COMMISSIONER OF CENTRAL EXCISE Vs. APPOLLO TYRES LTD

JUDGEMENT

(1.) The question raised in the two connected appeals filed by the department against the very same Assessee is one and the same and therefore, we heard the cases together and proceed to dispose of the appeals by this common judgment. We have heard Sri John Varghese, Senior Standing Counsel for the Central Board of Excise and Customs for the Appellant and Senior counsel Sri Arshad Hidayathulla along with Adv. Sri Joseph Kodianthara for the Respondent.

(2.) The Respondent is a leading manufacturer of tyres. Though tyres are manufactured and sold from the factories in Kerala, Respondent is buying tubes and flaps from other factories for sale along with tyres. Besides selling tyres, tubes and flaps in the replacement market, Respondent is also engaged in sale of tyres, tubes and flaps to Original Equipment Manufacturers (OE Ms) namely, Automobile manufacturers for fixing in new vehicles. For tubes and flaps purchased for sale in the replacement market along with tyres, the Respondent is not claiming any CENVAT credit for the duty paid on the tubes and flaps purchased from other factories. Consequently they are claiming exemption from payment of excise duty on sale of tubes and flaps and duty is paid only on the tyres sold along with such tubes and flaps. However, for the purchases of tubes and flaps for sale to Original Equipment Manufacturers along with tyres, the Respondent claimed CENVAT credit on the duty paid on tubes and flaps on the ground that tubes and flaps are inputs in the form of accessories to tyre sold by them. Even though Department did not object to the CENVAT credit availed by the Respondent, they found that the tubes and flaps purchased by the Respondent were sold by them at a lower value thereby causing loss of revenue inasmuch as CENVAT credit taken at the time of purchase of tubes and flaps is much more than the duty paid on resale of tubes and flaps. The department also found that Rule 3(4) of the CENVAT Credit Rules which was later substituted by Rule 3(5) of the CENVAT Credit Rules, squarely applies because tubes and flaps purchased and on which CENVAT credit is taken by the Assessee were resold "as such" and, therefore, they are liable to pay the short-payment of excise duty i.e., the difference between CENVAT credit availed at the time of purchase of tubes and flaps and the duty paid on resale of the very same tubes and flaps. The factual position and the finding of the department is that the OE manufacturers issued separate purchase orders for tubes and flaps and Respondent in terms of purchase orders, issued separate invoices for tubes and flaps and the sale is in the form in which those items were purchased and so much so, Rule 3(4) which is later numbered as Rule 3(5) squarely applies requiring the Respondent to pay the differential duty i.e., excess CENVAT credit availed on tubes and flaps over the duty paid on resale. Even though the adjudicating authority overruled the Respondent's objections and sustained the demands for two periods i.e., from 1-3-2003 to 30-11-2006 and from 1-12-2006 to 31-10-2007 by separate orders, the Customs, Excise and Service Tax Appellate Tribunal on appeals filed by the Respondent allowed the appeals cancelling the demands against which these appeals are filed by the Department.

(3.) The only question involved in both the appeals is whether Rule 3(4) [later Rule 3(5)] of the CENVAT Credit Rules would apply to the purchase and resale of tubes and flaps by the Respondent-Assessee. For easy reference, we extract hereunder Rule 3(4) of the CENVAT Credit Rules [which is later renumbered as Rule 3(5)] which was in force from 1-3-2003 onwards:-