Bhoruka Textiles Ltd. vs Commissioner of C. Ex. and Cus., Belgaum

N. Kumar, J.—The manufacture M/s. Bhoruka Textiles Limited has challenged in this appeal the order passed by the 2004 (97) ECC 459 Appellate Authority and the Assessing Authority disallowing their claim for giving credit to the extent of 16,27,814.50 claimed by them. The appellant is a public limited company engaged in the manufacture of textile yarns. They have been availing modvat credit of the duty paid on the inputs used by them, in the manufacture of final products cleared by them on payment of duty. The appellant filed a declaration under Rule 57(H) on the duty paid inputs in stocks as on 21-3-1994. The appellant claimed a credit of Rs. 56,72,878/- in respect of inputs used in the aforesaid final products furnishing Annexure-A attached thereto all the required details inputs-wise as on 21-3-1994 setting out the gate pass numbers with dates, quantity and duty paid on the inputs including those that were received on or after 1-3-1994, that were lying in the godown, that were used in the final products under process and that were contained in the final products lying in the godown. An amount of Rs. 56,72,878/- modvat credit was claimed under Rule 57(H) on the quantity of 4,03,525 kgs. of fibre held in stock as on 21-3-1994. In the declaration, they had demonstrated that it had purchased fibre to the extent of 11,59,536.47 kgs. during the year for which the duty paid gate passes are also shown. Against the said quantity credit was claimed only to the extent available on 4,03,525 kgs. of fibres which was in stock as on 21-3-1994. With reference to the aforesaid declaration, the Assistant Collector by its letter dated 15-4-1994 permitted the appellant to take modvat credit of Rs. 51,74,193.38 paise pertaining to the inputs held in stock as well as involved in finished products.

Thereafter, show cause notice dated 13-10-1994 was issued to the appellant proposing disallowance of modvat credit to the extent of 33,72,827.49 paisa out of Rs. 51,74,193.38 paisa on the ground that the appellant had claimed the duty erroneously without ensuring themselves about the eligibility conditions for the said amount on inputs, semi finished goods and finished goods lying in stocks as on 21-3-1994. The appellant filed a reply dated 19-1-1995 and written statement during personal hearing on 6-10-1999. On consideration of the reply, the authorities upheld the claim in respect of Rs. 17,45,013.99 paise accepting the reply but disallowed the claim relating to Rs. 16,27,814.50 paise. The appellant claims modvat credit on the total quantity of 1,17,845 kgs. of inputs under process. In the proceedings of the Deputy Commissioner of Central Excise, the claim to the extent of Rs. 17,45,013.99 was confirmed but the disallowance of 16,27,814.50 was not disturbed. Against the said order, the appellant preferred an appeal before the Commissioner of Central Excise who has confirmed the order of the Original Authority. The second appeal preferred by the Customs, Excise and Service Tax Appellate Tribunal was also dismissed. Against the said order, the present appeal is preferred by the appellant.

The learned Counsel appearing for the appellant assailing the impugned orders contend that the reasons given for disallowing the claim for credit do not stand reasoning. It is not possible to give the exact quantity of stock of process everyday. Therefore, the system prevailing in the textiles industry is to take physical verification on monthly basis and the said stock has to be furnished. In fact, statement of stock was also furnished to the bank to whom the entire stock is hypothecated. Unfortunately, the authorities have not properly appreciated the matter and seem to think that the stocks are created for the purpose of case in the year 1999 when as a matter of fact the said documents were produced in the year 1994 itself and therefore, he contends the approach of the authorities in this regard is erroneous and requires interference.

Per contra, learned Counsel appearing for the respondent supported the impugned orders.

The two provisions which required to be noticed in order to adjudicate the dispute is Rule 57A as well as Rule 57H which reads as under :- Rule 57A. - Applicability - (1) The provisions of this section shall apply to such finished excisable goods (hereinafter 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 u/s 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred) to as the "specified duty") paid on the goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the "inputs") and for utilizing the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this Section and the conditions and restrictions that may be specified in the notification :

Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.

Rule 57H - Transitional provisions. - [(1)] Notwithstanding anything contained in Rule 57G, the Assistant Collector of Central Excise may allow credit of the duty paid on inputs received by a manufacturer immediately before obtaining the dated acknowledgment of the declaration made under the said Rule if he is satisfied that -

(a) such inputs are lying in stock, or are received in the factory, on or after the 1st day of March, 1994 or

(b) such inputs are used in the manufacture of final products, which are cleared from the factory on or after the 1st day of March, 1994,

and that no credit has been taken by the manufacturer in respect of the inputs under any other rule or notification :

Provided that no credit under this sub-rule shall be allowed in respect of inputs received, or declaration made under Rule 57G, on or after the 1st day of April, 1994 :

Provided further that such inputs are not used in the manufacture of final product, which is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty.

Rule 57A confers a right on the manufacturer the benefit of credit of the duty paid on the inputs while claiming the duty payable on the final products. Rule 57H is a transactional provision. It categorically provides a manufacturer is entitled to credit of the duty paid on inputs received by him immediately before obtaining the duty of the acknowledgment of the declaration made under Rule 57G if he satisfies such inputs are lying in stock or received in the factory on or after 1st day of March 1994 or such inputs are used in the manufacture of final products which are cleared from the factory on or after 1st day of March 1994 and that no credit has been taken by the manufacturer in respect of inputs under any other rule or notification. Therefore, all that has to be seen is to find out what is the stock lying in the factory as on 1st March 1994 and the duty paid on such inputs and thereafter, the benefit of credit of the said duty is to be given when the finished products are sold. The rule does not provide for any proof to be tendered by manufacturer showing the lying of the stock either in the godown, or in the manufacturing process or in the finished stage. In fact, while giving the declaration, the manufacturer has given particulars of the stocks lying at various stages though in law he was not required to furnish the same, It is in that context the authorities seem to think that sufficient evidence is not given to show the material, which was in process, and therefore, they have disallowed the claim. This approach has no legal basis and is not supported by the aforesaid provisions. What the authorities have to examine is what is the stock available as on 1-3-1994, what is the duty paid on such credit and thereafter, what is the duty payable on the finished products and then give credit on the duty paid and giving benefit of credit whenever the finished products are sold by utilising such credit. The claimant producing proof to show the stock in the manufacturing process is not contemplated under the provisions. Under these circumstances, the orders passed by the authorities cannot be sustained. At the same time, the whole matter requires to be reconsidered in the light of the aforesaid provisions and the stand of the appellant''s and the materials produced by them in support of their claims. In that view of the matter, we pass the following order : (1) The appeal is allowed. Impugned orders are set aside.

(2) The entire matter is remitted back to the Original Authority with a direction to reassess and pass appropriate orders in the light of the observations made in the order and the Rule as contained in Rule 57A and 57H.

(3) Authorities shall afford a reasonable opportunity to the manufacturer and thereafter proceed to pass orders on merits and in accordance with law.