Raajratna Metal Industries Limited vs Union of India

Harsha Devani, J.—By this petition under Article 226 of the Constitution of India, the petitioners have challenged the order-in-appeal No. 376-377/2005, dated 8-6-2005, (Annexure "I" to the petition) and the Orders-in-Original No. 947/Ref/2004 and No. 948/Ref/2004 both dated 20-12-2005 passed by the Commissioner of Central Excise, Ahmedabad (Annexure "G") to the petition collectively). The facts of the case as appearing in the petition are that the petitioner, a private limited company, is engaged in the business of manufacture of Stainless Steel Wires (SS Wires) of different thicknesses. Till 28-2-1986, under the erstwhile Tariff Item 26AA of the First Schedule to the Central Excises & Salt Act, 1944, the goods manufactured by the petitioner were considered as excisable and the Appellate Tribunal had also decided in the case of 1983 ECR 831D that wire was a different product from the wire rod from which it was produced and process of obtaining wire from wire rod was manufacture. On 18-11-1987, the Appellate Tribunal in the case of 1990 (30) ECR 607 examined a case of MS wire and held that the activity of reducing thickness to 3 mm to 5 mm from wires of thickness of 6 mm to 8 mm was not manufacture. Despite the aforesaid decision, there was no dispute about the excitability of the SS wires produced by the manufacturers like the petitioners and they continued paying duties of excise on SS wires manufactured from SS rods and the Excise Department also never suggested that the decision in the case of Jyoti Engineering Corporation (supra) had any relevance or bearing to the excitability of SS wires from SS rods.

On 28-2-1986, the new Central Excise Tariff Act, 1985 came into operation and the SS wires came to be classified under Heading No. 72.33 whereas the petitioners'' raw material, namely, SS hot rolled black wire rods came to be classified under Heading No. 72.21 of the Tariff. The petitioners continued paying excise duties on SS wires and the Excise Department also continued levying and recovering excise duties from the manufacturers like the petitioners on SS wires under Heading No. 72.23. Thereafter, on 16-2-2001, the Central Board of Excise & Customs issued a circular informing the trade that drawing of wire from wire rod was manufacture. This was in keeping with the understanding between the trade and the Revenue officers and also in keeping with the practice being followed throughout the country as regards SS wires. On 27-3-2003, the Supreme Court decided appeals involving issue of obtaining MS wires from MS rods in the case of Collector of Central Excise Vs. Technoweld Industries, and held that the initial product and the ultimate product were the same and all that was done was only gauge of the rod was made thinner and the product was finished a little better and, therefore, the decision of the Tribunal holding that MS wire obtained from MS rod was not liable to excise duty was correct. Despite the aforesaid decision of the Supreme Court, the manufacturers like the petitioner were paying excise duties on SS wires and the Revenue authorities were also collecting such duties without any objection.

Vide circular dated 29-5-2003, the Central Board of Excise & Customs withdrew the previous Circular dated 16-2-2001 and informed the trade that the review petitions filed by the Excise Department in cases decided by the Supreme Court in Collector of Central Excise v. Technoweld Industries (supra), were dismissed.

In view of the above position, a show cause notice dated 28-8-2003 came to be issued to the petitioner company and ultimately, after hearing the petitioners, an order-in-original dated 19-9-2003 came to be passed by the third respondent holding that drawing of SS wire from SS rods by the petitioner company does not amount to manufacture with effect from 29-5-2003 in view of the judgment of the Supreme Court in the case of Commissioner of Central Excise v. Technoweld Industries (supra) and withdrawal of Board''s Circular on 29-5-2003.

Being aggrieved, the petitioner company approached this Court by way of a writ petition being Special Civil Application No. 591 of 2004, seeking a declaration that the judgment of the Supreme Court in the case of Commissioner of Central Excise v. Technoweld Industries (supra) was not applicable to the petitioners'' case as well as a declaration that the processes undertaken by the petitioner company for producing stainless steel wires from stainless steel hot rolled back wire rods is "manufacture" and that the petitioner company was legally obliged to pay duties on stainless steel wires manufactured by it from stainless steel rolled back wire rods. This Court, on 20-1-2004, passed a detailed interim order in the above referred special civil application and directed the respondents to permit the petitioners to pay excise duty on stainless steel wires manufactured out of stainless steel hot rolled black wire rods with all other consequential benefits and liabilities including Cenvat credit in accordance with the Rules. It was also clarified that pendency of the petition would not preclude the Central Board of Excise and Customs from considering the question whether a distinction was required to be made between the process of drawing wires from mild steel rod on the one hand and processing of making stainless steel wires from stainless steel rods on the other hand.

In the Union Budget of year 2004-05 presented on 8-7-2004, the Central Government has amended the Tariff Act by inserting Note 10 in Section XV thereby providing that in relation to products of that section, process of drawing or re-drawing a rod, wire or any other similar article into wire shall amount to "manufacture". Section XV of the Tariff covers Chapters 72 to 83, and thus, Chapter 72 under which petitioners'' case fell is also covered thereunder, and accordingly, a process undertaken by the petitioners and other similarly situated manufacturers is considered to be "manufacture" by virtue of the above referred note inserted with effect from 1-3-2004 in the Tariff. Thus, the dispute was therefore confined only for the period from 29-5-2003 to 8-7-2004.

Vide show cause notice dated 25-5-2004 issued to the petitioner company, the Commissioner of Central Excise, Ahmedabad-II proposed to deny Cenvat credit of Rs. 2,62,24,156/- taken by the petitioner company during the period 29-5-2003 to 8-11-2003 with proposals for penalty and interest on the ground that the petitioner company could not have taken credit of duties paid on raw materials when its activities did not constitute "manufacture". The petitioners filed a reply to the above show cause notice vide letter dated 4-6-2004, but this show cause notice was kept in abeyance by the Commissioner of Central Excise-III, Ahmedabad in view of the pendency of the above referred petition before this Hon''ble Court involving the same issue.

During the above referred period, the petitioner company was clearing SS wires on payment of excise duties at appropriate leviable rates. The petitioner company was also availing credit of duties paid on SS wire rods by virtue of the interim orders passed by this Court in the above referred matter. The Cenvat Credit Rules provide for cash refund of credit of duties paid on inputs used in or in relation to the manufacture of final products exported under bond if such credit cannot be utilized for paying duties on any other goods cleared for home consumption on payment of duty or cleared for export on payment of duty. Since the petitioner company was not in a position to utilize Cenvat credit availed on inputs used in relation to the manufacture of the exported goods, the petitioner company filed two refund claims for such accumulated credit for the goods exported during the period from July, 2003 to September, 2003 and April, 2003 to June, 2003 as regards its final products. Pursuant to the aforesaid refund claims, two show cause notices dated 25-6-2004 and 1-6-2004 respectively came to be issued to the petitioners proposing to reject the refund claims on various grounds. The aforesaid show cause notices culminated into orders-in-original No. 947/Ref/2004 and No. 948/Ref/2004 both dated 20-12-2004, whereby the refund claims came to be rejected as premature as well as devoid of any merits so far as rebate under Notification No. 41/2001, dated 26-6-2001 was concerned. Being aggrieved, the petitioner company filed two appeals before the Commissioner (Appeals), the second respondent herein. During the pendency of the aforesaid appeals, the Central Government introduced the Tax Laws Amendment Bill, 2005 dated 9-5-2005 in the Parliament, thereby amending Rule 16 of the Cenvat Credit Rules with retrospective effect from 29-5-2003 (i.e. the day on which the C.B.E. & C. issued Circular No. 720/35/2003-CX thereby clarifying that wire drawing was not "manufacture") and covering the entire period from 29-5-2003 to 8-7-2004. By virtue of these amendments, wire drawing units like the petitioners have been considered as the "assessee" under the cenvat excise law and they are also allowed to avail Cenvat credit thereby regularizing their availment of credit during the above referred period. It is the case of the petitioners that by virtue of the above referred proposal before the Parliament, the whole issue of availability of credit would stand settled in favour of the trade. However, without considering the significance of the above proposal put before the Parliament as far back as 9-5-2005, the Commissioner (Appeals), Ahmedabad rejected the above referred two appeals of the petitioner company on the ground that claiming refund of unutilized credit was premature in view of the pendency of the petition before this Court. Being aggrieved, the petitioners have filed the present petition, seeking the relief noted hereinabove.

Mr. Paresh M. Dave, learned advocate appearing on behalf of the petitioners invited attention to the provisions of the Taxation Laws (Amendment) Act, 2006 (Amendment of 2006) and more particularly, to Section 39 thereof whereby Rule 16 of the Central Excise Rules, 2002 (the Rules) has been amended, to the effect that for the purpose of the Rules, wire drawing units which cleared the goods on payment of an amount equal to duty at the rate applicable to drawn wire on the date of removal were included in the definition of "assessee" and the amount paid on the goods brought to the factory of such assessee was allowed as Cenvat credit as if it was duty paid by the assessee who removed the goods. It was submitted that in the light of the amendment in Rule 16 of the Rules the petitioner is entitled to take Cenvat credit of the duty paid on the goods brought to the factory of the petitioner.

Attention was also invited to the fact that the said Amendment of 2006 has been made effective for the period from 29-5-2003 to 8-7-2004. It was submitted that in the light of the Amendment of 2006, the decision of the Supreme Court would no longer be applicable to the facts of the present case inasmuch as, the legislature by the amendment has included the persons like the petitioner herein as assessee for the purposes of Rule 16 of the Rules. It was submitted that in the present case, the dispute relates to the period 29-5-2003 to 8-11-2003 and as such, the same is directly covered by the Amendment of 2006. In the circumstances, the impugned order dated 8-6-2005 passed by the respondent No. 2--Commissioner of Central Excise (Appeals) being contrary to the amended provisions of the Rules, is required to be quashed and set aside.

Mr. R.J. Oza, learned Senior Standing Counsel appearing on behalf of the respondents was not able to dispute the aforesaid position of law. It was submitted that in the light of the amended statutory provisions, the petitioner company would be entitled to refund of the unutilized Cenvat credit provided it has paid the duty on the wire rods.

In the background of the aforesaid facts as well as the submissions advanced by the learned advocates for the respective parties, it is apparent that the impugned order passed by the Commissioner (Appeals) is based upon the decision of the Supreme Court in the case of Commissioner of Central Excise v. Technoweld Industries (supra), holding that the process of drawing wires does not amount to manufacture.

Sub-section (1) of Section 39 of the Taxation Laws (Amendment) Act, 2006, as is relevant for the present, reads thus:

(1) In the Central Excise Rules, 2002, made by the Central Government in exercise of the powers conferred by section 37 of the Central Excise Act, rule 16 thereof as published in the Official Gazette vide notification of the Government of India in the Ministry of Finance (Department of Revenue), No. G.S.R. 143(E), dated the 1st March 2002 shall stand amended and shall be deemed to have been amended retrospectively in the manner as specified in column (2) of the Schedule for the period specified in column (3) of that Schedule against the rule specified in column (1) of that Schedule.

(2) Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, any action taken or anything done or purported to have been taken or done, at any time during the period commencing on and from the 29th day of May, 2003 and ending with the 8th day of July, 2004 under the rule as amended by sub-section (1), shall be deemed to be and always to have been, for all the purposes, as validly and effectively taken or done as if the amendment made by sub-section (1) had been in force at all material times.

(3) For the purposes of sub-section (1), the Central Government shall have and shall be deemed to have the power to make rules with retrospective effect as if the Central Government had the power to make rules u/s 37 of the Central Excise Act, retrospectively, at all material times.

Explanation.--For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence, which would not have been so punishable if this section had not come into force.

By virtue of the aforesaid provisions, Rule 16 of the Rules has been amended retrospectively in the manner as specified in column (2) of the Schedule for the period specified in column (3) of that Schedule against the rule specified in column (1) of that Schedule. Sub-section (2) of section 39 says that notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, any action taken or anything done or purported to have been taken or done, at any time during the period commencing on and from the 29th day of May, 2003 and ending with the 8th day of July, 2004 under the rule as amended by sub-section (1), shall be deemed to be and always to have been, for all the purposes, as validly and effectively taken or done as if the amendment made by sub-section (1) had been in force at all material times.

The Schedule thereto indicates that Rule 16 of the Central Excise Rules has been amended by inserting the second proviso thereto, which reads thus:

Provided that for the purposes of this rule, "assessee" shall include wire drawing unit, which has cleared the goods on payment of an amount equal to the duty at the rate applicable to drawn wire on the date of removal and on the value determined under relevant provisions of the Act and the rules made thereunder.

Provided further that the amount paid under the first proviso shall be allowed as CENVAT credit as if it was duty paid by the assessee who removes the goods.

Thus, the persons like the petitioners are termed to be "assessee" within the meaning of Rule 16 of the Rules. Rule 16 of the Rules lays down that where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take Cenvat credit of the duty paid as if such goods are received as inputs under the Cenvat Credit Rules, 2002 and utilize this credit according to the Rules. By virtue of the amendment, the petitioner is an "assessee" within the meaning of Rule 16 of the Rules and as such, would be entitled to avail of Cenvat credit in accordance with the Rules.

Examining the facts of the present case in the light of the aforesaid amendment in the statutory provisions, the impugned order dated 8-6-2005 passed by the Commissioner (Appeals) as well as the orders in-original dated 20-12-2004 passed by the adjudicating authority are clearly contrary to the statutory provisions and as such, cannot be sustained.

For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned order-in-appeal No. 376 to 377/2005, dated 8-6-2005, (Annexure "I" to the petition) and the orders-in-original No. 947/Ref/2004 and No. 948/Ref/2004 both dated 20-12-2005 passed by the Commissioner of Central Excise, Ahmedabad (Annexure "G" to the petition collectively), are hereby quashed and set aside. Consequently, the refund claims of the petitioners shall stand restored to the file of the adjudicating authority, who shall decide the same afresh in the light of the aforesaid amended statutory provisions. Rule is made absolute accordingly with no order as to costs.