Ammarun Foundaries vs Customs, Excise and Service Tax Appellate Tribunal and Another

Whether rule 57G sub-rule (5) of the Central Excise Rules can be applied to deny the balance amount of Modvat credit when portion of the credit has already been availed of by the appellant against the invoices is the point falling for consideration in this appeal. The appellant is engaged in the manufacture of rough iron castings falling under Tariff Heading 7325.10 of the Central Excise Tariff Act. During the period of April, 1999 to July, 1999, against 19 numbers of invoices relating to input "furnace oil", the appellant availed of Modvat credit only to the extent of 50 per cent, and the said 50 per cent, credit was taken within the time prescribed under the Central excise rule 57G sub-rule (5). It is the case of the appellants that due to inadvertence, they have not taken the balance credit of 50 per cent. After realising the mistake of not taking the entire credit, the appellants wrote a letter dated November 16, 1999 seeking permission to take the balance credit of 50 per cent. Vide the letter dated January 12, 2000, the Assistant Commissioner permitted the appellant to take the balance credit of 50 per cent, relating to furnace oil, subject to the observation of rule 57G sub-rule (5). Based on the said letter of the Assistant Commissioner, the appellant took credit of 50 per cent, of the balance credit on January 21, 2000.

The appellant was issued with a show-cause notice dated March 23, 2000 for the denial of the above credit on the ground that the credit was taken beyond six months period in violation of rule 57G sub-rule (5). By order dated July 13, 2000, the adjudicating authority confirmed the demand raised in the show-cause notice. In the appeal preferred by the appellant, the appellate authority rejected the appellant''s contention and held that the appellant availed of the credit beyond the period of six months. The appellant went before the CESTAT and the CESTAT dismissed the appeal holding that the period of limitation can only be computed from the dates of the duty paying document. The CESTAT further held that it was not obligatory for the Department to grant any permission to the assessee to avail of the credit and while so the permission given by the Assistant Commissioner had no consequence.

Aggrieved by the same, the present appeal is filed by the assessee and the same is admitted on the following substantial questions of law:

In the facts and circumstances of the case, whether at all rule 57G(5) can be applied to deny the balance amount of credit, when portion of the credit has already been taken against the invoices in dispute?

In the facts and circumstances where, the condition under rule 57G(5) has already been satisfied by taking 50 per cent, of the credit within six months against all the invoices in dispute, whether the said rule 57G(5) has to be applied for the second time for the very same invoices?

The learned counsel for the appellant submitted that the appellant had already taken the credit to the extent of 50 per cent, and therefore the period of limitation under rule 57G, sub-rule (5) should be reckoned from the date (January 12, 2000) on which date the Department had granted permission to the appellant to take the balance amount of credit. Placing reliance upon the decision of the Delhi Tribunal in CCE v. Gyan Packaging India P. Ltd. [2007] 218 ELT 255 (Trib.-Del) the learned counsel submitted that when the appellant had initially taken short credit of 50 per cent. Modvat in respect of 19 invoices and on discovery of their mistake subsequently the appellant availed of the balance 50 per cent., time taken in rectifying the defect cannot be computed for calculating the period of six months.

The learned counsel for the Department submitted that since the appellant took credit of 50 per cent, of the balance credit to the extent of Rs. 1,06,396 without observing rule 57G sub-rule (5) and taking into consideration of the submissions of the appellant, the CESTAT dismissed the appeal and sustaining the order of the Commissioner (Appeals) and that the order of the CESTAT does not warrant any interference.

As per Central excise rule 57G, sub-rule (3), a manufacturer who avails of Modvat credit has to take the credit of duty paid within six months from the date of issue of the documents specified under rule 57G, sub-rule (3) of the Central Excise Rules, 1944 and has to maintain the registers prescribed as RG23 (Part I and II) Account after making entries indicating the particulars of inputs received during the month and the amount of credit taken. The assessee should submit extracts of the pages along with the original duty-paying documents evidencing the payment of duty as per rule 57G sub-rule (8). Modvat Rules provide for a time-limit for taking credit of the duty paid on the inputs. In terms of rule 57G sub-rule (5), the credit shall not be taken by the manufacturer after six months of the date of issue of any document specified in rule 57G sub-rule (3).

The relevant 19 invoices in dispute were issued on various dates from April 2, 1999 to July 17, 1999. The CE5TAT has recorded a factual finding that the input (furnace oil) received by the appellant in their factory under cover of relevant invoices was entered in Part I of RG23 A on September 22, 1999. The appellant initially availed of credit only to the extent of 50 per cent, of the quantity received by them and the said 50 per cent, credit was availed of within the period of six months.

According to the appellant, the appellant was under bona fide impression that the balance quantity for use in the manufacture of goods, which are cleared on nil rate of duty and due to inadvertence they availed of credit only for 50 per cent. By their letter dated November 16, 1999, the appellant communicated the details of entry in RG23A Part I Register and requested permission to avail of the balance Modvat credit. The Assistant Commissioner has accorded permission (January 12, 2000) for availing of the Modvat credit on furnace oil subject to observation of rule 57G sub-rule (5). Since the appellants have availed of 50 per cent, of the Modvat credit, availing of balance 50 per cent. Modvat credit is only rectification of the inadvertent mistake committed by the appellants.

In S.R.F. Limited vs. CCE, Chennai the Tribunal had given a finding that since the credit of inputs was taken within the time, the time taken in rectifying the defect cannot be computed for calculating the period of six months contemplated by rule 57G sub-rule (5) of the said Rules. Referring to the above judgment, in CCE v. Gyan Packaging India P. Ltd. [2007] 218 ELT 255 (Trib.-Del), the CESTAT-Delhi held that the time taken in rectification of clerical error after six months cannot be computed for calculating the period of six months.

In CCE v. Sidmak Laboratories (I) Ltd. [2006] 206 ELT 590 (Trib.-Mum), the CESTAT, Mumbai held that the correction of short credit taken on bill of entry, even though beyond six months, the assessee is eligible to take correct amount of credit and rule 57G sub-rule (5) is not applicable.

The present case is not a case of taking credit beyond six months, but of taking balance credit amount, which the appellant wrongly availed only 50 per cent. Since the input (furnace oil) was entered in Part I and since the appellant has already availed of 50 per cent, of the Modvat credit, for availing of the balance 50 per cent. Modvat, six months time cannot be computed as contemplated by rule 57G sub-rule (5). The authorities did not keep in view that availing of balance 50 per cent, was only rectification of the earlier inadvertent mistake committed by the appellant and the order of the Tribunal cannot be sustained. For the foregoing reasons, the order of the Tribunal is set aside and the civil miscellaneous appeal is allowed. The questions of law are answered in favour of the assessee. However, there is no order as to costs.