The Commissioner, Central Excise Goa vs MRF Ltd.

S.B. Deshmukh, J.—We have heard the learned Counsel appearing for the appellant and Senior Advocate Mr. Usgaonkar with Ms. Pimenta for the sole Respondent.

The appellant (hereinafter referred to as Revenue for short), has challenged the Order passed by the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as CESTAT for short) in Appeal No. E/1385/02 dated 30.03.2004. Respondent, (hereinafter referred to as Assessee for short) is Limited Company, registered under the Companies Act, 1956. It is not in dispute that the respondent is engaged in manufacturing tyres of Animal Drawn Vehicles. It is the contention of the assessee/respondent that the Furnace Oil is an input used as a fuel during the manufacturing process of the final product i.e. tyres drawn by animal vehicles. According to respondent, they are entitled for such Modvat credit.

Joint Commissioner of Customs and Central Excise, Panaji, Goa, had issued show cause notice to the respondent dated 24.08.1999, which is on record (Page 17). It has been stated in the show cause notice that during the period of April 1997 to May 1998 and August 1998 to June 1999, the assessee had availed Modvat Credit of Rs. 1,82,980/- on Furnace Oil falling under Chapter heading 2710.90 under Rule 57-A of Central Excise Rules 1944, (Rule 1994 for short). According to Revenue, such availment of the Modvat Credit period is inadmissible and respondent-manufacturer is not eligible for such Modvat Credit under Rule 57A of Central Excise Rules, 44 and recoverable under Rule 57(1)(ii) of Central Excise Rules, 1944. Ultimately, respondent-manufacturer was called upon to show cause, mainly on alleged irregular Modvat Credit amounting to Rs. 1,82,980/-and further was called upon to show cause as to why penalty should not be imposed on respondent under Rule 173Q of the Rules of 1944.

Respondent, on receipt of the show cause notice, filed its reply dated 31.01.2000, copy of which is on record (page 23 of the compilation). It has been contended in the reply by the assessee/respondent that MRF-Limited Goa, manufacturers of excisable goods falling under Chapter 40 are availing Modvat Credit on Furnace Oil since 1994. According to assessee, Furnace Oil is used in the manufacture of final products. They are manufacturing Animal Drawn Vehicles which are exempted from payment of duty. According to assessee, Furnace Oil is used as a common input in the manufacture of both dutiable as well as non- dutiable ADV i.e. Animal Drawn Vehicles, tyres. Respondent has further stated that they are reversing the Modvat credit on inputs used in the manufacture of ADV tyres. The amount of Modvat reversal towards ADV tyres includes the amount of Modvat credit on Furnace Oil used in the manufacture of ADV tyres also. Thus the amount of reversal includes Furnace Oil also till March 1997. The rate of reversal has been informed by the Department by communication dated 08.03.1995. Reference is made to the change in Rule 57CC from 01.03.1997. It is further stated that reversal details have been submitted with effect from 01.04.1997. In respect of ADV tyres reference of the communication dated 23.09.1990 is also made. Grievance is also raised that the Department cannot invoke the provisions laid down u/s 11A and hence show cause notice to that extent is time barred. Further reference has been made to Sub-rule (5) of Rule 57CC and contentions have been raised that the Furnace Oil is an input contained in such final product i.e. ADV tyres. Proceedings, i.e. Initiation of the show cause notice, was therefore, requested to be dropped.

On receipt of the reply to show cause notice, respondent has been heard by the learned Joint Commissioner of Custom & Central Excise, Panaji, Goa. Proceeding was registered as File No. VI/JC/26/99. The learned Joint Commissioner heard the respondent-manufacturer. The learned Joint Commissioner differed with the submissions on behalf of the respondent-assessee that the Furnace Oil input used in the process of manufacture of ADV tyres, is a Fuel. He reached the conclusion that the respondent-assessee is not eligible and entitled for Modvat Credit to Rs. 1,82,980/-. By the Order passed by the Joint Commissioner, a demand of Rs. 1,82,980/-against the respondent-assessee has been confirmed under the provisions of Rule 57I(1)(ii) read with proviso to Section 11A(1) of the Central Excise Act 1944. A penalty of Rs. 25,000/- is also imposed on the assessee-Respondent by this Order passed by the Joint Commissioner, Customs & Central Excise, Panaji, Goa, dated 08.09.2001.

The Order passed by the learned Joint Commissioner, Customs & Central Excise, Panaji, Goa, was challenged by the respondent-assessee before the Commissioner of Central Excise(Appeals), Mumbai. It was registered as File No. 34/GOA/2001. After hearing the respondent, this appeal came to be rejected by the learned Commissioner (appeals) by the Order passed on 19.02.2002. In other words, the Order passed by the Joint Commissioner was upheld by the Commissioner (Appeals of Central Excise) Mumbai. The rejection of the appeal of the present respondent-assessee by the Commissioner (Appeals) was further carried by the assessee-respondent to the Appellate Tribunal i.e. CESTAT, Mumbai. It was registered as Appeal No. E-1385/02. This appeal, after hearing the parties came to be allowed by the Appellate Tribunal i.e. CESTAT by the Order passed on 30.03.2004. It is this Order which is challenged by the Revenue by filing this appeal before this Court.

This appeal was listed for admission before this Court. This Court framed the following three Substantial Questions of Law by the Order passed on 27.06.2005:

Whether in the manufacture of tyres for animal drawn -vehicles, a final produce exempt from excise duty, the manufacturer can avail of modvat credit in respect of furnace oil used as an input in the manufacture of the final product?

Whether Rule 57CC of the Central Excise Rules, 1944 carves out an exception to the prohibition contained in Rule 57C of the Central Excise Rules, 1944?

Whether Rule 57CC of the Central Excise Rules, 1944 includes within its ambit inputs used as fuel, to permit benefit of modvat credit for the final product which is exempt from the whole of the duty of attracts Nil rate of duty?

We have heard the learned Counsel for the respective parties. Rule 57A is under the title CREDIT OF DUTY PAID ON EXCISABLE GOODS USED AS INPUTS. The word ''input'' may be understood in the context of Rule 57A. Meaning of the word ''input'' in fact, is clarified under Rule 57A and more specifically Sub-rule (1) thereof. Sub-rule (4) of Rule 57A provides that the credit of specified duty under the section shall be allowed on inputs used in the manufacture of final products as well as on inputs used in or in relation to the manufacture of final products whether directly or in directly and whether contained in the final products or not. Sub-rule (5) has been with explanation. We have considered the scheme of Rule 57A in its entirety i.e. from Sub-rule (1) up till Sub- rule (6).

In our opinion, the learned Appellate Tribunal is justified in interpreting Sub-rule (4) of 57A and turning down the finding of the Lower Authorities.

The learned Counsel for the revenue fairly referred to some judicial pronouncements. One of them is the Judgment of the Punjab and Haryana High Court reported in 2008 (221) E.L.T. 41 (P & H) in the matter of Commissioner of C. Ex., Delhi-IV v. Super Auto (I) Ltd. Learned Asst. Solicitor General has invited our attention to paragraph No. 8 and 9 of the Judgment.

The second judicial pronouncement relied by the Asst. Solicitor General is in the matter of Union of India v. Flex Chemicals Ltd. reported in 2007 (216) E.L.T. 359 (M.P.). Learned Asst. Solicitor General has pointed out the Substantial Questions of Law framed therein which is reproduced in paragraph 9 of the Judgment. It is as follows:

At the time of admission, this Court has not framed any substantial question of law. However, in the memo of appeal the appellant has suggested following substantial question of law is involved:

In the light of points discussed in para 7(B), the Tribunal does not appear to be correct in allowing Modvat credit of duty paid on fuel used in the manufacture of exempted final products, accordingly. Whether CESTAT is correct in allowing said Modvat Credit?

We have considered paragraph 10 and 11 also from this Judgment. Here also, Rule 57C(1), (2) and (3) of the Rules concerned were considered by the Court.

In the matter of Union of India v. Flex Chemicals Ltd. (supra), the assessee was a Company registered under the Companies Act. assessee was a manufacturer of PET Chips. There also, the Assessee was availing Modvat Credit of Central Excise Rules, 1944. The Court upheld the finding of the Deputy Commissioner, Central Excise, Gwalior and the Appellate Tribunal that the Assessee in that case is entitled to Modvat credit by the fuel used by them in manufacture of PET Chips.

We have given anxious consideration to the submissions made by the Counsel for the parties. We have carefully examined the provisions i.e. Rule 57A, 57B and 57C in its entirety. We have taken into account the scope of Section 35G of the Central Excise Act, 1944. We do not find perversity in the Order passed by the CESTAT. In our view, the Order passed by the CESTAT, in the facts and circumstances of the case, is just, legal and does not require interference by this Court. We, accordingly, answer the Substantial Questions of Law framed by this Court at the time of admission of the appeal. In this view of the matter, we are inclined to dismiss the appeal upholding the Order passed by the CESTAT dated 30.03.2004, however, without any order as to costs.