Full Judgment Text
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PETITIONER:
M/S. CHANDRAPUR MAGNETWIRES (P) LTD. NAGPUR
Vs.
RESPONDENT:
COLLECTOR O
DATE OF JUDGMENT12/12/1995
BENCH:
SEN, S.C. (J)
BENCH:
SEN, S.C. (J)
AHMADI A.M. (CJ)
CITATION:
1996 SCC (2) 159 JT 1995 (9) 568
1995 SCALE (7)220
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
SEN, J.
This is an appeal against an order passed by the
Customs. Excise & Gold (Control) Appellate Tribunal. There
is no dispute about the facts of this case, which are
recorded in the order of the Tribunal.
The appellants are engaged in the manufacture of
enamelled copper winding wire from duty paid copper wire
bars under Chapter Heading 7403.12 of the Central Excise
Tariff Act, 1985. They send the copper wire bars for job
work under Rule 57F(2) of the Central Excise Rules, 1944 for
converting them into copper wires above 6 mm diameter which
is classifiable under Chapter Heading 7408.11. The job work
is done after obtaining due permission from the authorities
for operating under Rule 57F(2) as well as for the benefit
of Notification No.214/86-CE. The appellants manufacture
from the copper wires of above 6 mm various other final
products of copper viz. copper wires falling under Chapter
Heading 7408.11 and Chapter Heading 7408.19 and copper
strips falling under Chapter Heading 7408.90 which are
liable to Central Excise Duty. They also manufacture
enamelled copper winding wires which fall under the Chapter
Heading 8544.00. They avail credit of duty paid on copper
wires of above 6 mm received from the job workers. They
either sell the same in the market on appropriate payment of
duty or convert the copper wire of above 6 mm into wires of
below 6 mm. They sell these on payment of appropriate rate
of duty or captively consume them by transferring them to
the enamelling section. The enamelled copper winding wires
are either cleared at nil rate of duty or on payment of
appropriate duty under Notification No.69/86-CE as amended.
At the stage when the copper wires of less than 6 mm are
cleared internally, the appellants reverse the MODVAT credit
availed by them on the copper wire above 6 mm in their
RG.23. Part-II Register maintained for Chapter 74. After
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clearing the copper wire of less than 6 mm internally for
enamelling, the appellants manufacture the enamelled copper
winding wires which is either cleared at nil rate of duty or
on payment of appropriate duty. The appellants while doing
so take the MODVAT credit in their RG.23A, Part-II Register
maintained for Chapter 84 in so far as it pertains to the
goods to be cleared on appropriate payment of duty. They
submit that they do not take the credit of duty paid on the
copper wire bars in their RG.23A, Part-II Register for
Chapter 84 in so far as it pertains to goods to be cleared
at nil rate of duty as of less than 6 mm as they are aware
of the quantity of goods to be cleared at nil rate of duty.
They submit that the enamelled copper winding wires which
are to be cleared at nil rate are manufactured only on
specific orders. They state that they clear enamelled copper
winding wires either on payment of appropriate duty or at
nil rate of duty under Notification No.69/86-CE dated
10.2.1986 which at S.No.1 & 2 lays down the condition for
clearing the same either on payment of appropriate rate of
duty or at nil rate.
The case of the appellants is that if a manufacturer
clears various final products utilising duty paid inputs,
according to Central Excise Rules, he was entitled to the
benefit of MODVAT scheme and was entitled to get credit for
the duty of excise paid on the inputs which were utilised
for manufacture of final product. The credit amounts were
adjusted against the duty leviable on the final product. As
soon as the inputs were purchased, the duty paid on the
inputs were entered in a register which had to be maintained
statutorily recording the amount of credit allowable to the
manufacturer.
The problem in this case arose because, some of the
goods manufactured by the appellants were exempted from duty
by notification No.69/86-CE dated 10th February, 1986. This
notification was amended by a further notification No.106/88
dated 1st March, 1988 by which copper winding wires were
exempted from payment of the whole of the duty subject to
the condition that the final products were manufactured from
copper wire bars of over 6 mm and also subject to the
stipulation that -
"(b) No credit of the duty paid on goods
(a)(II) above, used in their
manufacture, has been taken under rule
57A of the said Rules."
There is no dispute that the inputs which were utilised
in the manufacture of the copper wires were duty paid and
that the amount of duty paid on the inputs had been entered
by the appellants to their credit in the ledger which has to
be maintained under the Excise Rules. The credit amount can
be utilised by the manufacturer towards payment of duty of
excise leviable on the final products. Since the copper
wires manufactured by the appellants had become duty free
there was no question of any adjustment of the credit amount
against the duty payable on these copper wires. Moreover,
Rule 57C specifically provides that credit of duty cannot be
allowed if final products were exempt from payment of excise
duty. Faced with this situation, the appellants reversed the
credit entries of duty paid on inputs which were utilised
for manufacture of the duty free copper wires.
The case of the Excise Department is that the reversal
of credit entries are not permitted by the rules. The
assessee is not entitled to remove the copper wires without
payment of duty since credit of the duty paid on the inputs
used in the manufacture of copper wire had already been
taken in accordance with Rule 57A. Once appropriate entries
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have been made in the register, there is no rule under which
the process could be reversed. Since the credit has been
taken for the duty paid on the inputs in the ledger
maintained by the assessee, the assessee cannot be heard to
say that no credit of the duty has been taken by it under
Rule 57A.
It is true that the assessee has not maintained
separate accounts or segregated the inputs utilised for
manufacture of dutiable goods and duty free goods, as should
have been done. The contention of the Department that in
this situation, the assessee is not entitled to reverse the
entries and get the benefit of the tax exemption is a
question which merits serious consideration. There is no
doubt that the assessee should have maintained separate
accounts for duty free goods and the goods on which duty has
to be paid. But our attention was drawn to a departmental
circular letter on this problem in which it has been
clarified by the Ministry of Finance as under:-
"3. The credit account under MODVAT
rules may be maintained chapterwise,
MODVAT credit is not available if the
final products are exempt or are
chargeable to nil rate of duty. However,
where a manufacturer produces along with
dutiable final products, final products
which would be exempt from duty by a
notification (e.g. an end use
notification) and in respect of which it
is not reasonably possible to segregate
the inputs, the manufacturer may be
allowed to take credit of duty paid on
all inputs used in the manufacture of
the final products, provided that credit
of duty paid on the inputs used in such
exempted products is debited in the
credit account before the removal of
such exempted final products."
This circular deals with a case where the manufacturer
produces dutiable final products and also final products
which are exempt from duty and it is not reasonably possible
to segregate inputs utilised in manufacture of the dutiable
final products from the final products which are exempt from
duty. In such a case, the manufacturer may take credit of
duty paid on all the inputs used in the manufacture of final
products on which duty will have to be paid. This can be
done only if the credit of duty paid on the inputs used in
the exempted products is debited in the credit account
before the removal of the exempted final products.
In view of the aforesaid clarification by the
Department, we see no reason why the assessee cannot make a
debit entry in the credit account before removal of the
exempted final product. If this debit entry is permissible
to be made, credit entry for the duties paid on the inputs
utilised in manufacture of the final exempted product will
stand deleted in the accounts of the assessee. In such a
situation, it cannot be said that the assessee has taken
credit for the duty paid on the inputs utilised in the
manufacture of the final exempted product under Rule 57A. In
other words, the claim for exemption of duty on the disputed
goods cannot be denied on the plea that the assessee has
taken credit of the duty paid on the inputs used in
manufacture of these goods.
The appeal is therefore, allowed. The order of the
Customs. Excise and Gold (Control) Appellate Tribunal dated
17th May, 1995 is set aside. There will be no order as to
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costs.