Brook Bond Lipton India Ltd. vs C.E.R.

We have heard Shri Bharat Ji Agrawal, Senior Advocate assisted by Shri Piyush Agrawal for the applicant. Shri S.P. Kesarwani appears for the Respondents.

On the directions issued by this Court, calling for a reference, the Custom, Excise and Gold (Control) Appellate Tribunal, New Delhi has referred the following questions to be considered by this Court:

(1) Whether, for the purpose of taking credit of duty paid on inputs under Rule 57-A read with Rule 57-C of the said Rules, the relevant stage is when credit of duty paid on inputs is taken i.e. when the inputs are brought into the factory, at which stage MODVAT Credit can be lawfully taken if the end product becomes exempt from the payment of duty?

(2) Whether the extended period of limitation under the Rule 57-I (1) (ii) can be invoked when there is not even an allegation of fraud, misstatement, collusion or suppression with an intent to evade duty the show cause notice?

The statement of facts, as given by the Tribunal, are quoted as follows:-

M/s Brooke Bond Lipton India Ltd. ., are engaged in the manufacture of packet tea falling under Chapter-9 of Central Excise Tariff Act, 1985 and took credit on the inputs for use in the manufacture of final product till 27.2.1993 as tea was exempted from paying central excise duty with effect from 28.2.1993 under notification No. 2/93 dated 28.2.1993. A show cause notice dated 5.8.1993 was issued to the Assessee under Rule 57-I and 57-E for reversal of credit amounting to Rs. 31, 28, 267/-on the ground that the final product has been exempted from payment of duty. The party had submitted their defence reply vide their letter dated 7.9.1993. They had pointed out that MODVAT Credit amounting to Rs. 31, 28, 267/-in respect of input lying un-used and in packed stocks represent credits taken by them prior to 27.2.1993 when final product v.z. tea was liable for duty and therefore they had correctly availed MODVAT Credit in terms of provision of Rule 57-A. They had also submitted that the demand is time barred under Rule 57-I as the Show Cause Notice was issued beyond the period of 6 months from the date of taking the credit. Commissioner of Central Excise, Kanpur vide order in original dated 22.11.1995 confirmed the demand. Tribunal dismissed the appeal of the Assessee vide order No. A/833/99/NB dated 6.9.1999 holding that MODVAT credit taken in respect of inputs will have to be reversed when final product becomes exempt at a date subsequent to the receipt of inputs. In coming to this conclusion Tribunal relied to the decision of the Larger Bench of the Tribunal in the case of Khan Bhai Esoof Bhai and Ors. reported in 1999 (30) ELT 519 which in turn, was based upon the judgment of the Allahabad High Court in the case of Super Cassettes Industries Ltd. reported in 1997 (94) ELT 302 (All.).

The second issue of time bar was also answered against the Assessee in the light of Tribunal''s judgment in the case of Calcom Electronics Pvt. Ltd. v. Commissioner of Central Excise New Delhi reported in 1999 (31) RLT 461 in which it has been held that credit of duty utilised in the manufacture of exempted goods is required to be returned without any reference to time limit and the show cause notice issued after six months is not time barred having regard to the language of Rule 57-I (2) which is applicable in such a situation.

The unamended Rules 57-A, 57-C, 57-E and 57-I of the Central Excise Rules, 1944, as these were applicable, when the show cause notice was issued on 5.8.1993, providing for credit of duty paid on excisable goods used as inputs, are quoted as follows:-

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 (hereinater referred to as the "inputs") and for utilising 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.

Explanation.--[For the purposes of this rule, "inputs" includes -

(a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products, and

(b) paints and packaging materials,

but does not include --]

(i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;

(ii) packing materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packing any final products;

(iii) packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the final products u/s 4 of the Act;

(iv) cylinders for packaging gases;

(v) plywood for tea (chest; or].

(vi) bags or sacks made out of fabrics (whether or not coated, covered or laminated with any other material) woven from strips or tapes of plastics).

Rule 57C. Credit of duty not to be allowed if final products are exempt.-No credit of the specified duty paid on the inputs used (in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hundred per cent Export-Oriented Unit) shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty.

Rule 57E. Adjustment in duty credit. -If duty paid on any inputs in respect of which credit has been allowed under Rule 57A, is varied subsequently due to any reason resulting in payment of refund to, or recovery of more duty from, the manufacturer or importer, as the case may be, of such inputs, the credit allowed shall be varied accordingly by adjustment in the credit account maintained under Sub-rule (3) of Rule 57G or in the accounts maintained under Rule 9 or Sub-rule (1) of Rule 173G, or if such adjustment is not possible for any reason, by cash recovery from or, as the case may be, refund to the manufacturer availing of the credit under Rule 57A.

Rule 57-I. Recovery of credit wrongly availed of or utilised in an irregular manner.--[(1) (i) Where credit of duty paid on inputs has been taken on account of an error, omission or mis-construction, on the part of an officer or a manufacturer, or an Assessee, the proper officer may, within six months from the date of such credit, serve notice on the manufacturer or the Assessee who has taken such credit requiring him to show cause why he should not be disallowed to such credit and where the credit has already been utilised, why the amount equivalent to such credit should not be recovered from him:

Provided that where such credit has been taken on account of wilful mis-statement, collusion or suppression of facts on the part of a manufacturer or an Assessee, the provisions of this clause shall have effect as if for the words "six months" the words "five years" were substituted.

(ii) The proper officer, after considering the representation, if any, made by the manufacturer or the Assessee on whom notice is served under Clause (i), shall determine the amount of such credit to be disallowed (not being in excess of the amount specified in the show cause notice) and thereupon such manufacturer or Assessee shall pay the amount equivalent to the credit disallowed, if the credit has been utilised, or shall not utilise the credit thus disallowed.

(Explanation-Where the service of the notice is stayed by an order of the Court, the period of such stay shall be excluded from computing the aforesaid period of 6 months or 5 years, as the case may be.) (2)

If any inputs in respect of which credit has been taken are not fully accounted for as havig been disposed of in the manner specified in this section, the manufacturer shall upon a written demand being made by the Assistant Collector of Central Excise pay the duty leviable on such inputs withing 10 days of the notice of demand

Shri Bharat Ji Agrawal appearing for the applicant company, submits that in the show cause notice dated 5.8.1993, issued by the Superintendent, Central Excise, Range Kasganj, M/s Lipton India Ltd. (Tea Unuit) Etah-the applicant was called upon to reply, after notices were issued to it, on 15.5.1993 and 27.2.1993, to furnish information regarding MODVAT involved on inputs lying unutilied as on 27.2.1993, inputs contained in the finished product lying in stock as on 27.2.1993, and inputs issued but not utilised as on 27.2.1993. The notice required the applicant to show cause as to why the amount of credit taken on inputs amounting to Rs. 31, 28, 267/-as per annexures appended to the notice should not be adjusted in their RG 23 A Part II and personal ledger account, or if such adjustment is not possible for any reason by cash recovery from them under Rule 57-I read with Rule 57-E of the Central Excise Rules, 1944.

The applicant submitted a reply that they had already given information to the Superintendent of Central Excise by registered post on 7.7.1993 giving the required information and hence the question of not receiving the information before the date of notice does not arise. They further stated as follows:-

(i) We have not taken any MODVAT credit in respect of duty paid inputs received after 27.2.1993 nor utilied any credit for duty payment on final products after 27.2.1993. In view of this even assuming without admitting that this ground on which the show cause notice has been issued is accepted, we are not required to reverse any credit, as No. credit has been taken nor utilised after 27.2.1993.

(ii) The value of MODVAT as contained in the inputs lying in the inputs unused and in packed stocks totally valued at Rs. 31, 28, 267/- represents the credit taken by us prior to 27.2.1993, when the final product, viz. Tea was eligible for duty. We have therefore correctly availed MODVAT credit in terms of the provisions of Rule 57A.

The applicant company further stated in its reply that there is No. provision in the MODVAT Rule for recovering and/or adjusting the credit, legally earned by us under Rule 57A. The show cause notice does not dispute the fact that the applicant has received the inputs as per the declaration submitted under Rule 57-G for use in the manufacture of final product. There is No. dispute that these inputs and final product are eligible for MODVAT credit under Rule 57A. It was submitted that receipt of duty paid inputs alongwith documents showing payment of appropriate excise duty; filing of a declaration under Rule 57G (i), indicating the description of the final notified products and the inputs intended to be used in each of such final products; use of duty paid inputs in manufacture of excisable finished products covered under any of the Chapters notified vide Notification No. 177/86; opening and maintenance of statutory account in RG 23 A Parts I and II, and payment of duty on final product so manufactured from the duty paid notified inputs, are necessary. The allowing of the credit and the utilisation are two different stages having No. co-relation to each other.

Shri Bharat Ji Agrawal submits that the applicant company manufactures packet tea at its factory at Etah in the State of UP. The company took MODVAT credit lawfully under Rule 57-A of the Central Excise Rules 1944, on the inputs received and declared under Rule 57G for use in the manufacture of tea, upto 27.2.1993. The end product "Packet Tea" was dutiable till 27.2.1993 after which it became wholly exempt from excise duty vide Notification No. 2795 dated 28.2.1993. The impugned order is contrary to the decision of the Supreme Court in Collector of Central Excise, Pune Etc. Etc. Vs. Dai Ichi Karkaria Ltd. Etc. Etc., in which the Supreme Court held that MODVAT credit lawfully taken is indefeasible and cannot be reversed. The judgment of this Court in Super Cassettes Industries Ltd. v. Union of India 1997 (94) E.L.T. 302 (All) was cited by the Attorney General and was considered, the ratio thereof was not accepted. In Dai Ichi Karkaria Ltd. (supra) the Supreme Court held that there was No. provision in the Rules, which provide 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. Where the credit has been validly taken, there being No. requirement of one to one utilisation of MODVETTED odvat raw material in the final product, 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. There is No. co-relation 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 can be taken against the excise duty on a final product manufactured on the very day that it becomes available.

Shri Bharat Ji Agrawal has also relied upon the judgment of Delhi High Court in the case of Goodyear India Ltd. and Another Vs. Union of india and Others, in which it was held that in the case of matters pertaining to proforma credit scheme under Rule 56A as well as MODVAT credit scheme under Rule 57A there is No. necessity for a one to one co-relation between inputs and final products and that credit could be taken on the duty paid on the inputs, while paying duty on the final products some of which may have been cleared at nil rate of duty under Chapter X. Once raw materials enter the factory of the Petitioner company, the credit is to be taken in accordance with the procedure prescribed in the Rules, without any co-relation to the end product. Such a credit cannot be directed to be reversed when the final product becomes exempted subsequently. Shri Bharat Ji Agrawal further submits that the demand is barred by limitation under Rule 57-I. When the department seeks to recover or disallow credit wrongly availed by a manufacturer, the department has to issue show cause notice within six months from the date of taking of the credit. In the present case the show cause notice was issued beyond the period of six months. It was issued on 5.8.1993 in respect of the credit lying un-utilised as on 28.2.1993, whereas the credit was availed by the company much earlier.

The Custom, Excise & Gold (Control) Appellate Tribunal in its order dated 6.7.1999 relied upon judgments in Super Cassettes Industries Ltd. v. Union of India 1997 (94) E.L.T. 302 (All) in which it was observed in paragraphs 7, 10 and 11 as follows:-

Rule 57C then provides that No. credit of the specified duty paid on the inputs used in the manufacture of final product shall be allowed "if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty". Rule 57D provides that credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product...or on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt. Rule 57E provides for adjustment in duty credit. It says that if the duty paid on any inputs in respect of which credit has been allowed under Rule 57A, is varied subsequently due to any reason resulting in payment of refund to, or recovery of more duty from, the manufacturer or importer, as the case may be, of such inputs, the credit allowed shall be varied accordingly by adjustment in the credit account maintained under Sub-rule (3) of Rule 57G. Rule 57F deals with the manner of utilisation of the inputs and the credit allowed in respect of duty paid thereon. It requires inter alia that the inputs may be used in the manufacture of final products for which such inputs have been brought into the factory or shall be removed, after intimating the Assistant Collector of Central Excise having jurisdiction... for home consumption or for export under bond, as if such inputs have been manufactured in such factory. Rule 57G lays down the procedure to be followed by the manufacturer intending to take credit of the duty paid on inputs under Rule 57A. Sub-rule (1) of Rule 57G provides that a manufacturer intending to avail MODVAT credit shall file a declaration with the Assistant Collector of Central Excise and after obtaining the acknowledgement thereof take credit of the duty paid on the inputs received by him. The rule obliges the manufacturer to maintain necessary accounts and the manufacturer has to furnish before the superintendent of Central Excise within five days after the close of each month documents evidencing the payment of duty along with extracts of Parts 1 and II of form RG 23A. Rule 57-1 provides-for recovery of credit wrongly availed of where credit of duty on inputs has been taken on account of an error, omission or mis-construction, on the part of an officer or a manufacturer.

As is evident, entries in PLA account and other documents are at times provisional in nature and become final after certain events take place. For example a personal ledger account is commenced with a credit entry represented by a cash deposit in the treasury as required under Rule 9. When the first deposit is made in the treasury there is No. payment of any excise duty. The deposit and the corresponding credit in the PLA account is only a provision for making payments of excise duty on the goods that are manufactured and are to be removed. Therefore, when a person makes the cash deposit in the treasury he does not actually pay excise duty, he only makes a provision for the payment thereof and the actual excise duty stands paid only when it becomes payable in accordance with the Act and the Rules. Rule 57A clearly shows that MODVAT credit is available for utilising the credit so allowed towards payment of excise duty leviable on the final products. Therefore, there can be No. finalised credit unless the inputs are used in accordance with Rules 57A and 57F and either excise duty on the final product is paid or the inputs are otherwise disposed of for home consumption or export etc. Till such events occur the MODVAT credit is only provisional and cannot be said to be final and irrevocable. It is only for certain accounting purpose that the amount is credited to the PLA account and can be used as a credit balance for actual payment of duty on manufactured goods at the time of their removal. The final settlement would, however, happen only when such inputs have actually been used for the purposes of specified and/or excise duty has been paid on the final product.-It is true that Rule 57G does not specifically contemplate a reversal of the credit but this is implied from purpose of the Scheme and the nature of the Rules.

As already stated, Rule 57C clearly states that No. credit of duty paid on inputs shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty. This provision clearly contemplate a situation like the one before us. There is another provision in Rule 57-1 where the officer can demand the reversal of the credit which has been taken on account of an error, omission or mis-construction. It was contended that when the credit was taken the final product was not exempted from excise duty and it is only subsequently that the final product became exempt from excise duty and, therefore, Rule 57C was not attracted. This contention is not correct. The whole Scheme is in respect of excisable goods and, therefore, if the product is exempted from excise duty from a particular date the MODVAT credit taken in respect of inputs which are in stock has to be reversed. Even the inputs that have been used in the manufacture of final products which have become exempt from excise duty, MODVAT credit in respect of such inputs also becomes inadmissible and will have to be reversed. In my view there is No. warrant for the view that MODVAT credit once availed by making the necessary entries is irrevocable. This would amount to unjust enrichment and cannot be conceived of in the light of the rules on the subject. I am, therefore, of the view that the debit entries made by the Petitioner for reversing the MODVAT credit availed by it were in compliance of its legal obligation and it cannot be said that by making such entries the Petitioner has made any illegal payment to the Union of India. On the other hand, the net result is that the Union of India has received only what it was justly entitled to receive i.e. the duty on the inputs. What was exempt from excise duty was only the final product and not the inputs.

11.The Tribunal found that legal position was not changed by virtue of judgment of Apex Court in the case of Collector of Central Excise, Pune Etc. Etc. Vs. Dai Ichi Karkaria Ltd. Etc. Etc., in which the Supreme Court had held 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; there is No. provision in the Rules which provides for reversal of 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. The Supreme Court held that such credit is indefeasible.

The Tribunal observed that the Apex Court did not consider with the issue as to what happens to credit utilised at a prior point of time when final products became exempt at a later point of time. In the context of holding that a manufacturer obtains credit for duty paid on inputs to by him in the production of an excisable product (and not an exempt product) that the Supreme Court held that credit validly taken is indefeasible. This was not to be understood to mean that credit would still be admissible even if the excisable final product becomes exempt subsequent to its utilisation.The Tribunal relied upon a decision of its larger bench in Khan Bhai, Ysoof Bhai and Ors. v. Collector of Central Excise Calcutta and Ors. 1999 (30) RLT 519 in which it was held that MODVAT credit taken in respect of inputs which are in stock will have to be reversed when final products become exempt at a date subsequent to the receipt of inputs.

Shri S.P. Kesarwani appearing for revenue submits that the basic object of the ODVAT scheme is to avoid cascading effect of taxes on the final price structure of the output. It is in that view, the tax paid on the inputs is given back to the manufacturer with restriction that the final product must be cleared on payment of duty. When the final product became exempt from payment of duty under the MODVAT Rules, the parties cease to be entitled to avail the facility. The provisions of Section 57-C are very clear and which lays down that if the final products were exempted from payment of central excise duty No. MODVAT credit is available on the inputs. He submits that No. credit is permissible if the inputs are used in the manufacture of wholly exempted goods. The un-utilised inputs and also un-utilised credit has to be disallowed. When the end product looses its dutiable status, it will also have its effect on the credit of duty taken and utilised where such credit has been taken and utilised and the input remains to be utilised in the manufacture of the final output which becomes totally exempted the company is required to pay back to the department the same. In Kirloskar Oil Engines v. CCE, Pune 1994 (73) ELT 835 (NRS) the Larger Bench had resolved the conflicting judgments of different benches of the Tribunal on the issue. It was held that if any credit on the inputs was taken or was wrongly taken contrary to the provisions of Rule 57-C, it is liable to be re-adjusted from RG-23 account or by recovering from the applicant, if No. adequate credit is available in such account. The MODVAT credit can be availed only if the final product is chargeable to central excise duty.

Shri S.P. Kesarwani submits that the Rule 57A and 57C, as they were applicable in the relevant year, do not admit any doubt that the MODVAT credit can be availed, as may be specified in the notification subject to the provisions of the conditions and restrictions that may be specified in the notification. Rule 57-C is clear on the point and provides that the credit of duty is not allowed if final products are exempt. The adjustment in duty credit under Rule 57E applies, if the duty paid on any inputs is varied subsequently due to any reason resulting in payment of refund to, or recovery of more duty from, the manufacturer or importer, as the case may be, of such inputs in the accounts maintained under Rule 9 or Sub-rule (1) of Rule 173G, or if such adjustment is not possible for any reason, by cash recovery from or, as the case may be, refund to the manufacturer availing of the credit under Rule 57A. In the present case the company was not entitled to MODVAT credit on the inputs lying unused after the final product became exempt and was also not entitled to any adjustment. He has relied upon the procedures to be observed by the manufacterer, in support of his argument. He also submits that in the present case since the MODVAT credit is not permitted on the final product, the limitation for reversal provided under Rule 57-I is not applicable. The limitation of six months in Rule 57-I and of five years in the proviso to the rule is applicable where the credit of duty paid on inputs is taken on account of an error, omission or misconstruction. In such case the limitation of six months will apply and where such credit has been taken on account of willful mis-statement, collusion or suppression of facts in place of six months five years were substituted. He submits that in the present case, Rule 57-I is not attracted.

We have considered the submissions and do not find any merit in the contention that MODVAT credit taken on the inputs lying unutilied on the date when the final product became exempt, cannot be reversed. This Court considered this question in Super Cassettes Industries Ltd. (supra) and held that in such case the retention of the MODVAT credit on the receipt of inputs which remained lying in the stock even after the final product became exempt from duty would amount to unjust enrichment. In Dai-Ichi Karkaria Ltd. (supra) the Supreme Court was concerned with the determination of the cost of production, and more precisely the question whether the part of the cost of the raw material; price paid by the manufacturer to its seller or the price of the raw material, the excise duty thereon which has been paid by the seller and for which the manufacturer is entitled to credit under the MODVAT scheme could be utilised against the payment of excise duty on products manufactured including the intermediate product as contended by the manufacturer. The Supreme Court after considering Section 4 of Central Excise Act 1944 and Central Excise Valuation Rules, 1975 held that for determining the cost of an excisable product covered by MODVAT scheme u/s 4(1)(b) of the Act read with Rule 6 of the Central Excise Valuation Rules, 1975 the excise duty paid on raw material is also covered by the MODVAT scheme, is not to be included. In real terms it is the cost of the raw material (exclusive of freight, insurance and the like) which should properly be included in computing the cost of the excisable product. The Supreme Court referred to the MODVAT scheme in which the credit for excise duty paid on raw material can be used by the manufacturer, by way of reference to the working of the scheme for the purposes of valuation. The observations in para-18, that the MODVAT credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available, was made with reference to excisable final product. The Supreme Court was not considering the question of reversal of the MODVAT credit on raw material after the final products becomes wholly exempted from excise duty.

We have noticed that Rule 57-A underwent amendment and was substituted by M.F. (D.R.) Notification No. 6/97-C.E. (N.T.) dated 1.3.1993, inserting Sub-rule (4) which provides that the credit of specified duty under this section shall be allowed on inputs used in relation to manufacture of the final products whether directly or indirectly and whether contained in the final product or not. Rule 57 (3) (c) was also amended by Notification dated 2.3.1998 providing that No. credit of the specified duty shall be allowed on such quantity of inputs which are used in the manufacture of final product (which are exempted from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty). A new Rule 57-CC was inserted for adjustment of credit or inputs used in exempted final products or maintenance of separate in the entry and accounts of the inputs by the manufacturer. After these amendments the credit on inputs may be adjusted where the final product is exempted. Prior to the amendment, however, such adjustment was not permissible.

In view of the aforesaid discussion, we are of the opinion that allowing the MODVAT credit on inputs which are brought into the factory and for which the credit has been taken before the date when the final product became exempted lying unutilised, as raw material will amount to unjust enrichment. The question No. 1 is thus answered against the applicant, and in favour of the revenue.

So far as the question No. 2 is concerned, we do not find any force in the contention of Shri Bharat Ji Agrawal, that unless there is allegation of fraud, misstatement, collusion or suppression with an intent to evade duty for which show cause notice has been given, the duty paid of which the final product is exempted from duty, cannot be reversed. The Tribunal has rightly held that the credit of duty utilised in the manufacture of exempted goods is required to be reversed without any reference of time limit, and that show cause notice even after six months is not time barred having regard to the language of Rule 57-I (2).

The judgments cited by Shri Bharat Ji Agarwal in Pahwa Chemicals Private Limited v. Commissioner of Central Excise, Delhi (2009) 4 SCC 658 and Mathania Fabrics Vs. Commnr. of Central Excise, Jaipur, and C.C.E. Mangalore v. M/s Pals Microsystems Ltd. Mangalore JT 2011 (8) SC 282 are not applicable on the facts of the present case. In all these cases the limitation was made applicable where there was a notice given of willful misstatement and willful suppression of facts. In these cases the Supreme Court held that mere failure to pay is not sufficient. There must be some positive act of establishing willful mis-statement and willful suppression of facts.

In the present case the show cause notice was not given to reverse the duty on the allegations of fraud, mis-statement, collusion or suppression of fact with an intention to evade the duty. It is a case of reversal of the MODVAT credit taken on the inputs in manufacture of product, which had become exempt from duty. The question No. 2, is also answered against the applicant and in favour of the revenue.

The department may proceed in accordance with the law.