Full Judgment Text
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CASE NO.:
Appeal (civil) 1767 of 2007
PETITIONER:
Commissioner of Central Excise, Mumbai- I
RESPONDENT:
M/s Bombay Dyeing & Mfg. Co.Ltd
DATE OF JUDGMENT: 08/08/2007
BENCH:
S. H. Kapadia & B. Sudershan Reddy
JUDGMENT:
J U D G M E N T
KAPADIA, J.
Interpretation of Notification No. 14/2002-CE arises for determination
in this civil appeal filed by the Department. The facts giving rise to this
civil appeal are as follows:
2. The assessee has two textile mills in Mumbai known as the Spring
Mills and the Textile Mills. This civil appeal relates to the former. Spring
Mills is a composite name of the mill in which there is a spinning section
where yarn is spun from raw cotton, and a weaving section where grey
fabrics is woven from such yarn. The grey fabrics woven in the Spring Mills
are not processed at Spring Mills. Most of the grey fabrics manufactured by
the assessee are processed by the Textile Mill though some quantity thereof
is sold to third parties. In this civil appeal, we are concerned with the period
13.3.2002 to 15.9.2002. In this civil appeal, we are not concerned with
quantification. That question is even today pending adjudication.
3. At the outset, we quote hereinbelow notification no. 14/2002-CE
granting exemption, both full and partial to a range of goods. As stated
above, in this civil appeal we are concerned with the item, namely, grey
fabrics manufactured by the assessee. In this civil appeal, we are concerned
with the interpretation of item 1 and item 2 of the table to the notification.
"Notification No.14/2002-CE dated 01-Mar-2002
Processed textile fabrics \026 Effective rate of duty
Notification No. 11/2001-C.E. superseded.
In exercise of the powers conferred by sub-section
(1) of section 5A of the Central Excise Act,1944 (1 of
1944) read with sub-section (3) of section 3 of the
Additional Duties of Excise (Goods of Special
Importance) Act, 1957 (58 of 1957) and in supersession
of the notification of the Government of India in the
Ministry of Finance (Department of Revenue), No.
11/2001-Central Excise, dated the 1st March, 2001,
published in the Gazette of India vide number G.S.R. 136
(E), dated the 1st March, 2001, except as respects things
done or omitted to be done before such supersession, the
Central Government being satisfied that it is necessary in
the public interest so to do, hereby exempts excisable
goods of the description specified in column (3) of the
Table below and falling within the Chapter, heading No.
or sub-heading No. of the First Schedule to the Central
Excise Tariff Act, 1985 (5 of 1986), specified in the
corresponding entry in column (2) of the said Table, from
so much of the aggregate of, \026
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(a) the duty of excise specified in the First Schedule
to the said Central Excise Tariff Act; and
(b) the duty of excise specified in the First Schedule
to the said Additional Duties of Excise (Goods of Special
Importance) Act, (hereinafter referred to as the
’aggregate duty’) as is in excess of an amount calculated
at the rate specified in the corresponding entry in column
(4) of the said Table, subject to the relevant conditions
specified below the said Table, and referred to in the
corresponding entry in column (5) of the said Table:
Provided that the aggregate duty of sixteen per
cent. ad valorem leviable on the excisable goods
specified in S. No. 9 of the Table below shall be
apportioned equally between the duty leviable under the
said Central Excise Act and the said Additional Duties of
Excise (Goods of Special Importance) Act:
Provided further that-
(a) during the period commencing from the 1st day
of March, 2002 and ending on the 28th day of February,
2005, the aggregate duty in respect of the goods specified
against S.Nos. 2, 3, 4, 5, 6, 7, 8, 11, 13, 15 and 16, shall
be further exempted in excess of three-fourths of the rate
specified in the corresponding entry in column (4) of the
said Table; and
(b) during the period specified in clause (a) above,
the duty leviable on the excisable goods specified therein,
shall be apportioned in the ratio 2:1 between the duty
leviable under the said Central Excise Act and the said
Additional Duties of Excise (Goods of Special
Importance) Act.
Explanation I.- For the purposes of this notification, the
rates specified in column (4) of the said Table are ad
valorem rates, unless otherwise specified.
Explanation II.- For the purposes of the conditions
specified below, textile yarns or fabrics shall be deemed
to have been duty paid even without production of
documents evidencing payment of duty thereon.
Explanation III.- For the purposes of the exemption
under S.No. 5 of the Table,-
(i)
the expression "independent processor" means a
manufacturer who is engaged exclusively in the
processing of fabrics with the aid of power and
who has no proprietary interest in any factory
engaged in the spinning of yarn of cotton or
weaving of cotton fabrics; and
(ii)
the value of the fabrics shall be equal to 40% of the
value determined under section 4 of the Central
Excise Act, 1944.
Table
S.No.
Chapter or heading
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No., or sub-
heading
No.
Description
Rate
of
duty
Condition
(1)
(2)
(3)
(4)
(5)
1
5110.10, 5111.10,
5207.20, 5208.20,
5209.10, 5406.10,
5407.10, 5511.10,
5512.10, 5513.10,
5514.10, 5801.11
or 5802.51
Woven fabrics,
not subjected to
any process
Nil
1
2
5110.10, 5111.10,
5207.20, 5208.20,
5209.10, 5406.10,
5407.10, 5511.10,
5512.10, 5513.10,
5514.10, 5801.11
or 5802.51
Woven fabrics,
not subjected to
any process
16%
2
3
5207.10 or
5208.10
Denim fabrics,
whether or not
processed
16%
2 and 5
4
51.10, 51.11,
52.07, 52.08,
52.09, 54.06,
54.07, 55.11,
55.12, 55.13,
55.14, 5801.12,
5801.22, 5801.32,
5802.22, 5802.32,
5802.52
Woven fabrics,
subjected to any
process
16%
5
5
52.07,52.08 or
52.09
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Cotton fabrics
woven on
handlooms and
processed with
aid of power or
steam by an
independent
processor
approved in this
behalf by the
Government of
India on the
recommendation
of the
Development
Commissioner
for Handlooms.
16%
-
6
5801.21, 5801.31,
5802.21 or
5802.31
Woven fabrics,
whether or not
subjected to any
process
16%
2 and 5
7
58.03
All goods
16%
2 and 5
8
5804.11 or
5804.12
All goods
16%
2 and 5
9
59.01
All goods
16%
-
10
6001.11, 6001.21,
6001.91, 6002.42
or 6002.92
Knitted or
crocheted fabrics
of cotton, not
subjected to any
process
Nil
1
11
6001.11, 6001.21,
6001.91, 6002.42
or 6002.92
Knitted or
crocheted fabrics
of cotton, not
subjected to any
process
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16%
2
12
6001.11, 6001.21,
6001.91, 6002.42
or 6002.92
Knitted or
crocheted fabrics
of cotton,
subjected to any
process
Nil
3
13
6001.11, 6001.21,
6001.91, 6002.42
or 6002.92
Knitted or
crocheted fabrics
of cotton,
subjected to any
process
16%
4
14
6001.12, 6001.22,
6001.92, 6002.20,
6002.30, 6002.43
or 6002.93
Knitted or
crocheted
fabrics, other
than of cotton,
not subjected to
any process
Nil
1
15
6001.12, 6001.22,
6001.92, 6002.10,
6002.20,
6002.30, 6002.43
or 6002.93
Knitted or
crocheted
fabrics, other
than of cotton,
not subjected to
any process
16%
2
16
6001.12, 6001.22,
6001.92, 6002.10,
6002.20,
6002.30, 6002.43
or 6002.93
Knitted or
crocheted
fabrics, other
than of cotton,
subjected to any
process
16%
5
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Condition
No.
Conditions
(1)
(2)
1
If made from textile yarns on which the appropriate
duty of excise leviable under the First Schedule or
the Second Schedule to the said Central Excise Tariff
Act read with any notification for the time being in
force or the additional duty of customs leviable under
section 3 of the Customs Tariff Act, 1975, as the case
may be, has been paid and no credit of the duty paid
on inputs or capital goods has been taken under rule
3 or rule 11 of the CENVAT Credit Rules, 2002.
2
If made from textile yarns on which the appropriate
duty of excise leviable under the First Schedule or
the Second Schedule to the said Central Excise Tariff
Act read with any notification for the time being in
force or the additional duty of customs leviable under
section 3 of the Customs Tariff Act, 1975, as the case
may be, has been paid.
3
If made from knitted or crocheted textile fabrics of
cotton, whether or not processed, on which the
appropriate duty of excise leviable under the First
Schedule to the said Central Excise Tariff Act and
the Additional Duties of Excise (Goods of Special
Importance) Act, read with any notification for the
time being in force , or the additional duty of
customs leviable under section 3 of the Customs
Tariff Act, 1975, as the case may be, has been paid
and no credit of the duty paid on inputs or capital
goods has been taken under rule 3 or rule 11 of the
CENVAT Credit Rules, 2002.
4
If made from knitted or crocheted textile fabrics of
cotton, whether or not processed, on which the
appropriate duty of excise leviable under the First
Schedule to the said Central Excise Tariff Act and
the Additional Duties of Excise (Goods of Special
Importance) Act, read with any notification for the
time being in force , or the additional duty of
customs leviable under section 3 of the Customs
Tariff Act, 1975, as the case may be, has been paid.
5
If made from textile fabrics, whether or not
processed, on which the appropriate duty of excise
leviable under the First Schedule to the said Central
Excise Tariff Act and the Additional Duties of
Excise (Goods of Special Importance) Act, read with
any notification for the time being in force or the
additional duty of customs leviable under section 3
of the Customs Tariff Act, 1975, as the case may be,
has been paid." (emphasis supplied)
4. We also quote hereinbelow Section 11AB of the Central Excise Act,
1944;
"Interest on delayed payment of duty. - (1) Where any
duty of excise has not been levied or paid or has been
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short-levied or short-paid or erroneously refunded, the
person who is liable to pay the duty as determined under
sub-section (2), or has paid the duty under sub-section
(2B), of section 11A, shall, in addition to the duty, be
liable to pay interest at such rate not below [ten per cent.]
and not exceeding thirty-six per cent per annum, as is for
the time being fixed by the Central Government, by
notification in the Official Gazette, from the first date of
the month succeeding the month in which the duty ought
to have been paid under this Act, or from the date of such
erroneous refund, as the case may be, but for the
provisions contained in sub-section (2), or sub-section
(2B), of section 11A till the date of payment of such
duty:
Provided that in such cases where the duty
becomes payable consequent to issue of an order,
instruction or direction by the Board under section 37B,
and such amount of duty payable is voluntarily paid in
full, without reserving any right to appeal against such
payment at any subsequent stage, within forty-five days
from the date of issue of such order, instruction or
direction, as the case may be, no interest shall be
payable and in other cases the interest shall be
payable on the whole of the amount, including the
amount already paid."
and, Rule 8(3) of the Central Excise Rules, 2002:
"If the assessee fails to pay the amount of duty by due
date, he shall be liable to pay the outstanding amount
along with interest at the rate specified by the Central
Government vide notification under section 11AB of the
Act on the outstanding amount, for the period starting
with the first day after due date till the date of actual
payment of the outstanding amount."
5. The assessee herein opted for exemption under notification no.
14/2002 under which grey fabrics, not subjected to any process, were
chargeable to nil rate of duty subject to the condition that the said fabrics
were made from textile yarn on which appropriate duty of excise stood paid
and no credit for duty paid on inputs had been taken under CENVAT Credit
Rules, 2002. However, the assessee was not in a position to ascertain the
variety and quantity of yarn entering into the manufacture of export
production of "grey fabrics" and grey fabrics meant for home consumption.
The assessee was not in a position to pay duty on yarn at spindle stage.
Therefore, they opted to pay duty on yarn on deferred basis at the time of
clearance of grey fabrics for home consumption along with interest at the
rate prescribed under Section 11AB of Central Excise Act, 1944 read with
Rule 8(3) of Central Excise Rules, 2002. According to the Department, the
assessee was liable to pay duty at the rate of 12% under item 2 of the table to
notification no. 14/2002-CE. According to the Department, the assessee had
failed to comply with twofold conditions mentioned in item 1 of the table to
the said notification, namely, payment of duty on yarn at the spindle stage
and, secondly, no credit of duty paid on inputs had been taken under
CENVAT Credit Rules, 2002. In other words, according to the Department,
the assessee had failed to pay duty on yarn at the spindle stage and,
secondly, it had taken credit for the duty paid on inputs under CENVAT
Credit Rules, 2002, therefore, according to the Department, the assessee was
not entitled to claim nil rate of duty as, according to the Department, the
assessee had failed to comply with the aforestated twofold conditions
mentioned in item 1 of the table to the said notification. According to the
Department, the assessee herein had specifically applied for clarification
from the Department as to whether the assessee was entitled to claim nil rate
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of duty under the said Notification since it was not in a position to ascertain
the variety and quantity of yarn going into the manufacture of grey fabrics.
This request for clarification was expressly turned down by the Department
and despite refusal by the Department to the request made by the assessee to
pay duty on yarn at the time of clearance of grey fabrics, the assessee
reversed the CENVAT credit, which, according to the Department,
contravened the provisions of the said notification. Accordingly, the assessee
was held liable to pay duty at the rate of 12% under item 2 of the table to
notification no. 14/2002-CE and, consequently, a demand was raised for
differential duty for the period 13.3.2002 to 15.9.2002 on the ground that the
assessee had failed to pay the duty on the yarn at the spindle stage. The
demand was confirmed by the Deputy Commissioner. However, in appeal,
the Commissioner (A) allowed the assessee the payment of duty on yarn at
the time of clearance of grey fabrics instead of payment of duty on yarn at
the spindle stage. In this connection, the Commissioner (A) relied upon
Trade Notice No. 40/96. This order of the Commissioner (A) has been
confirmed by the Tribunal, hence, the Department has come to this Court by
way of this civil appeal.
6. Shri Vikas Singh, learned Additional Solicitor General, appearing on
behalf of the Department submitted that notification no. 14/2002-CE dated
1.3.2002 is an exemption notification. Learned counsel cited several
authorities in support of his contention that the conditions mentioned in the
exemption notification should be strictly followed. Learned counsel
contended that in the table to the said notification, grey fabrics falling under
Chapter Heading 5110.10 fell under item no. 1 as also under item no. 2.
However, if it fell under item no. 1 and if the assessee was to fulfil the
twofold conditions referred to above then the rate of duty was nil whereas if
the said item fell in item no. 2 then it would attract the rate of duty @ 12%.
Learned counsel submitted that, in the present case, the assessee was not
entitled to claim nil rate of duty on the grey fabrics manufactured from yarn
as the assessee has not fulfiled the two conditions mentioned in item no. 1.
According to the learned counsel, the assessee was required to pay duty on
the yarn prior to its claim for exemption. Secondly, according to the learned
counsel, the assessee was required to show as a second condition that it had
not availed of credit for the duty paid on inputs under CENVAT Credit
Rules, 2002 prior to its claim for exemption. Since these two conditions
were not fulfilled, the assessee was not entitled to claim nil rate of duty.
Learned counsel submitted that the above two conditions were pre-
conditions. They were conditions required to be fulfilled prior to making of
the claim for exemption. Learned counsel submitted that since notification
no. 14/2002-CE was an exemption notification, it was not open to the
assessee to submit that it had substantially complied with the aforesaid two
conditions. Learned counsel further submitted that, in the present case,
despite refusal by the Department, the assessee had reversed subsequently
the CENVAT credit. In this connection, learned counsel submitted that the
assessee had requested the Department to allow the assessee to defer
payment of duty on yarn from the spindle stage to the stage of clearance of
the grey fabrics for home consumption. This was refused by the Department.
Despite refusal, the assessee proceeded to reverse subsequently the
CENVAT credit availed of by the assessee earlier and, therefore, in the
present case, the Tribunal ought not to have allowed to the assessee the
benefit of exemption. Learned counsel further submitted that, in the present
case, we are concerned with the period 13.3.2002 to 15.9.2002. During this
period, according to the learned counsel, Rule 49A was not in force. Learned
counsel pointed out that originally we had Central Excise Rules, 1944. These
Rules were repealed by Central Excise Rules, 2001, which, in turn, were
repealed by Central Excise Rules, 2002. Learned counsel pointed out that
since we are concerned with the period 13.3.2002 to 15.9.2002 there was no
question of invoking Rule 49A of the earlier Rules as the earlier Rules were
repealed and substituted by Central Excise Rules, 2002. In other words,
according to the learned counsel, it was not open to the Appellate Authority
and the Tribunal to rely upon Rule 49A of Central Excise Rules, 1944 read
with Trade Notice No. 40/96. According to the learned counsel, Trade
Notice No. 40/96 was based on Rule 49A of Central Excise Rules, 1944
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under which deferment of duty payable on yarn along with interest could be
postponed to the grey fabrics stage. That, since Rule 49A was not applicable
once the Central Excise Rules, 2002 came into force, it was not open to the
Commissioner (A) as well as the Tribunal to place reliance on Rule 49A of
the 1944 Rules read with trade notice no. 40/96. Learned counsel further
submitted that the judgment of the Allahabad High Court in the case of
Hello Minerals Water (P) Ltd. v. Union of India reported in 2004 (174)
E.L.T. 422 was also not applicable to the facts of the present case as the said
judgment did not deal with the question of exemption.
7. Shri Atul Setalvad, learned senior counsel appearing on behalf of the
assessee submitted that Spring Mills is a composite mill, meaning thereby
that there is a spinning section where yarn is spun from cotton and a
weaving section where grey fabrics is woven from such yarn. Learned
counsel submitted that in certain cases it become difficult for a manufacturer
to know at the spindle stage whether grey fabrics were to be exported or
cleared for home consumption. According to the learned counsel, a
manufacturer could pay duty on yarn in such cases not when the yarn stood
cleared but when the fabric was cleared. It is under these circumstances that
an option was given over the years under trade notice no. 40/96 allowing the
assessee to defer payment of duty on yarn from spindle stage to the grey
fabrics clearance stage subject to payment of interest for such deferment.
Learned counsel submitted that trade notice no. 40/96 did not flow from
Rule 49A of the 1944 Rules. The said trade notice was based on certain
unforeseen difficulties in the operations. It was issued taking into account
the trade representations. Learned counsel submitted that till today the said
trade notice has not been revoked. Learned counsel further submitted that
there was no difference whatsoever between item no. 1 and item no. 2 of the
table to notification no. 14/2002-CE. Both dealt with grey fabrics. However,
item no. 1 attracted nil rate of duty on fulfilment of twofold conditions,
namely, payment of duty by the assessee for claiming exemption and that
assessee should not have taken credit for duty paid on inputs under
CENVAT Credit Rules, 2002. Learned counsel submitted that yarn is an
input used in the manufacture of grey fabrics. Learned counsel urged that the
said notification no. 14/2002-CE was an exemption notification. Learned
counsel submitted that exemption was in respect of grey fabrics. Learned
counsel submitted that duty was payable on yarn, however, in certain
circumstances, the assessee was entitled to claim deferment of duty from
spindle stage to the stage of clearance of grey fabrics subject to payment of
interest under Section 11AB of Central Excise Act, 1944 read with Rule 8(3)
of Central Excise Rules, 2002. Learned counsel submitted that in the present
case it is not in dispute that duty on yarn became payable at the spindle
stage, however, the assessee has deferred the payment to the stage of
clearance of grey fabrics and, therefore, it cannot be said that the assessee
has not complied with the first condition of item no. 1 to the table attached
with the notification. Similarly, learned counsel submitted that the assessee,
in the present case, has reversed CENVAT credit and the assessee has not
taken credit on account of such reversal. Learned counsel submitted that
whenever duty is paid on the input (yarn) the assessee is entitled to credit
under the CENVAT Credit Rules, 2002, however, availment of credit takes
place later on when the assessee makes adjustments of duty paid on input
against duty paid on final product (grey fabrics). In the present case, before
the account could be debited and before the assessee could avail of
CENVAT credit, the assessee has reversed CENVAT credit which would
amount to the assessee not taking credit for duty paid on input (yarn).
Learned counsel submitted that the assessee was free to reverse the credit
before utilization of such credit. In the circumstances, it was urged that both
the conditions of item no. 1 of the table to the notification stood fulfilled
and, therefore, the assessee was entitled to claim the benefit of exemption at
nil rate of duty in this case.
8. There is no merit in this civil appeal. Under the notification, mode of
payment has not been prescribed. Further, exemption is given to the final
product, namely, grey fabric under the Central Excise Act, 1944, levy is on
manufacture but payment is at the time of clearance. Under the Act, payment
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of duty on yarn had to be at the spindle stage. However, when we come to
the Exemption Notification no. 14/2002-CE, the requirement was that
exemption on grey fabrics was admissible subject to the assessee paying
duty on yarn before claiming exemption and subject to the assessee not
claiming CENVAT credit before claiming exemption. The question of
exemption from payment of duty on grey fabrics arose on satisfaction of the
said two conditions. In this case, payment of duty on yarn on deferred basis
took place before clearance of grey fabrics on which exemption was
claimed. Therefore, payment was made before the stage of exemption.
Similarly, on payment of duty on the input (yarn) the assessee got the credit
which was never utilized. That before utilization, the entry has been reversed
which amounts to not taking credit. Hence, in this case, both the conditions
are satisfied. Hence item no. 1 of the table to notification no. 14/2002-CE
would apply and accordingly the grey fabrics would attract nil rate of duty.
9. In conclusion on the question of reversal of credit we quote
hereinbelow the following para from the judgment of this Court in Collector
of Central Excise v. Dai Ichi Karkaria Ltd. reported in 1999(112)E.L.T.
353.
"It is clear from these Rules, as we read them, that a
manufacturer obtains credit for the excise duty paid on
raw material to be used by him in the production of an
excisable product immediately it makes the requisite
declaration and obtains an acknowledgement thereof. It is
entitled to use the credit at any time thereafter when
making payment of excise duty on the excisable product.
There is no provision in the Rules which provides for a
reversal of the credit by the excise authorities except
where it has been illegally or irregularly taken, in which
event it stands cancelled or, if utilised, has to be paid for.
We are here really concerned with credit that has been
validly taken, and its benefit is available to the
manufacturer without any limitation in time or otherwise
unless the manufacturer itself chooses not to use the raw
material in its excisable product. The credit is, therefore,
indefeasible. It should also be noted that there is no co-
relation of the raw material and the final product; that is
to say, it is not as if credit can be taken only on a final
product that is manufactured out of the particular raw
material to which the credit is related. The credit may be
taken against the excise duty on a final product
manufactured on the very day that it becomes available."
10. Accordingly, the civil appeal filed by the Department fails and the
same is dismissed with no order as to costs.