Commissioner of C. Ex., Kolkata-II vs Rahee Industries Ltd.

In terms of the judgment and order of the Division Bench 2002 (105) ECR 1 41 the department referred the matter to this Court on the following questions of law for opinion

(a) After availing the credit under the Modvat Scheme, the assessee/respondent reversed of the same for the purpose of enjoying the benefits under value Based Advance Licence and Duty Exemption Entitlement Schemes and ultimately could not avail the aforesaid two schemes by reason by cancellation of advance licence, whether the assessee/respondent again can avail of benefits of the Modvat Scheme under Rule 57G of the Central Excise Rules, 1944 after expiration of six months.

(b) Whether the benefit of credit under the Modvat Scheme in terms of Rule 570 of the Central Excise Rules, 1944 can be extended in case of an assessee after expiration of six months from the date of issuance of documents in a case when the assessee initially availed the said benefits within a period of six months and subsequently reversed the same for the purpose of availing the benefits under the value Based Advance Licence and Duty Exemption Entitlement Scheme which he could not ultimately avail.

(c) Whether recredit and/or second credit is new credit entry or continuation of the first credit entry on the factual background of the case.

Before we express our opinion on the aforesaid formulated questions of law we state the short facts as hereunder :-

On or about 3rd January, 1997 the Superintendent of Central Excise, Range-VII, Howrah South Division, Calcutta-II issued a show cause notice to the respondent dealer alleging that there has been irregular/wrong availment of Modvat credit of duty paid on inputs used in relation to the said declared goods amounting to Rs. 6,45,293.00 should not be disallowed in contravention of the Rules 57A of the provisions of proviso 2 of sub-rule (2) of Rule 57G of the relevant notifications and should not be recovered and/or demanded under Rule 57-1 of Rules 1944 read with Section 11A of the Central Excise Act, 1944 and also as to why the amount of penalty should not be imposed upon the dealer/respondent under Rule 173Q (bb) of the said CE Rules, 1944 and interest @ 28% should not be recovered and/or charged on them from the date of taking wrong credit u/s 11AA of the said Act, 1944. The said show cause notice was replied to by the respondent and the Assistant Commissioner thereafter heard the respondent and going through the records did not accept that explanation given in the reply by the respondent. Hence the said Commissioner by order dated 18th February, 1999 disallowed the Modvat credit of duty amounting to Rs. 6,45,293/- in terms of Rule 57-1 of the said Rule. A sum of Rs. 50,000/- was also asked to be paid on account of penalty under Rule 173Q of the said Rule in contravention of the aforesaid Rule. The assessee/respondent was also held liable to pay interest on the aforesaid amount at the appropriate rate as warranted u/s 11A of the Central Excise Act, 1944.

On appeal being taken to the learned Tribunal by the assessee/respondent the matter was heard by the learned Tribunal. The learned Tribunal by the impugned judgment and order has allowed the appeal and set aside the impugned order and granted consequential relief to the respondent.

Mr. Amalesh Roy appearing for the revenue submits that in view of the proviso inserted in sub-rule (2) of Rule 57G it was not proper or lawful for the assessee/respondent to credit after six months from the date of taking wrong credit u/s 11AA of the said Act. Factually the same was not done within six months being the statutory period. Hence the learned Tribunal has committed patent error in law while allowing the said credit and set aside the impugned order of the learned Tribunal.

Mr. Khaitan appearing for the respondent has taken us through various provisions of the Rules. It appears from Rule 57A that the petitioner is on the facts and circumstances of the case entitled to the credit of the inputs of the goods as mentioned therein. The proviso so referred has been inserted later. It is an admitted fact that the petitioner was entitled to get credit of the inputs invoices and duly availed of the said Modvat credit and necessary entry was made and the same was produced before the appropriate officer of the revenue who had endorsed the same. After purchasing the said inputs the respondent started manufacturing goods in terms of and/or in accordance with the advice of their learned lawyer. Therefore the six months'' time mentioned in the proviso is not applicable on the facts and circumstances of the case.

In the context of the aforesaid submissions we now have carefully read the findings of the learned Tribunal. It appears to us that the learned Tribunal has found on fact that there is no dispute about cancellation of the advance licence and there was no requirement on the part of the respondent to reverse the credit and as such already reversed credit was liable to be credited back to them. The learned Tribunal has taken note of the provisions of Rule 57G requiring the assessee to take credit within a period of six months from the date of issuance of the invoice. The learned Tribunal on fact found that the appellant had already availed of the credit within the said period. Once this course of action is taken consequence of law will automatically follow. The learned Tribunal factually recorded that said credit so earned by the appellant in accordance with law was utilised by them by reversing the same at the first instance when exports were made under the said Scheme. As has been correctly observed that however on cancellation of advance licence the assessee again became entitled to put back the credit. The said credit was recredited in their accounts making reverse entry earlier made by them. Therefore, the learned Tribunal held on fact that it cannot be said at all that the reverse entry was made good. The credit so taken was on the basis of the invoices which were already more than six months old. On factual score the learned Tribunal held that availing of the credit on the basis of the invoices when for the first time the credit entries were made in the RG-23A Part 2 record in accordance with law. The Tribunal further held that having earned that credit it was only utilisation which was to be survived when the appellant made credit entry in their records second time, they were only reversing the debit entry of the credit already earned by them.

On the fact finding by the learned Tribunal we hold that the learned Tribunal has correctly held that provisions of Rule 57G(2) do not have any role to play in these circumstances and their contravention cannot be alleged against the appellant. In view of the factual finding and further appropriate application of law we do not think fit that judgment of the learned Tribunal should not be interfered with. Moreover, we have examined the provisions of Section 57G which is the basic provision for allowing credit and when the Tribunal on fact found this the other portion of the law has got no determinative value in mis matter.

Under these circumstances we think that revenue has no case at all and the respondent is entitled to get relief as granted by the learned Tribunal.

In that view of the matter we express our opinion answering the questions mentioned as aforesaid.

In the facts and circumstances of the case this question is answered in the affirmative. Question (1) does not apply. Therefore it is in the negative. In view of the aforesaid opinion being given no answer needs be given to the question (II) as referred.

Thus reference is disposed of.

Let xerox certified copy of this judgment and order be given to the parties, if applied for, upon compliance with all formalities.