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TMI Blog2002 (7) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... -88 as amended at nil rate of duty. They have also availed the benefit of Modvat credit under Rule 57A on the said inputs. After clearing the finished product under exemption Notification No. 202/88-C.E., as amended, they reversed the Modvat credit on the inputs which were used in the manufacture of the said final products, subsequent to the removal of the said goods, on monthly basis. As per the terms of the notification the pre-condition for eligibility to exemption is that no credit of duty paid on the inputs should be availed under Rule 56A or 57A. According to the department, as the assessees have not fulfilled the conditions stipulated in the said notification, show cause notice was issued denying them the exemption claimed demanding differential duty (after adjusting the amount already expunged) of Rs. 66,34,190/- and Rs. 11,90,475/- under Section 11A of the CE Act, 1944 for the period April to September, 92 and October and November, 1992 respectively and the show cause notice culminated in the order of adjudication passed by the Deputy Commissioner, Preventive vide Order-in-Original No. 9/95, dated 9-6-95 by which the differential duty was confirmed besides imposition of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake place before the removal of the goods. The appellants have also relied upon the following decisions in support of their plea for setting aside the impugned order : (a) CEGAT, New Delhi final order No. 424/97-D, dt. 4-7-97 [2004 (165) E.L.T. 409 (Tribunal)] in the case of M/s. Wearwell Tyre Tubes Industries Ltd v. CCE, Indore wherein it was held that since Modvat credit availed has been reversed by the appellants on their own, they are entitled to the benefit of the notification. The Tribunal had also relied upon the decision of the Hon'ble Apex Court in the case of Chandrapur Magnet Wires Pvt. Ltd. v. CCE, Nagpur reported in 1996 (81) E.L.T. 3. (b) Franco Italian Co. Pvt. Ltd. v. CCE, Mumbai reported in 2000 (120) E.L.T. 792 (Larger Bench) wherein it was held that subject to reversal of Modvat credit taken with regard to the inputs which were utilized for the manufacture of duty free goods, the manufacturer could avail of the Modvat credit as well as the full duty exemption under the applicable small-scale exemption with regard to the same specified goods. In this case also the Hon'ble Apex Court decision in the case of Chandrapur Magnet Wires (P) Ltd. (surpa) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rissa Extrusions Ltd. v. CCE, Bhubaneswar reported in 1996 (83) E.L.T. 308 and the judgment of the Hon'ble Apex Court in the case of Chandrapur Magnet Wires (P) Ltd. v. CCE reported in 1996 (81) E.L.T. 3 (S.C.). We find from the judgment of the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires (supra) that the Hon'ble Apex Court held that reversal of Modvat credit is permissible to avail exemption. This judgment of the Hon'ble Apex Court has been followed in various judgments cited by the appellants and which are noted above. But we find that the Hon'ble Apex Court while delivering the above judgment has reproduced a circular issued by the Ministry of Finance, in Para 6 of the judgment. According to the circular, credit of duty taken is to be debited in the account, before removal of such exempted goods. Further in Para 7 of the said judgment also, the Hon'ble Apex Court has held as under : "In view of the aforesaid clarification by the department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product." Therefore, the issue with regard to making a debit entry in the credit account before removal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacture of dutiable goods as should have been done. The contention of the department that in this situation, the assessee was not entitled to reverse the entries and get the benefit of the exemption is a question which merited serious consideration and the Hon'ble Apex Court noted that there was no doubt that the assessee should have maintained separate account for the duty free goods and the goods on which duty had to be paid. Therefore, attention of the Apex Court was drawn to the departmental circular letter on this problem in which it has been clarified by the Ministry of Finance that credit account under Modvat Rules is not available if final products are exempt or chargeable to nil rate of duty. However, where the manufacturer produces along with dutiable final products, which would be exempt from duty by a notification, (e.g. an end-use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all the inputs used in the manufacturer of final product provided that credit of duty on the inputs used in such exempted products is debited in the credit account before removal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture of enamelled copper winding wires from duty paid copper wire bars. The enamelled copper winding wires were either cleared at nil rate of duty, or on payment of appropriate duty under Notification No. 69/86-C.E., dated 10-2-1986 as amended. The inputs which were utilised in the manufacture of enamelled copper winding wires were duty paid and the amount of duty paid on the inputs had been entered by the appellants to their credit in the ledger, which they were required to maintain under the Central Excise Rules, 1944. The appellants however reversed the credit entries of duty paid of inputs which were utilised for manufacture of the duty free enamelled copper winding wires. After making a reference to the departmental circular, the Hon'ble Supreme Court observed that they saw no reason why the assessee could not make a debit entry in the credit account before removal of the exempted final products. The Hon'ble Supreme Court held that after such reversal, the claim for exemption of duty on the disputed goods could not be denied on the plea on the inputs used in the manufacture of exempted goods. Paras 6 and 7 from that decision are extracted below :- "6. It is true that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods." All the judgments which were cited by the appellants had also referred to the Supreme Court judgment in the case of Chandrapur Magnet Wires (supra) and that judgment was rendered by the Supreme Court after taking note of the circular letter issued by the Ministry of Finance in which it was very categorically stated that the said Modvat credit if reversed before clearance of the exempted final product, then the assessees are entitled to avail the benefit of the exemption contained in the notification. Therefore, we are of the considered opinion that reversal of the credit before clearance of the goods is sine qua non, for availing the benefit of the exemption, in accordance with the judgment of the Hon'ble Supreme Court wherein the Apex Court held that "In view of the aforesaid clarification by the Department, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of reversal of credit and permissibility thereof came up for decision before the Supreme Court in Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur. [Since reported in 1996 (81) E.L.T. 3 (S.C.)]. The relevant exemption Notification that was considered in the said case also contained a similar provision that the exemption from payment of the whole of duty was subject to the condition that no credit of duty paid on the specified goods used in their manufacture had been taken under Rule 57A of the Rules. In that case the appellants had themselves reversed the credit of the duty paid on inputs utilised for manufacture of duty free goods. This was objected to by the department stating that reversal of credit entries are not permitted by the Rules. They sought to deny the exemption itself. However, the Supreme Court took note of a circular issued. The circular indicated that credit account under Modvat Rules may be maintained chapterwise and credit is not available if the final products are exempt or are chargeable to nil rate of duty. Where a manufacturer produces dutiable final products and final products are covered by exemption notification and in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent into two streams of clearance i.e. on payment of duty and under exemption Notification No. 202/88. It is not disputed that at the time when the inputs were received it could not be known that as to which of the components of the inputs would go into the tubes to be cleared on payment of duty and which component of the inputs would go into the tubes which was to be cleared under exemption Notification No. 202/88. It is only after the tubes had been manufactured depending upon the need for particular clearance that the tubes came to be cleared either on payment of duty or under the exemption Notification 202/88. The appellants resorted to reversal of the Modvat credit attributable to the inputs contained in the tubes cleared under the exemption notification on a monthly basis. The question is whether by reason of this reversal, the appellants can be taken to have fulfilled the requirements of the Notification 202/88." 9. The ld. advocate for the appellants has relied on the benefit of the decision of the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd cited supra. In that case, after taking note of the problem that was posed before the Bench as in Para 4 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end-use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products." This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same is not repeated. 12. On a careful consideration of the submissions, I notice from the remand order in this case as extracted, the Tribunal gave a very clear finding that benefit of notification is required to be extended and would be allowable. The Tribunal cannot go back on the findings recorded and give a different finding. Therefore, respectfully following the earlier order of the Tribunal, I hold that benefit of notification is required to be extended as already held by the Bench. Further, I notice that ratio of Franco Italian Co. Pvt. Ltd. v. CCE, Mumbai, 2000 (120) E.L.T. 792, Amco Batteries Ltd., Kitply Industries Ltd. v. CC, 2001 (130) E.L.T. 236 and that of Wearwell Tyre Tubes Pvt. Ltd. by Final Order No. 424/97-D, dated 10-6-97 [2004 (165) E.L.T. 409 (Tribunal)] clearly applies to the facts of the case and there is no need to take a different view or to distinguish the Apex Court judgment rendered in Chandrapur Magnet Wires (supra). In that view of the matter, the impugned order is set aside and appeal allowed with consequential relief, if any, as per law. Sd/- (S.L. Peeran) Member (J) POINTS OF DIFFERENCE In view of difference of opinion between the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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