2004 (97) ECC 384 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

South Zonal Bench -- Chennai

Shri S.L. Peeran, Member (J) and Shri Jeet Ram Kait, Member (T)

Parle Soft Drinks (P) Ltd.

Versus

CCE, Chennai

Appeal No. E/33/2003/Md

[Arising out of Order-in-Appeal No. 161/2002 (M-II) dated 7.11.2002 passed by the Commissioner of Central Excise (Appeals) Chennai]

Final Order No. 461/2004, dt. 8.6.2004 , Certified on 14.6.2004

Modvat Credit

100% EUO selling goods in the DTA -- Customers becomes entitled to take modvat credit to the extent of modvat credit as determined by the restrictions imposed vide first proviso to Notification No. 5/94-CE dt. 1.3.94 r/w explanation (2) to Rule 57AB(1) according to Section 3 of Customs Tariff Act, 1975.

Appeal Allowed.

PRESENT :

Shri G. Seetharaman, Con. for the appellant.

Smt. Bhagyadevi, SDR for the respondent.

Cases Cited :

1. CCE v. M/s. Dhiren Chemical Industries, 2002 (79) ECC 1 (SC)......................... [Para 4]

2. Commissioner of Central Excise, Meerut v. Weston Electronics Ltd., 1997 (95) ELT 624 [Para 5.1]

3. Innovative Tech Pack Ltd. v. CCE, New Delhi-III, 2000 (122) ELT 94............ [Paras 3, 6]

4. Kundalia Industries v. CCE, Delhi, 2001 (127) ELT 151..................................... [Para 6]

5. Vikram Ispat v. CCE Mumbai-III, 2000 (120) ELT 800 (Tri-LB) (followed)...... [Para 3, 5.1]

Per : JEET RAM KAIT (Oral)

By this appeal M/s Soft Drinks (P) Ltd. the appellants herein challenge the Order-in-Appeal No. 161/2002 (M-II) dated 7/8 November 2002 passed by the Commissioner of Central Excise (Appeals), Chennai whereby the Commissioner has upheld the order passed by the original authority and rejected the appeal filed by the appellants before him.

2. Brief facts of the case are that the appellants are engaged in the manufacture of mineral waters with brand name "Bisleri" falling under Chapter heading 2201.19 of the CETA, 1985. They were availing Cenvat Credit on their inputs and capital goods under Rule 57AA and Rule 57AB of the CER, 1944. They have taken credit on the input "preform and polyester chips" falling under Chapter heading 3926.90 and 3907.60 respectively received from their suppliers viz. M/s Futura Polymers Ltd. Manali, Chennai, which is a 100% EOU. The supplier was clearing the goods to the appellants under DTA sales in terms of Notification No. 2/95 by paying 50% of each of duties of Customs payable on the goods cleared and the appellants in turn availed the credit of duty corresponding to the additional duty of Customs (being restricted to 50% in terms of the said Notification). However vide their letter dated 5.1.2001 they have stated that they have taken Rs. 10,64,588 and Rs. 23,868 on 12.1.2001 in their Cenvat account being the differential credit to the extent of balance of 50% of CVD payable on the goods received by them from 100% EOU. It was in these circumstances that show cause No. 176/2001 dated 20.7.2001 was issued to the appellants alleging that inasmuch as the appellants are eligible to take credit on the invoices raised by an 100% EOU to the extent of the additional duties of Customs paid by the said unit under Section 3 of the Customs Tariff Act, 1975 on the goods cleared to the assessee, they are not entitled to take the differential credit and the total credit of Rs. 10,76,522 so availed is liable to be demanded from the assessee and the show cause notice culminated in the order of adjudication passed by the Deputy Commissioner by which he has disallowed the credit of Rs. 10,76,522 under Rule 57AH of CE Rules, 1944 and ordered recovery of the same. The appellants preferred appeal against the said order before the Commissioner (Appeals), who upheld the Order-in-Original and rejected the appeal, hence this appeal.

3. Shri G. Seetharaman, learned Consultant appearing for the appellants at the outset submitted that the issue in the present case is covered by the judgment of the Larger Bench of the Tribunal in the case of Vikram Ispat v. CCE, Mumbai-III, 2000 (120) ELT 800 (Tri-LB) and also in the case of Innovative Tech Pack Ltd. v. CCE, New Delhi, 2000 (122) ELT 94 which has referred to the decision in the case of Vikram Ispat. He has particularly referred to paras 16 and 17 of the judgment of the Tribunal in the case of Vikram Ispat (supra). He submitted that the authorities below misinterpreted the statutory provisions for availing Cenvat Credit in disregard of the observations of the Tribunal and have chosen to disallow the differential credit. He submitted that according to sub-rule (2) of Rule 57AB of the CE Rules, 1944 as it stood at the relevant time, credit of duty in respect of inputs or capital goods by a 100% EOU shall be restricted to the extent which is equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975 paid on such goods. He further submitted that the lower appellate authority under a mistaken notion that additional duty under Section 3 of the CTA, 1975 "paid" on the inputs only is admissible, has rejected the appeal. He submitted that this finding of the lower appellate authority is not correct in view of the rulings rendered by the Larger Bench of the Tribunal as noted above. He therefore, submitted that the appellants are entitled to the benefit of differential credit and prayed for allowing the appeal.

4. Smt Bhagyadevi, learned SDR appearing on behalf of the Revenue defended the impugned order and submitted that the learned Commissioner (Appeals) has recorded a well reasoned finding in para 5 of the impugned order.

She has also invited our attention to the comments received from the Commissionerate vide letter C No. V/2/302/03 CEGAT CELL dated 23.6.2003, a copy of which has been filed in the paper case file. It is stated in the comments that of Notification No. 2/95 dated 4.1.95 provides for exemption of duty of excise in excess of 50% of each of the duties of customs leviable and accordingly the duties were paid by the supplier of the goods viz. M/s Futura Polymers Ltd. and the appellants in turn availed the credit of duty corresponding to the additional duty of Customs being restricted to 50% in terms of the said Notification. However, subsequently the appellants have taken the differential credit to the extent of balance 50% of the CVD payable on the goods received from the 100% EOU wherein the supplier have paid only to the extent of 50% of the CVD payable. The appellants' claim is based on the fact that they are entitled to take credit of additional duty leviable on the goods in view of the Larger Bench decision in the case of Vikram Ispat v. CCE (supra). It is further stated since M/s Futura Polymers Ltd. were availing the exemption Notification No. 2/95 dated 4.1.95 which exempted them from so much of duty leviable in excess of 50% of each of the duties of customs and paid the duty accordingly, and inasmuch as Notification No. 21/99 CE(NT) dated 28.2.99 restricts the credit of duty in respect of inputs produced by a 100% EOU, to the extent which is equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975, paid on such inputs, the appellants are eligible to take only the actual duty paid. The Revenue has also pressed into service the judgment of the Hon'ble Apex Court in the case of CCE v. M/s. Dhiren Chemical Industries, 2002 (79) ECC 1 (SC) : 2002 (139) ELT 3 (SC) wherein it has been held that when a Notification exempts finished goods if made from materials "on which the appropriate amount of duty of excise has already been paid, due emphasis must be given to the words "has already been paid". Further para 2 (c) (iii) of the Notification No. 21/99 CE(NT) dated 28.2.99 stipulates that credit of specified duty in respect of inputs produced or manufactured by a 100% EOU and used in the manufacture of final products in any place in India, shall be restricted to the extent which is equal to the additional duty on like goods under Section 3 of the Customs Tariff Act, 1975 paid on such inputs. As such the appellants are eligible only for the additional duty actually paid on the inputs and not the additional duty leviable on the goods. The learned SDR in view of the above prayed for rejection of the appeal as being devoid of merits.

5. We have very carefully considered the rival submissions made. We observe that in the instant case the appellants have received inputs viz. Preform and polyester chips falling under CSH 3926.90 and 3907.60 respectively from the supplier viz. M/s Futura Polymers Ltd. Manali, Chennai which is a 100% EOU, on payment of duty of excise in terms of Notification No. 2/95-CE dated 4.1.95. The appellants have taken credit of the Excise duty paid by the supplier of the goods viz. 100% EOU. The quantum of credit taken by them is equivalent to the additional duty of customs leviable on the like goods under Section 3 of the Customs Tariff Act, 1975, in terms of Notfn. No. 5/94 dated 1.3.94 superseded by Notfn. 21/99-CE(NT) dt. 28.2.99 read with Explanation (2) to Rule 57AB(1). In the present case, the excise duty paid by the supplier of the goods is Rs. 34,17,683.00 while the additional duty leviable is Rs. 24,91,150.27. Since the additional duty leviable is less than the duty of excise paid, in terms of Notification No. 5/94, superseded by Notfn. 21/99, the appellants have restricted their claim to the additional duty of customs leviable under Section 3 of the Customs Tariff Act, 1975. We therefore, find force in the submissions of the learned Counsel for the appellants on the following points:

(a) Aggregate of 50% of each of the duties of Customs paid by the 100% EOU as supplier of inputs is only excise duty and not duties of customs. In other words what is paid by the supplier is duty of excise and not duties of customs.

(b) In terms of sub-rule (2) of Rule 57AB, the appellants were entitled to a credit equivalent to the additional duty of Customs under Section 3 of the Customs Tariff Act, 1975 (CVD) leviable on the like goods if imported, into India, if the amount paid under Notification No. 2/95 CE(NT) dated 4.1.95 by 100% EOU as excise duty happen to be more than the additional duty on the like goods.

(c) The words "paid on such inputs" occurring in the concluding para/part of sub-rule (2) of Rule 57 AB had been misinterpreted as referring to additional duty under Section 3 of the Customs Tariff Act, 1975 by the authorities below. The words refer to the duty of excise paid on the inputs.

(d) Levy of aggregate of 50% of additional duty under Section 3 of the Customs Tariff Act, 1975 indicated in the invoices of the supplier is only payment of CE duty as a measure and forms part of the duty of excise duty paid as per Notification No. 2/95-CE dated 4.1.95.

5.1 The contention of the appellants is that they are entitled to the amount of duty paid by the supplier as duty of excise equivalent to the Additional Duty of Customs leviable, while clearing the goods, which is inclusive and forming part of aggregate of the 50% of duties of customs (CVD), while the department wanted to restrict the amount to the additional duty of customs paid alone, and not the Additional duty of Customs leviable. In support of their plea, the appellants have heavily relied upon the Larger Bench judgment in the case of Vikram Ispat v. CCE Mumbai-III, 2000 (120) ELT 800 (Tri-LB). We have perused the cited judgment. We note that the Larger Bench in the cited case has agreed with the views expressed by the Tribunal in the case of Commissioner of Central Excise, Meerut v. Weston Electronics Ltd., 1997 (95) ELT 624 wherein the Tribunal has held as under:

"A careful reading of this Notification (177/86-C.E.) shows that the duty collected is central excise duty and out of this central excise duty, only that portion will be eligible for credit which is equal to the additional duty leviable on like goods under Section 3 of the C.T.A., 1975. Now the issue which needs clarification is whether the credit amount should be arrived at after apportioning the quantum of duty to different components namely, basic excise duty, auxiliary duty and additional duty. We observe that the notification is very clear; that we will have to find out the components of additional excise duty presuming that the goods were imported.........We have before us only the central excise duty so in that duty we have to find out as to what should be the quantum of presumed additional duty in the total quantity of central excise duty paid by a 100% E.O.U. Once it is known, we have to allow credit to the extent of additional duty leviable on the goods. The department has mixed up the two issues. They have contended that as no additional duty of customs equivalent to duty leviable, has been paid by the manufacturer, the assessee will not be entitled to any Modvat credit. On careful reading of two notifications referred to above and Section 3 of the Central Excise Act, 1944, we find that credit of additional duty of customs has been permitted only for the purpose of bringing in equity in the case where the inputs were imported on payment of additional duty of customs. In the instant case we do not see any connection between actual payment of additional duty by a 100% E.O.U. because what is paid by a 100% EOU is Central Excise duty. If any Central Excise duty has been paid by a 100% EOU, while selling the goods in Domestic Tariff Area, customer becomes entitled to take Modvat credit and the extent of Modvat credit is determined by Notification No. 177/86. So we have to read notification for measuring the quantum of credit that can be taken out of total central excise duty paid on such goods.

5.2 We further note that the Larger Bench in paras 16 and 17 of their judgment has very elaborately dealt with the identical question as to how to determine the quantum of Modvat Credit available to the manufacturer in respect of the goods procured from a 100% EOU. Paras 16 & 17 are reproduced below for convenience of reference.

"16. Notification No. 2/95-C.E., dated 4.1.95 provides that the goods manufactured and cleared by a 100% E.O.U. to DTA will be exempted from so much of duty of excise as is in excess of the amount calculated at the rate of 50% of each of duty of customs leviable read with any other notification for the time being in force on the like goods produced or manufactured outside India, if imported into India provided that the amount of duty payable shall not be less than the duty of excise leviable on like goods produced or manufactured by the units in Domestic Tariff Area read with any relevant notification. It is, thus, apparent that Notification No. 2/95 provides a minimum limit of the rate of duty which has to be paid by the 100% E.O.U. while clearing the goods to DTA and this limit is provided by the duty of excise leviable on like goods manufactured outside 100% E.O.U. However, if the aggregate of duty of customs leviable on goods cleared by 100% E.O.U is more than the duty of excise leviable on like goods, a 100% E.O.U. has to pay more duty. The Revenue wants to restrict the availment of Modvat Credit to the components of additional duty of customs paid under Section 3 of the Customs Tariff Act by bringing the fiction that 100% E.O.U. is a place which is not in India and the sale therefrom within India is akin to import into India. We do not find any substance in this view of the Revenue. The clearance of the goods by 100% E.O.U. are not import in terms in which it has been defined under Section 2(23) of the Customs Act, according to which import, with its grammatical and cognet expression means bringing into India from a place outside India. This is also apparent from the fact that when the goods are cleared from 100% E.O.U. to any place in India, central excise duty under Section 3(1) of the Central Excise Act is levied and not the customs duty under the Customs Act. If it is to be regarded as import, then the duty has to be charged under Section 12 of the Customs Act, read with Section 3 of the Customs Tariff Act. The Revenue, it seems is confusing the measure of the tax with the nature of the tax. The nature of the duty levied on the goods from 100% E.O.U. is excise duty and nothing else, whereas for determining the quantum of duty the measure adopted is duty leviable under Customs Act as held by the Supreme Court in many cases referred to above. The method adopted by the law makers in recovering the tax cannot alter its character. Once it is held that the duty paid by the 100% E.O.U. in respect of goods cleared to any place in India is excise duty, the question of dissecting the said duty into different components of basic customs duty, auxiliary duty, additional duty of Customs or any other customs duty does not arise. The proforma of AR-IA on which the reliance was placed by the learned DR, cannot change the legal position that the duty levied on 100% E.O.U. is a duty of excise and not customs duty.

17. The question then arises is how the determine the quantum of Modvat credit available to the manufacturer in respect of the goods procured from a 100% EOU. The only method, which, we feel, is available to the Revenue is as suggested by the learned Counsel, i.e., ascertain firstly the additional duty of customs leviable on like goods, if imported into India from outside India; ascertain the actual amount of duty paid by the 100% E.O.U. on the goods cleared to any part in India under Notification No. 2/95; after ascertaining these two elements, the Modvat credit has to be allowed to the manufacturer on the basis of the first proviso to Notification No. 5/94-C.E. As per first proviso to this Notification, credit shall be restricted to the extent of duty which is equal to the additional duty leviable on like goods. If the additional duty is less than the actual duty paid on the inputs cleared from 100% E.O.U., the manufacturer in India shall be eligible only for the credit equivalent to the additional customs duty. On the other hand if the duty actually paid by 100% E.O.U. on inputs cleared by them is less than the additional duty of customs payable on like goods the manufacturer shall be eligible only to the extent of actual duty paid by 100% E.O.U. The reading of first proviso to Notification No. 5/94 does not indicate at all that the credit of specified duty shall be restricted to the components of additional customs duty actually paid by 100% E.O.U. as excise duty. Had this been the intention of the Govt., the proviso would not have been termed in the present term. In that situation, the proviso should have provided that the credit of specified duty shall be restricted to the extent of portion of excise duty which is equivalent to the additional duty of Customs paid by the 100% EOU. The phrase "equivalent to the duties of excise specified under (i) & (ii) above paid on such inputs" refers to the payment of (a) duty of excise under the Central Excise Act and (b) additional duty of excise under the Additional Duties of Excise (Textiles and Textile Articles) Act. If the Additional Customs duty leviable on like goods includes any other excise duty, such as duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, the Modvat Credit will not be available in respect of such duty."

6. It will be seen from the above judgment, that it directly applies to the facts of the present case, because what is paid by the 100% EOU is Central Excise duty while selling the goods in the DTA and the customer (appellants) becomes entitled to take Modvat Credit to the extent of Modvat Credit as determined by the restriction imposed vide first proviso to Notification No. 5/94-CE dated 1.3.1994 read with Explanation (2) to Rule 57AB(1) i.e. the appellants are entitled to take credit of the duty amount equivalent to the additional duty leviable on the like goods under Section 3 of the Customs Tariff Act, 1975, with the restriction that if the additional duty is less than the actual duty paid, on the inputs cleared from the 100% EOU, then the appellants shall be eligible only for the credit equivalent to the additional customs duty leviable. The revenue wanted to restrict the credit to the additional customs duty actually paid. In fact as noted above, what is paid in the present case is only Excise duty and not the additional duty of Customs under Section 3 of the Customs Tariff Act, 1975 and what the law requires is that benefit of credit should be restricted to the additional duty leviable. This aspect of the matter has been carefully taken note of by the Larger Bench in the cited judgment wherein it is held that "The reading of the first proviso to Notification No. 5/94 does not indicate at all that the credit of specified duty shall be restricted to the components of additional customs duty actually paid by 100% EOU as excise duty". Further, the question of restricting the benefit to the additional duty paid (emphasis supplied by us) under Section 3 of the Customs Tariff Act, 1975 does not arise because there is no payment of Additional duty of Customs and what was paid was only Central Excise duty. We are, therefore, of the considered opinion that the issue is no longer res integra as the issue has already been settled by Larger Bench judgment cited supra and judicial discipline requires that we follow the law laid down by the Larger Bench unless contrary judgment by a higher judicial forum is cited before us.

Further, we note that the Larger Bench judgment in the case of Vikram Ispat v. CCE (supra) has been followed by the North Regional Bench of the Tribunal in the case of Innovative Tech Pack Ltd. v. CCE, New Delhi-III, 2000 (122) ELT 94 and also in the case of Kundalia Industries v. CCE, Delhi, 2001 (127) ELT 151. We further note that in identical cases, the North Regional Bench of the Tribunal in the case of M/s Maruti Udyog Ltd. in Appeal No. E/1972/2002-CE decided on 27.12.2000 (sic 27.12.2002) and also in their subsequent decision in the case of Maruti Udyog Ltd. in Appeal No. E/1459/2003-NBC decided on 17.11.2003 have followed the ratio of the decision of the Larger Bench (supra). Therefore, following the ratio laid down by the Larger Bench in the cited case, we hold that the impugned order is not legal and proper and set aside the impugned order and allow the appeal with consequential relief, if any.

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