9911796707
TMI Blog2003 (5) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... eous application for withdrawal on the ground that they are contemplating to move an application before Settlement Commission. Accordingly, the applicant has filed the instant application under Section 32 PA of the Central Excise Act, 1944 (Act for short). 2. The applicant was heard initially on 23-9-2002 when Advocate Shri J. Shankar Raman appeared on behalf of the applicant. On a query from the Bench, the Advocate had expressed that he has no objection to the Bench consisting of the Member Shri K.P. Sridhara Raman, who had also issued the impugned SCN as Commissioner of Central Excise, Chennai, dealing with the application. The hearing was inconclusive and after further written submission by the applicant s counsel, another hearing was held on 13-1-2003. On both the occasions, none represented the respondent Commissioner though a communication had been received from the respondent Commissioner, inter alia, indicating that they do not contest reduction of duty liability to the extent of Rs. 3,95,425/- sought for by the applicant out of the total duty of Rs. 48,12,324/- proposed in the SCN and confirmed by the Commissioner in his order-in-original (O.I.O.) and that interest was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct credit availed should be reduced to that extent. Applicant has sought for admission of the application as all relevant conditions are satisfied, and for subsequent immunity from penalty, interest and prosecution. 5. During the initial hearing on 23-9-2002 the advocate of the applicant was asked to make submissions on the admissibility of the application when the department had filed an appeal against the Order-in-Original of the Commissioner, in view of the proviso to Section 32PA(1) of the Act, according to which no person shall be entitled to make an application in a case where the Commissioner of Central Excise or any officer on his behalf had filed appeal to CEGAT under Section 35B(2) of the Act. In their written submission dated 28-11-2002 a plea had been raised that since the departmental appeal was with reference to the quantum of penalty imposed in the Order-in-Original and, hence, not about levy, assessment and collection of duty, the bar against settlement application under the proviso to Section 32PA(1) would not apply. As this plea was continued with during the hearing on 13-1-2003 also, the counsel was asked whether the subject matter of the SCN and subsequent Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined as a proceeding relating to levy, assessment and collection, only if the Commissioner s appeal is on a point relating to or having a bearing on levy, assessment and collection, the affected party will be barred from applying to the Commission, is debatable. It is true that the term case is defined u/s 31(C), as contended by the applicant. However, the proviso to Section 32PA(1) merely refers to an appeal by the Commissioner of Central Excise under Section 35B(2) in a case, as a debarring clause. It does not state in specific terms that the appeal itself should also relate only to issues of levy, assessment or collection. A case may, by definition, be a proceeding relating to levy, assessment and collection but it could also have a consequential proposal, say, for penalty. Therefore, a prima facie view could be that so long as an appeal subsists on any one of the points (that is duty or penalty) covered in the proceedings involving levy, assessment and collection, it is an appeal in the said case . However, since it is an established practice to interpret law taking the overall view and the purport of the Act, which is to settle a proceeding involving levy, assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e involving irregular availment of proforma credit under erstwhile Rule 56A, where credit of duty paid on raw material had been inadvertently or erroneously taken because the procedure under Rule 56A would not be available, the Hon ble Bombay High Court held that the finished product is under-assessed to duty and there is a short levy. Attention is also drawn to the following three cases of irregular availment of Modvat credit, admitted and settled by the Settlement Commission Engineers Auto, 2001 (131) E.L.T. 316, Neera Enterprises, 2001 (131) E.L.T. 318 and Maruti Udyog, 2002 (143) E.L.T. 686 11. The Bench observes that the Act contains specific provision for recovery of duties short levied/assessed/paid or not levied/assessed/paid, in terms of Section 11A of the Act. The SCN in the instant proceedings does not invoke the said Section 11A. Instead, only the provisions of Rule 57-I, which deal with recovery of credit incorrectly availed, are invoked. 12. Further, the applicant himself admits in para 6.2 of his written submissions vide his Counsel s letter dt. 12-2-2003 that The application for settlement moved by the applicant pertains to recovery of Modvat credit wrongly tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show cause why he should not be disallowed such credit and where the credit has already been utilized why an amount equivalent to such credit should not be recovered from him. Accordingly, the proposal in the SCN, followed by the O-I-O, is to disallow the credit in dispute and to recover an amount equivalent to such credit, as the credit itself has already been utilized. There is no mention in the aforesaid Rule or in the SCN or the Order-in-Original, to recover any duty as short paid on the final products which were cleared by utilizing the erroneous credit, let alone any proposal to reassess the said final products, because of any short levy or short assessment. 15. As regards the decision of the Hon ble Bombay High Court in the case of Zenith Tin Works Private Ltd. v. UOI and others, relied upon by the applicant, as is clear from the judgment itself, the issue involved therein related to an exemption to extruded shapes or sections of aluminium, including extruded pipes and tubes, if manufactured out of duty paid aluminium in any crude form on duty paid aluminium manufacture the extent of exemption being equivalent to the duty already paid on the aluminium used as raw mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequent assessment of the finished product based on the said exemption notification, but a plain and simple case of whether (Modvat) credit had been taken erroneously on a particular input/raw material and its recovery. Hence, the facts of this case are not on all fours with the facts of the case before Bombay High Court involving Rule 56A to warrant application of ratio laid down therein in the instant case. 16. On the other hand the Bench observes that the Hon ble Gujarat High Court has held in the case of Torrent Laboratories Pvt. Ltd. v. UOI, 1991 (55) E.L.T. 25 that Provisions with regard to Modvat may be analogous to the provisions of set off contained in Rule 56A but it is not set off by way of proforma credit. There is distinction between the two. The very fact that despite the provisions of Section 11A of the Act and Rule 56A being on the statute book, the Legislature thought it fit and proper to make special provisions with regard to the cases of wrongful availment of credit by enacting Rule 57-I shows that the Legislature did not intend to apply the general provisions contained in Section 11A of the Act to the cases of wrongful availment of credit which is specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be read into pre-amended Rule 57-I. Section 11A by itself deals with duty not levied or short levied and hence would have become applicable for recovery of Modvat credit also, if the recovery of excess credit is to be construed as recovery of short levied/paid duty. 18. Finally, the Bench also observes that the Hon ble Supreme Court has also specifically gone into the distinction between recovery of excess credit and demand of duty short levied etc. in the case of Collector of Central Excise, Jaipur v. Raghuvar (India) Limited, 2000 (118) E.L.T. 311 (S.C.). The recovery of credit availed of and utilized in utter breach of faith and mutual trust and confidence which is the raison d etre for the proper and successful working of the Modvat Scheme and that too, in gross violation of the mandatory requirement necessarily to be fulfilled before ever claiming or availing such benefit cannot be said to be the same as the demand for payment to be made under Section 11A of the Act of any excise duty not levied or paid or has been short paid. They fall into two distinct and different categories altogether with basic as well as substantial differences to distinguish them from each other. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawback of duty, credit of duty, or any amount representing duty), cesses, interest, fine or penalty which constitutes the subject matter of demand notice or show cause notice .... buy remaining unpaid ... . Therefore, but for such inclusive definition, credit or drawback would not have formed part of tax arrear , for settlement under KVSS, and, therefore, would not have been eligible for being deemed as tax or duty. On the other hand the definition of case under Section 31(c) is more restrictive, and does not cover any dispute on tax arrears, but disputes involving levy, assessment and collection of duty only. As a result, recovery of excess credit cannot be deemed to be levy, assessment or recovery of duty, in the absence of any such definition for purposes of settlement by the Commission. 21. For the above reasons, it is not possible to agree that the proceedings for recovery of an amount, equivalent to the excess credit incorrectly availed and already utilized, would be a proceeding relating to levy, assessment and collection of excise duty , to fall within the definition of a case under clause (c) of the Section 31 of the Act. However, the counsel has rightly pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been invoked. Accordingly, non invocation of the said section in the SCN cannot be taken to mean that there is no levy, assessment and collection of duty involved while utilizing the Modvat credit. In fact, a careful reading of para 11(1) of the judgment of the Hon ble Gujarat High Court referred to above will reveal that the High Court have held (1) Sec. 11A of the Act provides for recovery of duties in certain cases and it has come into force with effect from Nov. 17, 1980. This provision is contained in the Act while the provisions of Rule 57-I relating to recovery of wrongfully availed of Modvat credit has come into force with effect from March 1, 1986. The Government has exercised the power conferred upon it u/s 37 of the Act by which the government is empowered to make rules to carry into effect the purpose of the Act. Rules 57A to 57 P relating to Modvat scheme are framed to streamline the process of levy and collection of excise duty. (emphasis supplied). By no stretch of reasoning it can be said that the rule is enacted for extraneous purpose. It does sub serve the purpose of the Act. i.e., the levy and collection of excise duty on goods manufactured or produced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods removed earlier from the factory by the applicant to the status of non duty paid goods. In that context, the action proposed by impugned SCN is nothing but an action to levy the duty on these goods. Either way, the question revolves around levy, assessment and collection of duty. The issue cannot be viewed within a narrow compass as one relating to mere reversal of wrongly availed credit. It is also not a case that Modvat credit is something different from duty. There is another reason why in this case, the question is not one of simple reversal of the credit. Sub-rule (2) of Rule 57-I provides for demand of duty on inputs on which credit is taken and which are not fully accounted as having been disposed off in the prescribed manner. This sub-rule does not specify reversal of credit availed on such inputs but, talks of demand of duty. 25. The ld. Member has also referred to the inclusive definition of Tax arrears under Kar Vivad Samadhan Scheme and has concluded that but for the inclusive definition, credit of duty , would not have been covered by the above scheme. I am of the opinion that, first of all the above definition is in the context of a totally different scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of the CEA 44. 29. I heard the applicant on 21-4-2003 at Chennai. On that date, none represented the Revenue. 30. I observe that this issue was not at all raised in the reported cases finally settled by various Benches of the Settlement Commission namely, M/s. Engineers Auto, M/s. Neera Enterprises, M/s. Maruti Udyog Limited, although they involved Modvat credit. 31. To answer the poser referred to me, it would be gainful to extract some of the paragraphs of the speech given by the Finance Minister while introducing the Modvat scheme in the year 1986 : 114. The Modvat Scheme provides a transparency which discloses the full taxation on the product and its introduction is an important measure of cost reduction. Amount of excise duty payable depends upon the value of the final product and the rate of duty. Introduction of modvat will decrease the cost of the final product considerably through the availability of instant credit of the duties paid on the inputs and consequential reduction of interest costs. 115. It would be noticed that the Modvat scheme avoids payment of duties on earlier duties paid. The payment of duty drawback will be swifter as the element of the exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghuvar India Limited, 2000 (118) E.L.T. 311 (S.C.) and the Hon ble Gujarat High Court judgment in the case of M/s Torrent Laboratories Pvt. Ltd., 1991 (55) E.L.T. 25 (Guj.) and reliance placed on the same by my Learned brother K.P. Sridhara Raman in paragraphs 16 and 18 of the order passed by him. 34. The Hon ble Supreme Court in the case of Raghuvar India Limited was only concerned with whether the provisions of Section 11A of the CEA 44 could be invoked in respect of Rule 57-I of the CER 44 on 6-10-1988. 35. Paragraph 12 of the said pronouncement is reproduced hereunder to elaborate the same :- 12. The fact that the respondent-manufacturer did file the mandatorily required declaration under Rule 57G of the Rules only on 10-3-1987 and not before that, therefore, the respondent was not entitled to avail of the benefits under Modvat Scheme for the period 1-3-1987 and 10-3-1987 is not at all in dispute before us. The only question is as to how to set right the wrong availment of duty made by the respondent and whether prior to 6-10-1988 as Rule 57-I existed then, it has to be set right only by having recourse to Section 11A and by issue of any notice within a period of six mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted from the date of taking credit and not from the date of filing RT 12 monthly return. 42. What is sought to be emphasized is that the issue whether, recovery of Modvat credit irregularly availed and utilised was akin to recovery of Central Excise duty was never before the Hon ble CEGAT or the Hon ble High Courts or the Hon ble Apex Court in the aforesaid cited cases, but what was deliberated upon was the recovery mechanism to be employed. 43. That being the case, I desist from drawing a conclusion that modvat recovery is not a recovery of Central Excise duty. 44. I also refer to the Hon ble CEGAT judgment in the case of M/s. Namtech Systems Ltd. v. Commissioner of Central Excise, 2000 (115) E.L.T. 238 (T) wherein it has been observed in paragraph 19 that mere culling out a few sentences here and there from a judgment does not amount to citation of a precedent of a binding nature. 45. Simply put, any wrongful availment/utilisation of Modvat credit will result in short payment of duty on the finished goods, leading to demand of the short paid Central Excise duty. This is what can be inferred on a reading of the provision of Rule 57A(1) and the contents of paragraph 17 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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