John Deere (I) Pvt. Ltd vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI

COURT No. I

Appeal No. E/85524/13

(Arising out of Order-in-Original No. 26/P-III/COMMR/C.Ex/ 2012-13 dated 08.11.2012 passed by Commissioner of Central Excise, Pune III)

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

John Deere (I) Pvt. Ltd.

Appellant Vs.

Commissioner of Central Excise Mumbai Respondent

Appearance:

Shri S.A. Gundecha, Advocate for appellant Shri Ajay Kumar, Jt. Commr (AR) for respondent

CORAM:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing: 31.08.2015 Date of Decision: 31.08.2015

ORDER NO

Per: M.V. Ravindran

This appeal is directed against order-in-original 26/P-III/COMMR/C.Ex/2012-13 dated 08.11.2012.

2. The relevant facts that arise for consideration are appellant herein was a DTA unit and applied for conversion of DTA unit into EOU based upon LOP issued in November 2006 for manufacture of agricultural tractors, aggregates, components and parts thereof. Appellant was granted EOU status, accordingly they carried over the balance amount of CENVAT credit lying in their account in respect of inputs received for use in the manufacture of final products as DTA unit. Appellant utilized the amount of balance CENVAT credit for discharge of duty on the goods which are cleared to DTA from EOU. Revenue authorities were of the view that appellant having converted himself in an EOU cannot have carried forward the unutilized CENVAT credit. Coming to such a conclusion a show-cause notice was issued demanding reversal of such CENVAT credit as also the amount unutilized for discharging the duty liability, interest thereof and proposing for imposition of penalties. Appellant contested the show-cause notice on merit. Adjudicating authority after following due process of law, confirmed the demands with interest and also imposed equivalent amount of penalty.

3. Learned Counsel would draw our attention to the findings recorded by the adjudicating authority and also take us through the entire case records. It is his submission that the unutilized CENVAT credit which was carried forward to EOU is sought to be demanded as lapsed as per the provisions of Rule 11 of the Cenvat Credit Rules, 2004 and CBEC Circular No. 77/1999 was also pressed into service. He would take us through the entire Rule 11 of the Cenvat Credit Rules, 2004 as also the Section 5A of the Central Excise Act, 1944. He would submit that the findings of the lower authorities are totally mis-directed in as much appellant had exported the tractors and parts thereof while clearances to DTA from EOU were chargeable to Central Excise duty and during the period in question, CENVAT credit was allowed on the goods which were brought into EOU. He would read the Notification No. 24/2003-C.E. and also submit that the final products cleared from the appellants factory are liable for duty when cleared to DTA hence CENVAT credit carried forward cannot be lapsed.

4. Learned D.R. on the other hand, would draw our attention to Notification No. 24/2003 and submit that the said Notification exempts all the excisable products produced or manufactured in an export oriented undertaking from whole of excise duty eligible thereon. He would read the judgement of the Tribunal in the case of Indira Gandhi Mahila Sahakari Soot Girni Ltd.  2012 (278) ELT 616 (Tri.  Mum) and submit that in the said case, the Bench had held that conversion from EOU to DTA, Modvat scheme is not applicable and the credit lying in balance is to lapse. He would also take us through the findings recorded by the adjudicating authority and submit that the products manufactured by the appellant were exempted.

5. We have considered the submissions made at length by both the sides and perused the records.

6. On perusal of the records, we find that the issue involved in this case is regarding the application of Rule 11 of the Cenvat Credit Rules, 2004 for refusing the unutilized CENVAT credit carried forward when appellant converted themselves from DTA to EOU.

6.1 It is undisputed that the appellant had converted themselves into an EOU; the final products manufactured in EOU were exported; few of the final products were cleared to DTA on which Central Excise duty was liable to be discharged and to discharge such Central Excise duty, appellant used the carried forward CENVAT credit into DTA.

6.2 On this factual matrix, we analyse the provisions of Rule 11(3) of Cenvat Credit Rules, 2004 which reads as under.

Sub-rule (3) of Rule 11 :

(3)?manufacturer or producer of a final product shall be required to pay an amount equivalent to the Cenvat credit, if any, taken by him in respect of inputs received for use in the manufacture of the said final product and is lying in stock or in process or is contained in the final product lying in stock, if, -

(i)?he opts for exemption from whole of the duty of excise leviable on the said final product manufactured or produced by him under a notification issued under Section 5A of the Act; or

(ii)?the said final product has been exempted absolutely under Section 5A of the Act, and after deducting the said amount from the balance of Cenvat credit, if any, lying in his credit, the balance, if any, still remaining shall lapse and shall not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export, or for payment of service tax on any output service, whether provided in India or exported.

6.3 It can be seen from the above reproduced sub-rule that it will apply only in the situation where final products are exempted. Undisputed fact is that the final products manufactured by appellant in EOU and cleared for export are not dutiable, but the very same final products when cleared into DTA becomes dutiable hence the provisions of Section 5A of the Central Excise Act, 1944 which are sought to be applied by the adjudicating authority and the learned D.R., will not apply as the said provision of Section 5A are in respect of the goods which are fully exempted from payment of duty. Holistic reading of the provisions of Rule 11(3) would indicate that it will apply only in the case when final products are totally exempted. This view has been held by this Tribunal in final order No. A/2996/15 dated 08.09.2015 in the appellants own case. Relevant paragraphs are reproduced herein below.

6.3 It can be seen from bare perusal of the said sub-rule the same will apply only in a situation where final products are exempted and lying in stock. In our considered view the above sub-rule may not be applicable in the facts of this case which is not disputed that there is a discharge of Central Excise duty liability on the other finished products manufactured and cleared like aggregates, components & parts of tractors. The above said view, is fortified by the judgement of the Tribunal in the case of Shree Baba (supra) wherein after extracting sub-rule 3 of Rule 11 of the Cenvat Credit Rules, the Bench recorded as under:-

7.1?From a perusal of this sub-rule, it is clear that this sub-rule would be applicable if the some Cenvat credit availed inputs are being used for manufacture of a final product and that final product has become fully exempt from duty. In such a situation, the assessee would be liable to pay an amount equal to the Cenvat credit involved in respect of the inputs lying in stock or in process, or contained in the final products lying in stock on the date of exemption, and after deducting this amount from the Cenvat credit balance, if any, as on the date of exemption, if any Cenvat credit balance still remains, it shall lapse and the same shall not be allowed to be utilized for payment of duty on any goods whether cleared for home consumption or for export. In our view, this sub-rule would not apply when out of common Cenvat credit availed inputs, more than one final products are manufactured and while some final products have become exempt, others have remained dutiable. Since in terms of sub-rule (4) of Rule 3 of the Rules, the Cenvat credit may be utilized for payment of any duty of excise on any final product, if out of the same Cenvat credit availed inputs, more than one final product are manufactured and out of those final products, one final product has become fully exempt from duty, the Cenvat credit can be utilized for payment of duty on the other final products, which are dutiable and as such, the manufacturers right to utilize the Cenvat credit for payment of duty on the final products which are still dutiable cannot be taken away just because out of several final products, one final product has become exempt from duty. We, therefore, hold that the Revenues interpretation of Rule 11(3) is not correct.

6.4 In our view, the ratio as reproduced above would be squarely applicable in the case in hand. Reliance placed by the learned D.R. in the case of Bajaj Foods Ltd. (supra) will not carry the Revenues case any further in as much the said Bajaj Foods Ltd. Case, the factual findings are that the goods manufactured by the appellant therein when he converted to DTA were fully exempted from payment of duty and the reliance placed on the decision of Jt. Secretary, Department of Revenue in the case of Technocraft Industries (India) Ltd. (supra) also may not be applicable as in that case the issue was not the applicability of sub-rule 3 of Rule 11 of Cenvat Credit Rules.

6.5 In view of the foregoing and authoritative judicial pronouncement, we find that the impugned order is unsustainable and liable to be set aside and we do so.

6.4 In the case which cited herein above the issue was lapsing of CENVAT credit when the appellants unit converted itself from EOU to DTA. The facts and circumstances being similar, following the order of the Bench, we find the impugned order is unsustainable and liable to be set aside and we do so.

7. Impugned order is set aside and the appeal is allowed.

(Dictated in Court)

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

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1 8 Appeal No. E/85524/13