Mewar Polytex Ltd vs Union Of India & Ors

has resorted to technicalities in order to avail the

aforementioned double benefit. The essence of the argument

led by the Revenue is that the Modvat credit availed relates

8 to the same inputs which were used in the manufacture of

exported goods under AR4. Since the assessee had exported

the goods under AR4, claiming that no excise duty was

payable on the exported goods, it was contended by the

Revenue that no Modvat credit could be claimed in line with

the provisions of Rule 57A.

14.In sum and substance, we are faced with a claim of the

assessee that, in order to meet the exigency of the export

order, the assessee used indigenous inputs for the

manufacture of the export goods. Subsequently, when the

`replenishment' arrived in the form of imported goods, the

assessee availed the drawback duty for the same. However,

the question to note is whether there were two separate

duties that arose, for the assessee to claim credit on both,

or if the entire process is to be considered as a single cycle,

which culminated in the export of goods under the Advance

Licensing Scheme?

15.The statutory position regarding the specified benefits is

postulated in Rule 57A of the Rules.

9

"Rule 57A. Applicability.-(1) The provisions of this section shall apply to such finished excisable goods (hereafter, in this section, referred to as the final products) as the Central Government may, by notification in the Official Gazette, specify in this behalf for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification hereafter, in this section, referred to as the specified duty) paid on the goods used the manufacture of the said final products (hereafter, in this section, referred to as the inputs)

2) The credit of specified duty allowed under sub-rule (1) shall be utilised towards payment of duty of excise leviable the final products, whether under the Act or under any other Act, as may be specified in the notification issued under sub-rule (1) and subject to the provisions this section and the conditions and restrictions, if any, specified in the said notification."

A literal reading of the aforestated provision makes it amply

clear that an entitlement to Modvat credit will arise only if

excise duty is incident upon the final product. The final

product in this instance refers to the finished goods (PP

fabrics) that were exported under the Advance Licensing

Scheme without any payment of duty. Therefore, the attempt

of the assessee to justify its availing of Modvat credit is

seriously undermined by the provisions in Rule 57A.

10

16. Subsequently, it is to be seen whether the claiming of

Modvat credit after filing the declarations in Form AR4

would entitle the assessee to Modvat credit on the

indigenous inputs. The declarations filed under AR4s

entitled the assessee to import inputs on payment of the

CVD, which subsequently was permitted to be drawn back.

Therefore, the assessee had utilized the specified

mechanism to avail of a benefit on the imported inputs,

while availing of Modvat credit on the indigenous raw

material used in the manufacture of the same, exported

goods. In effect, the assessee has not only availed of Modvat

credit on the indigenous input, but also drew back

countervailing duty paid on imported inputs that were mere

stock replenishments, which amounts to a double benefit.

That the Modvat credit was technically claimed only

subsequent to the filing of AR4 declarations, although the

indigenous goods were used in the manufacturing process

apriori does not also reflect well on the intention of the

assessee. The assessee has merely resorted to the

technicality of claiming Modvat credit subsequent to the

AR4 declarations, thereby entitling it to drawback.

11 Subsequently, the Modvat credit has been availed on the

very same indigenous goods, which shows that the claim of

the assessee to be legitimately entitled to two separate

duties is but a fagade.

17.There can be no question of separate duties arising in this

case since the issue concerns the manufacture and export

of one and the same goods. The imported inputs were

primarily stock replenishments that were used in the

execution of other orders, and allowing the assessee to

claim Modvat credit on the indigenous input would

tantamount to giving a benefit twice for the same process

that began with the manufacture and culminated in the

export of the specified goods. The assessee cannot be held

to be not entitled to claiming Modvat credit on finished

goods where duty is not incident. Any attempt to avail it

subsequently, casts serious aspersions on the bonafide

intention of the assessee. The argument of the assessee that

action had to be taken under the Duties Drawback Rules,

1971 and not through reversal of credit does not bear merit.

The reversal of credit is meant to deny the assessee of a

12 benefit that they would have otherwise enjoyed without

justification. The drawback equivalent to CVD is legitimately

permissible vide the process of AR4 declarations and thus,

it is the benefit that is enjoyed without justifiable basis that

has to be reversed.

18.In light of the aforesaid facts and circumstances, we find

that the contentions of the assessee are without merit. We

dismiss the appeal filed by the assessee, but leave the

parties to bear their own costs.

......................................J. [Dr. Mukundakam Sharma]

.......................................J. [Anil R. Dave] New Delhi December 9, 2010.

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