M/S Mahindra & Mahindra Ltd vs Commissioner Of Central Excise, ...

(Arising out of Order-in-Appeal No. VSK/14 to 15/MV/2010 dated 5.2.2010 passed by the Commissioner of Central Excise (Appeals), Mumbai-V).

For approval and signature:

Honble Shri Anil Choudhary, Member (Judicial)

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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 : Yes 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? ======================================================

M/s Mahindra & Mahindra Ltd. Appellant

Vs.

Commissioner of Central Excise, Mumbai-V Respondent

Appearance: Shri Ravi L. Ramanan, Sr. GM for Appellant

Shri Sanjay Hasija, Supdt. (AR) for Respondent

CORAM: SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL)

Date of Hearing: 04.08.2015

Date of Decision: 04.08.2015

ORDER NO.

Per: Shri Anil Choudhary

The appellant assessee is in appeal against Order-in-Appeal No. VSK/14 to 15/MV/2010 dated 5.2.2010 passed by the Commissioner of Central Excise (Appeals), Mumbai-V.

2. The brief facts are that the appellants are manufacturer of tractors which were exempted from Basic Excise Duty in terms of Notification No. 6/2002-CE as amended by Notification No. 23/2004-CE dated 8.7.2004. The appellants were however required to discharge Industrial Cess and Education Cess on such tractors at the time of their clearance from their factory premises. The appellants also manufacture IC Engine, transmission assemblies and other parts of tractors on which Excise Duty @ 16% ad valorem and Education Cess @ 2% was paid, The appellant availed credit of the duty paid on common inputs which were used in the manufacture of the aforesaid products. They paid 10% of the sale price of tractors at the time of their clearance from their factory premises, as stipulated under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 at the time of removal of tractors for testing. After testing the said tractors were brought back into their factory and receipt of the said tractor was reported to their jurisdictional Range Superintendent. These tractors were subsequently exported under Bond. Thereafter, the appellants filed refund claims of Rs.63,050/- and Rs.79,413/- respectively (the duty paid at the time of clearance in DTA for testing). The original adjudicating authority rejected the refund claims on the grounds that the appellants were not eligible for availing CENVAT Credit for inputs used in the final product in terms of Rule 6(1) of the Cenvat Credit Rules. Therefore, the provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2004 would not apply.

2.1 Being aggrieved, the appellant have preferred the appeal before the Commissioner (Appeals), who was pleased to reject the appeal observing as follows: -

I find from the facts of the case that tractors are exempted under Notification No. 23/2004-CE dated 8.7.2004 and further inputs captively consumed in the manufacture of tractors were also exempted vide Notification No. 23/2004. It was explained during the oral submissions that the tractor manufacture takes place in two stages, first inputs are used in the manufacture of aggregates like IC engines and transmission assembly and these inputs are further captively consumed in the manufacture of tractors. As the aggregates are parts of tractors these were exempted when captively consumed in the manufacture of the final product. Therefore, I am of the view that provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2004 would not be applicable in this case and CENVAT Credit was not available on inputs used in the manufacture of tractors as both the tractors and aggregates for tractors were exempted; provisions of Rule 6(1) of the Cenvat Credit Rules would be attracted. Therefore, there was no necessity for the appellants to reverse CENVAT Credit equivalent to 10% of the price of tractors when the tractors were cleared for testing, as provisions of Rule 6(3)(b) of Cenvat Credit Rules were not applicable in this case. The tractors in this case could have been cleared under nil duty Challan or for job work under challan issued in terms of Rule 4(5)(a) of the said Cenvat Credit Rules and the tractors brought back to the factory; the expression job work was broad enough to cover testing activities. The reversal of CENVAT Credit was not warranted on tractors cleared for testing, as credit was not available on inputs used in tractors in terms of Rule 6(1) of the Cenvat Credit Rules. Therefore, question of cash refund would not arise.

2.2 Being aggrieved, the appellant is before this Tribunal.

3. Heard Mr. Ravi L. Ramanan, Sr. GM of the appellant and Mr. Sanjay Hasija, Supdt. (AR) for the Revenue.

4. Mr. Ramanan explained that the appellant was manufacturing both taxable and tax-free products. Some common inputs are utilized both in production of the exempted product and taxable products. The appellant also received some duty paid inputs which are exclusively used in the manufacture of exempted products. The appellant has taken CENVAT Credit of the inputs required under Rule 6(3) were common inputs used in manufacturing of both exempted and taxable output and no separate account is maintained for the inputs. Accordingly, as required the appellant cleared two tractors for the purpose of testing by paying 10% of the assessable value by way of reversal of CENVAT Credit. These tractors were after the test brought back to the factory under proper intimation to the Revenue in Form  D3. Thereafter, the two tractors were cleared for export under Bond. As the appellant had cleared the tractors for export under Bond and under Rule 6(6)(v) of the Cenvat Credit Rules, neither any duty is payable nor the sub-rule (i), (ii), (iii) & (iv) are applicable. Accordingly, the amount of 10% paid earlier was claimed as refund, as the same was not legally payable due to the fact of export.

The appellant also relied on the Division Bench ruling of this Tribunal in the case of Escort Ltd.  2004 (171) ELT 817 wherein the assessee has manufactured both the dutiable and exempted varities of tractors by using input on which Modvat credit was taken and paid 8% of the value of exempted tractors at the time of clearance on the ground that they were taking Modvat credit in respect of engines used in the exempted tractors also. The Excise authority have demanded the return of the credit taken on the engines used in the exempted tractor on the ground that Modvat credit was not available in respect of inputs used in production of exempted goods. This Tribunal held that denial of Modvat credit as well as levy of 8% on the finished exempted product is not permissible under law. As the assessee has paid 8% of the price of exempted goods at the time of clearance, accordingly, Revenue cannot demand the reversal of Modvat credit. The said ruling has also been followed in the case of Hetero Labs Ltd. Vs. Commissioner of Central Excise, Hyderabad  2005 (192) ELT 716 (Tri-Bang), wherein the question before the Tribunal was whether the appellant can avail Modvat credit when they have already paid 8% of the price in terms of the then Rule 57CC(1) on the exempted final product, it was held that CENVAT Credit could not be denied on exempted goods.

5. The learned AR relies on the finding in the impugned order and also states that this Tribunal in the case of Jolly Board Ltd. Vs. Commissioner of Central Excise, Aurangabad  2015 (321) ELT 502 (Tri-Mum) in the matter of refund claim under Notification No. 5/2006 where the appellant availed input credit on payment of duty which was utilized in manufacturing of exempted goods, which were exported, it was held that taxes are not to be exported as per the Governments policy and refund of input duty credit is not allowed, the goods made in India will become uncompetitive in international market and in spite of delay or lapse in execution of Bond/LUT, refund could not be denied. It was pointed out that Hon'ble High Court vide their order dated 20.6.2014 have granted stay of the order of the Tribunal in view of the pendency of the similar issue before the Hon'ble Supreme Court.

6. Having considered the rival contentions, I find that the issue in the case of Jolly Board Ltd. (supra) is different than the issue in the present appeal. Further, I find that the learned Commissioner (Appeals) has admitted that no tax was payable when the tractor was cleared in the DTA for testing purpose and the same could have been done by adopting the process of Rule 4(5)(a) of the Cenvat Credit Rules. Accordingly, even when the tax is paid under mistake by way of reversal of CENVAT Credit, the same becomes refundable on the subsequent export of the goods by the assessee. Hence, in view of the fact that the same tractors were admittedly brought back in the factory of the appellant and after testing etc. were cleared for export under Bond and by virtue of Rule 6(6)(v) of Cenvat Credit Rules the provisions of sub-rule (i), (ii), (iii) & (iv) of Rule 6 are inapplicable. Accordingly, the amounted deposited become refundable. Thus, the appeal is allowed with consequential benefit. The impugned order is set aside. I further direct the adjudicating authority to disburse the refund within a period of 60 days from the receipt of a copy of this order with interest as per Rules.

(Dictated and pronounced in Court)

(Anil Choudhary) Member (Judicial)

Sinha

2 Appeal No. E/1066 & 1067/10