 (131) E.L.T. 62, it was decided as under : "Penalty - remedy for loss of revenue - where no such loss caused imposition is not justified - Rule 173Q(1)(a) of the CE Rules, 1944". 8. The same principles governed the Modvat scheme replaced by Cenvat Credit Rules, 2000 with effect from 1-3-2000, as modified by Notification No. 27/2000-CE (NT) dated 31-3-2000. The erstwhile Rule was emphatic to the effect that levy of penalty/interest was dependent on the liability to pay the amount of credit disallowed which implied that no penalty/interest could be levied if the disallowed credit was to be expunged. Rule 57U(6)/57U(8) dealing with penalty and interest respectively was attra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital goods'. It was alleged that the Commissioner had failed to notice that the capital goods referred in the Show Cause Notice had been received simultaneously along with processing machines except to the extent of Rs. 32.81 lakhs. He had also failed to observe that the appellants had discharged the duty of excise on the articles of apparel of Chapter 61 and processed fabric of Chapter 52 since February, 2002. Hence, the impugned goods had not been exclusively used in the manufacture of exempted final product. The Commissioner had erred in entering a finding that grey fabric was a final product and could not be considered as an intermediate product. They relied on the Board's Circular No. 665/56/02-CE dated 25-9-2002 and invited our attention OIA No. 16/05 dated 11-2-2005 setting aside Order No. 49/04 dated 6-7-2004 passed by the Asst. Commissioner Pollachi Division, wherein in Para 7.3, the Commissioner (Appeals) had accepted the appellant's plea that they had necessary processing facilities as confirmed by the Original authority vide their Letter IV/l 6/266/04 dated 2-12-2004. The above orders related to Rs. 31,41,843/- being balance 50% of the Cenvat credit availed in Januar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to demand Rs. 31.42 lakhs being capital goods credit taken on same goods as covered by the impugned order during 1-3-2002 to 28-2-2003 was dropped by the order of the Commissioner (Appeals), Coimbatore vide OIA No. 16/05-C.E., dated 11-2-2005 finding that the appellants had manufactured both dutiable and exempted final products from 3/02. It was further explained that the appellants had not suppressed any relevant fact. There was no mis-declaration. They had kept the department informed of their activities and had filed classification list on 18-5-2001. Therefore no penalty was imposable. They relied on Apex Court's decisions in 1996 (88) E.L.T. 24 (S.C.) and 1995 (76) E.L.T. 497 (S.C.) in support of their above claim. 11. The ld. Consultant referred us to several case law against the demand and the imposition of penalty in the impugned order and cited relevant observations in them as follows : (a) CCE, Bhopal v. Bhaskar Industries Ltd., 2003 (54) RLT 301 CEGAT (Del.) "At the time of acquisition of the capital goods the final product coming under Heading 52.02 stood excluded from liability to duty. It was then held that when Modvat credit could not be taken at the time when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or suppression of fact. This is a requirement of natural justice. Unless the assessees put to notice, the assessee would have no opportunity to meet the case of the authorities". (d) Avdel (I) Pvt. Ltd. v. CC, Mumbai, 2004 (171) E.L.T. 201 (Tri.-Mum) it was decided that composite penalty under Section 11AC and Rule 173Q was not permissible. (e) Freezair (I) Pvt. Ltd. v. CCE, Delhi, 2003 (152) E.L.T. 321 (Tri. - Del.) It was held that Section 11AC and Rule 173Q were independent provisions standing on different footings. One could not be read with the other. The Commissioner had not given breakup of the penalty between the two provisions. Therefore, the penalty could not be sustained. The Tribunal remanded the question to decide separate penalties under Section 11AC and Rule 173Q. (f) Madhur Hosiery Industries v. CCE, Meerut, 2006 (200) E.L.T. 147 (Tri. - Del.) The Tribunal decided that the Supreme Court has laid down the law stating that for the imposition of penalty under Rule 173Q ibid, the particular clause of the said Rule has to be mentioned in the SCN issued to the assessee. As the specific clause was not mentioned, the appellants were not put to notice ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he option availing the Modvat credit on capital goods abeyance for about a year, till implementation of the third phase, namely, the fabric processing. The assessee submitted the required declaration under Rule 57T of the Central Excise Rules with a clear intention that he shall be availing the credit on implementation of the third phase, as the final product of the third phase was dutiable." Vide Surya Roshini Ltd. v. Commissioner, 2003 (158) E.L.T. A273 (S.C.), the Apex Court dismissed the assessee's appeal as not maintainable. (2) Binani Cement Ltd. v. CCE, Jaipur II, 2002 (143) E.L.T. 577 (Tri. - Del.) The Tribunal observed that the contention of the revenue is that Modvat credit must accrue on the goods on the date of receipt in the factory and not on the date of installation. We agree with this contention of the revenue. (3) Grasim Industries Ltd. v. CCE, Trichy, 2004 (176) E.L.T. 265 (Tri. - Chen.) "In the instant case the quantum of credit permissible was only 75% at the relevant time when the goods were received in the factory. It was on a later date that the quantum was raised to 100% by amending Notification No. 11/2000 dated 1-3-2000 and this Notification is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's appeal. 15. We have carefully considered the facts of the case and the rival submissions. The machinery in respect of which the capital goods credit had been taken were not used to manufacture any dutiable goods during the period of dispute. After the machinery was received in 2001, during the period 1-3-2001 to 28-2-2002 they were put to use only to manufacture grey woven fabrics of cotton on which no duty was paid. In terms of Rule 57AD(3) of CER, 1944 and Rule 6(4) of CCR, 2001 (which was in force since 1-7-2001), no credit of duty paid on capital goods shall be allowed if the capital goods are used exclusively in the manufacture of final products on which no amount of excise duty is payable. Therefore, the order for the recovery of capital goods credit availed on such machinery passed by the Commissioner is in accordance with law. The assessee did not have a production programme culminating with setting up of machinery for manufacturing processed fabric or articles of apparel which they had intimated to the department. A classification list was filed on 18-5-2001, which showed woven fabric of cotton containing 85% or more by weight of cotton as the only dutiable item along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to recover Rs. 31,41,843/- being the balance 50% taken in the subsequent financial year. This demand was since decided to be not payable by the appellants vide OIA 16/05 dated 11-2-2005, as the appellants had cleared dutiable goods during the material time. As the claim regarding a lower liability compared to the amount proposed in the SCN and confirmed in the impugned order had not been raised before the Commissioner, this aspect is remanded for a fresh decision by the Commissioner. 17. As regards the penalty imposed, it is seen that a composite penalty has been imposed under Section 11AC of the Act read with Rule 57AH(2), Rule 173Q of CER, 1944 and Rule 13(2) of CCR, 2001. Judicial authorities are unanimous in the view that composite penalty under different provisions of the statute is impermissible. Therefore the composite penalty imposed is liable to be set aside. The judicial objection to imposing composite penalty and imposing penalty without citing the precise provision in the Show Cause Notice is referable to requirement to fulfil principles of natural justice. In the case of Freezair India (P) Ltd. v. CCE, Delhi [2003 (152) 321 (Tri. - Del)], cited by the appellants, Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they had not been eligible for the same in view of the legal provisions. We find that the appellants had intimated the jurisdictional Dy. Commissioner, vide its letter dated 10-5-2001, the details of the goods cleared by the unit and the fact of import of capital goods and the CVD paid, of which they were entitled to take Cenvat credit. The Dy. Commissioner in his letter dated 31-5-2001, approved the procedure followed by the appellants and specifically informed them that "in the event of clearing the processed fabric without payment of duty, they are not eligible to take Cenvat credit on both inputs and capital goods". The appellants had been clearing the processed fabric received on job work basis on payment of duty. The Dy. Commissioner's letter did not enlighten the appellants on the position that they were not eligible to take credit on capital goods which were not used in the manufacture of dutiable goods. Considering the fact that the assessee had cleared dutiable goods during the material time though not manufactured by them, and that they had intimated the procedure followed by them to the department, the appellant is entitled to benefit of doubt that they had bonafid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit involved in the instant case was not utilized by the appellants, the Commissioner decided that interest was not payable by the appellants in view of the ratio of the above judgment. 22. It is seen that the case law dealt with provisions in the Income-tax Act, which are not similar to the provisions in the Central Excise Rules prescribing recovery of interest for ineligible credit taken. In the provisions of the Income-tax Act interpreted by the Apex Court, the income-tax authority is conferred discretion to waive the interest or to levy lower amount of interest than the interest otherwise due. The relevant Central Excise Rules involved in the instant case during the material period read as under : "Where the Cenvat credit has been taken or utilized wrongly, the same along with interest shall be recovered from the manufacturer........." We find that as per the statutory provisions, it is mandatory that when Cenvat credit has been taken wrongly, the same shall be recovered along with interest. In view of the unambiguous mandate of the law, the Commissioner's order not demanding interest as per the above rules is incorrect. In the circumstances, we allow the department ..... X X X X Extracts X X X X X X X X Extracts X X X X
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