Commissioner of Central Excise vs Asian Paints India Ltd.

This appeal arising out of the order passed by the Customs, Excise and Service Tax Appellate Tribunal dated 25th June, 2004, has been admitted on the following substantial questions of law:

(i) Whether the Respondent / Assessee would be eligible to avail and utilize the modvat credit on in process inputs which have been destroyed in fire or they should reverse the modvat credit taken by them or the same is inadmissible in terms of Rule 57A ?

(ii) Whether the inputs lost due to fire cannot be covered under Rule 57D though they were not used in relation to final products and no dutiable product emerged therefrom ?

(iii) Whether the provisions of Rule 57A which envisages the utilization of inputs in the manufacture of finished goods is fulfilled by the Assessee / Respondent ?

(iv) Whether the Tribunal was right in confirming the order of Commissioner of Central Excise (A) which set aside penalty U/ sec. 173Q on the ground that Rule 571(4) provides that penalty could be arrived at only if the ingredients therein are satisfied ?

The facts necessary to answer these questions in brief are that a show cause notice was issued to the respondent- assessee which is engaged in the manufacture of excisable goods viz. paints, varnishes, miscellaneous chemicals and organic surface active agents falling under Chapter 32, 38 and 34 respectively of the Central Excise Tariff Act, 1985. This show cause notice alleged that the assessee had contravened the provision of Rule 57F read with Rule 57A of the Central Excise Rules, 1944, since they had availed and utilised the credit of duty paid on inputs received amounting to Rs. 1,12,48,318.26. It is alleged that these inputs were not used in the manufacture of finished goods. We are not concerned with these allegations in the show cause notice and this part of the impugned order.

We are concerned in this appeal with the availment of credit of Rs. 27,24,890 /- on duty paid inputs used for manufacture of finished goods which have not come into existence due to destruction in fire. The fire occurred in the month of February 1996. The allegations are that once the finished goods have not come into existence, the modvat credit on inputs was not admissible and that is liable to be reversed. There are consequential demands in addition to the above, of interest and there is also penalty proposed.

This show cause notice was adjudicated and the demand was confirmed.

Being aggrieved by this order in original dated 4th September, 2001, the matter was carried in appeal by the assessee to the Commissioner (Appeals). On 30th April, 2002 / 10th December, 2002, this appeal came to be allowed insofar as the questions of law termed as substantial and reproduced hereinabove.

The Revenue carried the matter in appeal aggrieved by the findings and to this extent. That appeal has been dismissed by the Tribunal.

Mr. Mishra appearing on behalf of the Revenue in support of this appeal invites our attention to Rule 57A as prevailing at the relevant time to submit that the intent was not to allow any credit to be availed of on the duty paid on the inputs unless there is a final product which is manufactured. The words "goods used in or in relation to the manufacture of the said final products" read in their entirety would mean that there should be a manufacture of the final product. If during the manufacturing process the fire occurred and everything was destroyed, then there was no manufacture of a final product. The final product did not emerge at all. In such circumstances, the credit of inputs was inadmissible.

Mr. Motwani appearing on behalf of the assessee, on the other hand, would support the findings of the Tribunal on this aspect. He submits that the position that emerges from a combined reading of Rule 57A and Rule 57F (1) indicates that inputs in respect of which credit has been allowed under Rule 57A may be used in or in relation to the manufacture of final products for which such inputs had been brought into the factory or they shall be removed after intimating the Assistant Commissioner of Central Excise having jurisdiction over factory and obtaining a dated acknowledgement of the same. They could be removed from the factory for home consumption or for export, but if they are removed for home consumption on payment of duty of excise, such duty of excise shall be the amount of credit that has been availed on such inputs under Rule 57A. Thus, emergence of a final product is not a condition which is prescribed for availment of the credit. The Tribunal, therefore, was right in taking the view that it has taken. The Tribunal has passed several orders to this effect and against the Revenue. One such order is reported in 2013 (151) Excise Law Times Pg. 393 Commissioner of Central Excise, Chennai III vs. Indchem Electronics. The appeal to the Hon''ble Supreme Court from this Tribunal decision has been dismissed by the Supreme Court on 4th April,. 2003.

We have, with the assistance of the learned advocates, perused the appeal memo and all annexures thereto. From the records we have perused the original Tribunal order. Though the Tribunal order briefly indicates as to why it did not agree with the Revenue, we find that its view can be supported on a plain reading of Rule 57-A, sub-rule (1). That Rule, to the extent relevant, reads as under:

"(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 under Section 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 [whether directly or indirectly and whether contained in the final product or not] (hereinafter 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." 10. Mr. Motwani''s reliance on Rule 57A is also well placed inasmuch as what the legislature at that time envisaged was that so long as the goods styled as inputs have been brought in for the purpose of usage in or in relation to the manufacture of the said final products, the credit can be claimed and in terms of the Central Excise Rules, 1944, as applicable. There was nothing in the Rules which would mandate that the credit of duty can be claimed and in relation to such inputs only if there is emergence of a final product or that the manufacture of the final product is complete. Had that been the intent, the words "goods used in or in relation of the manufacture of the said final products" would not have appeared in sub-rule (1) of Rule 57A. Their plain meaning enables us to agree with the Tribunal that the intent of the rule makers was not to disallow credit merely because a contingency over which the assessee had no control takes place. In the present case, none could have predicted a fire occurring in the manufacturing plant of the assessee. That the fire occurred and at the relevant time but the goods were already utilized in the process of manufacturing of the final product, then the credit paid on those goods was admissible. There is no dispute about these facts, including the fire. In the circumstances, the Tribunal took the view that the language of the Rule does not permit it to agree with the Revenue and deny the credit.

The Tribunal has also taken such a view in the case of M/s. Indchem Electronics (supra). The decision of the Tribunal in that case was appealed by the Revenue, but unsuccessfully.

Given the language of the Rule and the admitted facts, the Tribunal''s conclusion in the present case cannot be termed as perverse or vitiated by any error of law apparent on the face of the record. Consequently, all these questions are answered in favour of the assessee and against the Revenue.

The appeal is dismissed. No costs.