Tvs Electronics vs Commissioner Of Central Excise

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH CHENNAI

Appeal No.E/131/2006

[Arising out of Order-in-Appeal No.38/2005 (M-IV) dt. 6.12.2005 passed by the Commissioner of Central Excise (Appeals), Chennai]

TVS Electronics Appellant

Versus

Commissioner of Central Excise, Chennai Respondent

Appearance:

Shri Raghava Ramabadran, Advocate Shri Sai Prasanth, Advocate For the Appellant

Ms. Indira Sisupal, AC (AR) For the Respondent

CORAM :

Honble Shri R. Periasami, Technical Member

Date of Hearing/Decision : 18.3.2015

FINAL ORDER No.40551/2015

The present appeal is against the Order-in-Appeal dt. 6.12.2005.

2. The brief facts of the case are that appellants are manufacturers of Retail Computer Systems, DOT Matrix Printers falling under Chapter Heading 84 & 85 and registered with Central Excise and discharging appropriate Central Excise duty and also availing cenvat credit on the inputs. The appellants had taken credit on inputs used in the manufacture of Retail Computer system when the same were chargeable to excise duty. Subsequently, the computers were exempted from excise duty vide Notification No.23/2004-CE dt. 9.7.2004. The appellant also availed the said exemption benefit on the said final product. However, on the date of exemption, appellant had certain inputs lying in stock on which the credit was taken much before the date of exemption. The period of dispute involved in the appeal is September 2003 to August 2004. A show cause notice dt. 28.2.2055 was issued to the appellant seeking to reverse Rs.24,34,299/- availed on the said inputs with interest thereon and penalty under Rule 25 of CER 2002. The adjudicating authority in his OIO No.12/2005 dt. 26.5.2005 ordered reversal of credit of Rs.24,34,299/- availed on the said inputs lying in stock on the date when computers became exempted. The appellate authority also confirmed the demand and waived the penalty of Rs.10,000/-.

3. Heard both sides.

4. Ld. advocate for the appellant submits that they were discharging excise duty on the computers as they are dutiable and rightly taken cenvat credit on the inputs during the relevant period. They have not availed any credit on the inputs received after the date of exemption i.e. 9.7.2004 and the entire credit involved in the present case was availed before 9.7.2004. He further submits that there is no provisions in CER/CCR for recovery/reversal of credit already taken on the inputs when the final product became exempted subsequently. Sub rule (3) of Rule 11 of CCR was inserted only w.e.f. 1.3.2007 where specific provisions was made in the Rules where the manufacturers are required to pay an amount equivalent to the cenvat credit taken in respect of inputs received for use in the manufacture of the final product which is lying in stock, if the final products are exempted absolutely. This amendment cannot be applied retrospectively to their case as the period was prior to date of exemption. He further submits that Hon'ble High Court of Madras order is binding on the Tribunal whereas the lower authorities not taken into consideration. He relied on the following case laws :-

1) Tractor and Farm Equipment Ltd. Vs CCE 2014-TIOL-2307-HC-MAD-CX

2) CCE Panchkula Vs HMT (TD) Ltd.

2010-TIOL-316-HC-P&H-CX

3) CCE Vs TAFE Ltd.

2011 (268) ELT 49 (Kar.)

4) CCE Vs TAFE Ltd.

Supreme Court Order dt.16.9.2011 in SLP No.14763/2011

5) Commissioner Vs Ashok Iron & Steel Fabricators 2003 (156) ELT A212 (SC)

6) CCE Chandigarh Vs Kashmir Conductors 1997 (96) ELT 257 (T)

7) Madura Coats Vs CCE 1996 (82) ELT 512 (T) 4.1 He further placed reliance on the Hon'ble Supreme Court judgment in the case of Dai Ichi Karkaria  1999 (112) ELT 353 (SC) wherein the Apex Court while dealing with the Central Excise Rules, 1944 held that there is no provision for reversal of credit except where credit is taken illegally or irregularly.

4.2. He submits that case law relied upon by Commissioner (Appeals) in the impugned order in the case of Albert David Ltd. Vs CCE [2003 (151) ELT 443 (T) as affirmed by the Apex Court [2003 (157 ELT A81(SC)] was clearly distinguished by the Hon'ble Madras High Court in their subsequent case in the case of Tractor and Farm Equipment Ltd. Vs CCE [2014-TIOL-2307-HC-MAD-CX] and same is not applicable to the facts of this case.

4.3 Ld. Advocate further submits that under CCR there is no one-to-one correlation. Any inputs can be kept in stock and the same will be used in the manufacture of final product over period of time whereas the input credit thereon can be utilized upfront in its entirety. Under these circumstances, any denial of credit on the input stock being held or work-in-progress or the finished goods lying in stock is against this principle and is thus not maintainable. In view of above, he prayed for setting the order and allowing the appeal with consequential relief.

5. On the other hand, Ld. AR reiterates the findings in the impugned order. He relied on the following decisions :-

1) Khanbhai Esoofbhai Vs CCE 1999 (107) ELT 557 (T)

2) Brook Bond Lipton India Ltd. Vs C.E.R 2012 (283) ELT 336 (All.)

4) Albert David Ltd. Vs Commissioner 2003 (157) ELT A81 (SC)

5) Explicit Trading & Marketing (P) Ltd. Vs Commissioner 2009 (240) ELT A16 (SC)

6) CCE Vs Annapoorna Re-rolling (P) Ltd.

Tribunal's Final order No.1021/2011 dt. 18.8.2011.

The AR representing Revenue reiterated the order.

6. I have carefully considered the submissions of both sides. The short issue in the present case relates to whether the disallowance of cenvat credit taken on the inputs lying in stock when the Retail Computer System became exempted by Notfn No.23/2004 dt. 9.7.2004 is correct or otherwise.

7. There is no dispute on the fact that appellants are engaged in manufacture of Retail Computer System falling under Chapter heading 8471 of Central Excise Tariff Act and discharging appropriate excise duty regularly and availing cenvat credit on the inputs used in the manufacture of said final products. The computers were exempted from excise duty vide Notfn 23/2004-CE dt. 9.7.2004. Both adjudicating authority and LAA denied the credit and confirmed the recovery of credit on inputs lying in stock as on 9.7.2004 on the ground no excise duty is payable on computer and the appellants are not eligible for availing credit on the inputs in stock as on the date of exemption and relied the Tribunal's decision in the case of Albert David Ltd. (supra).

8. As rightly contended by the appellant, during the relevant period there is no specific provision in CCR for recovery of cenvat credit on the inputs lying in stock when the final product became exempted fully. Only from 1.3.2007 a specific sub-rule (3) of Rule 11 of CCR was inserted making specific provision where a manufacture is required to pay amount equal to the cenvat credit taken on inputs lying in stock if the final product became fully exempted. The Revenue relied on Tribunal's decisions in the case of Albert David Ltd. Vs CCE (supra) and Explicit Trading & Marketing (P) Ltd. Vs Commissioner (supra). Both the decisions were upheld by Supreme Court. I am fully aware of the fact that this Tribunal Bench also upheld the reversal of credit in the case of CCE Vs M/s.Annapoorna Re-rolling Mills (P) Ltd. (supra) by relying above decisions.

9. However, it is relevant to see that the Hon'ble High Court of Madras in the case of Tractor and Farm Equipment Ltd. Vs CCE (supra) on identical issue examined the case in detail and distinguished the decisions of both M/s.Albert David Ltd. and M/s.Super Cassettes Industries Ltd. (supra) and held in favour of the appellant. The relevant paragraphs of High Court order is reproduced as under :-

"14. In the instant case, assuming for the moment that the credit is available, it can be used for payment of duty on any other excisable articles and not exempted goods. In such view of the matter, we are not agreeable with the view taken by the Allahabad High Court that it will amount to unjust enrichment. We also notice that the decision in Super Cassettes Industries Ltd case, referred supra, which has been relied upon by the Division Bench in Brook Bond Lipton India Ltd. Case, referred supra, did not find favour with the Supreme Court in Dai Ichi Karkaria Ltd. Case, referred supra. In such view of the matter, it has to be held that the view taken by the Allahabad High Court has not been accepted by the Supreme Court.

15. At this juncture, the Tribunal in Ashok Iron and Steel Fabricators case, referred supra as well as the decision of the Bangalore Bench of the Tribunal in the assessee's own case have emphasised over and over again on para (17) of the decision of in Dai Ichi Karkaria Ltd. Case, referred supra, which has very clearly set out the position as to how the credit taken on inputs should be utilized. To sum up, paragragh (17) of the Dai Ichi Karkaria Ltd. case, referred supra, which answers the present issue, is extracted hereunder:

"17. It is clear from these rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the rules which provides for a reversal of the credit by the Excise Authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilised, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no corelation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available."

(emphasis supplied)

16. Once it is held that no co-relation between the raw material and the final product is required, the appellant's plea stands answered. If credit can be taken against excise duty on a final product manufactured on the very day, it makes it abundantly clear that there need not be co-relation between the input and the goods cleared and as a result, validly taken credit need not be reversed. The Central Excise Rules would come into play in the following manner, that is to say, on the date when the final goods become exempt from payment of duty, for the inputs received on and after the said date, no credit can be taken. This would be the correct method of understanding of the position of law.

17. The introduction of Rule 11(3) of the Cenvat Credit Rules, 2004, by notification No.10/2007-CE (NT), dated 1.3.2007 and the Tax Research Unit Circular in D.O.F.No.334/1/2007-TRU, dated 28.2.2007 clarifying that it will come into effect immediately, makes it clear that the position of law as it stood decided in the assessee's own case by the Karnakata High Court, the appeal against which was dismissed by the Supreme Court, is the correct position. The Tribunal in this case erred in distinguishing the decision of the Bangalore Bench Tribunal placing reliance on Albert David Ltd. case, referred supra. In any event, Ashok Iron and Steel Fabricators case, referred supra, is a Larger Bench decision and the same has been upheld by the Supreme Court and that would be binding on the Tribunal, rather than the Two-Member Bench decision in Albert David Ltd. Case, referred supra.

For the foregoing reasons, we allow the appeal answering the substantial questions of law (1) to (4) in favour of the appellant and against the department. In such view of the matter, we do not propose to answer the substantial question of law (5) as the same is purely academic. No costs."

The ratio of the above Hon'ble High Court of Madras order is squarely applicable to the present case as the appellant availed the credit on inputs when the final product was dutiable and there was no one to one correlation and the final product was exempted vide Notfn 23/2004-CE dt. 9.7.2004 and the sub-rule (3) of Rule 11 of CCR came into effect from 1.3.2007 onwards and cannot be applied retrospectively.

10. It is pertinent to state that the above Hon'ble Madras High Court order is binding on this Tribunal. The Tribunal Larger Bench decision in the case of CCE Vs Kashmir Conductors (supra) and LB decision in the case of Madura Coats Vs CCE (supra) clearly held that jurisdictional High Court orders are binding on the Tribunal. Therefore respectfully following the above decision and the Hon'ble High Court of Madras decision referred above, I hold that the impugned order confirming the demand on credit already taken on inputs lying in stock when the finished goods i.e. computers became exempted on 9.7.2004 is liable to be set aside. Accordingly, I set aside the impugned order and allow the appeal of the appellants with consequential relief.

(Operative part of the order pronounced in open court on 18.3.2015)

(R. PERIASAMI) TECHNICAL MEMBER

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