Global Sugar Ltd. vs Commissioner of Central Excise, Kanpur

Tarun Agarwala, J.—This excise reference has been made pursuant to a direction passed by the Court on an application filed under Section 35H of the Central Excise Act for interpretation of the following question of law :

"Whether the interpretation of Rule 57-T(3) of the Central Excise Rules 1944 and its proviso given by the Tribunal in the judgment dated 1-3-2000 [2000 (119) E.L.T. 611 (Tribunal)] is correct?"

The fact leading to the filing of the present excise reference is that the applicant M/s. Global Sugar Ltd., as it was then known, had taken Modvat credit on structural materials such as channels, plates, angles, rounds, shapes and sections of mild steel which was used in the construction of shade and building of the factory and for staging structure of boiling houses. According to the Department, the applicant had wrongly taken Modvat credit amounting to Rs. 25,25,826.75 on the goods purchased by it without obtaining mandatory permission as provided under Rule 57T(3) of the Central Excise Rules (hereinafter referred to as the Rules). Since the mandatory procedure was not followed the Modvat credit was disallowed by the Commissioner. The applicant filed an appeal, which was dismissed by the Commissioner. Thereafter the applicant filed a Central Excise Reference Application under Section 35H, which was allowed by an order dated 23-1-2008 as modified by order dated 30-10-2009. This Court directed the Tribunal to draw the Statement of Case and refer the matter to the High Court on the aforesaid question of law as stated above.

The short question, that comes for consideration is, whether the applicant had adhered to the provision of Rule 57T of the Rules in seeking a declaration for availing Modvat credit. For facility, the relevant extract of the provision of Rule 57T of the Rules is extracted hereunder:-

"Rule 57T - Procedure to be observed by the manufacturer. - (1) Every manufacturer intending to take credit of the duty paid on the capital goods under Rule 57Q shall, before receipt of the capital goods, file a declaration with the Assistant Commissioner of Central Excise having jurisdiction over his factory, indicating therein the particulars of the capital goods, description of the final products manufactured in his factory and such further information as the Assistant Collector may require, and shall obtain a dated acknowledgment of the said declaration.

(2) The manufacturer shall also file a declaration in accordance with the provisions of sub-rule (1) of rule 57R to the Assistant Commissioner of Central Excise having jurisdiction over his factory to the effect that such capital goods shall not be used exclusively for production of a final product which is exempt from the whole of the duty of excise leviable thereon (other than a final product which is exempt for the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year) or is chargeable to nil rate of duty and also that he shall not claim depreciation under section 32 of the Income-tax Act, 1961 (43 of 1961), or as revenue expenditure under any other provision of the said Income-tax Act, in respect of that part of the value of capital goods which represents the amount of specified duty paid on such capital goods.

(3) In case where a manufacturer was not in a position to make the declarations under sub-rules (1) and (2) and makes the declaration subsequently but ordinarily within a period of one month or in exceptional cases, within a further period not exceeding, in any case, more than another two months from the date of receipt of the said capital goods in the factory, the Assistant Commissioner of Central Excise may, on sufficient cause being shown to him, allow the filing of the declaration.

[(4) * * * * *]

[(5) * * * * *]

(6) The manufacturer shall be allowed to take the credit of specified duty only if the capital goods are received in the factory premises of the manufacturer under the cover of a document specified under rule 57G evidencing the payment of duty on such capital goods.

(7) The Assistant Commissioner may, on sufficient cause being shown to him, allow the manufacturer to take credit of the specified duty on capital goods, paid by a contractor or job worker who undertakes the job of initial setting up, renovation, modernisation or expansion of the plant on behalf of the manufacturer of final products, subject to such procedure and conditions as may be specified by the Commissioner[* * *]."

The aforesaid Rules indicates that where a manufacturer intends to take credit of the duty paid on capital goods under Rule 57Q of the Rules has to file a declaration with the Assistant Commissioner of Central Excise indicating the particulars of the capital goods and the description of final product manufactured in its factory with the understanding that such capital goods could not be used exclusively for production of the final product which is exempted from the whole of the duty of excise leviable thereon.

Sub-section (3) of Rule 57T of the Rules indicates that where a manufacturer could not seek a declaration, but subsequently files an application seeking a declaration, the same shall be considered by the Assistant Commissioner on sufficient cause being shown by the applicant for not filing the application within time.

The Commissioner while disallowing the Modvat credit and imposing a penalty held that no permission as provided under Rule 57T of the Rules had been granted by the Assistant Commissioner and therefore, the applicant had wrongly availed the Modvat credit.

We find from a perusal of the order that the applicant had filed the application under sub rule (3) of Rule 57T along with an application for condonation of delay showing cause that they were not aware of the procedure for claiming declaration under the said Rule and have filed the same at the earliest opportune moment. It was contended that this is only a procedural/technical lapse and that the substantive right of Modvat credit could not be denied on account of such procedural/technical lapse. The claim of the applicant for Modvat credit was disallowed on the ground that mandatory permission as required under Rule 57-T was not granted by the competent authority though it is admitted that such application was filed by the applicant.

Having heard Sri Piyush Agarwal, the learned counsel for the applicant and Sri R.C. Shukla, the learned counsel for the respondents, we find that the procedure involved for availing Modvat credit under Rule 57T of the Rules is more or less akin as provided under Section 57G of the Rules. This Court in Commissioner of Central Excise, Kanpur v. M/s. Balmer Lawrie & Co. Ltd., 2016 UPTC 137 = 2016 (331) E.L.T. 369 (All.) held that the provision of Rule 57-G of the Rules was not mandatory and that it was only a procedural provision and if there was a procedural lapse, it could not mean that Modvat credit could not be availed. The same principle is applicable in the instant case.

We find that Modvat credit is basically a duty collecting procedure which allows relief to a manufacturer on the duty element borne by him in respect of the inputs used by him. The object behind Rule 57T of the Rules in the instant case is utilisation of credit allowed towards such inputs which was being exclusively used for erection of a shed and was not exclusively used for production of a final product. Sub-clause (6) of Rule 57T indicates as to when a Modvat credit could be availed, namely, that if the capital goods are received in the factory premises of the manufacturer under cover of a document specified under Rule 57G evidencing the payment of duty on such capital goods.

In the instant case, it is not disputed that the goods were received in the factory premises and was consumed for the purpose of erection of shades for boiler houses, etc. It is also not disputed that the goods so received showed evidence of payment of duty on such goods. When these two conditions are existing which are the mandatory requirement, in such case, Modvat credit should be allowed and could not be denied on the ground that there was a procedural lapse in not applying for a declaration within a stipulated period.

Sub-rule (3) of Rule 57T of the Rules clearly indicates that if the declaration is not filed within the specified period, the same can be considered after the expiry of period on sufficient cause being shown. In the instant case, the applicant clearly stated that they were not aware of such procedure for claiming Modvat credit and the moment they came to know applied for Modvat credit. The fact, that the applicant applied for Modvat credit has not been disputed. Once this is not disputed, it is not open to the respondents to deny Modvat credit on the ground that permission was not granted by the competent authority. There is no evidence that the application of the applicant was rejected. In our opinion, even if there is a procedural lapse, it does not mean that Modvat credit could not be availed.

In Commissioner of Central Excise, Allahabad v. Hindalco Industries Pvt. Ltd., 2013 (293) E.L.T. 208, this Court after considering the provision of Rule 52A and 57G of the Rules held that Rule 57G of the Rules only prescribes the procedure for availing Modvat credit and did not affect any substantial right. In our opinion, the said decision is clearly applicable.

In the light of the aforesaid, we hold that Rule 57T of the Rules is only procedural in nature. We are also of the opinion, that Modvat credit cannot be denied on a technical ground that the procedure for availing Modvat credit was not followed at the material moment of time.

In the light of the aforesaid, the question of law is answered in favour of the applicant. The Tribunal was not justified in interpreting Rule 57T(3) of the Rules in a technical manner holding it to be a mandatory provision. Consequently, the question of law is answered accordingly, as a result of which, the order of Tribunal as well as the order of the Commissioner are set aside.

The reference is allowed.