BHARAT HEAVY ELECTRICAL LTD. Vs. CC AND CE

JUDGEMENT

(1.) The issue involved in this Appeal filed by M/s. Bharat Heavy Electrical Ltd. is whether they are liable to pay an amount equal to 8% of the price of the exempted goods in or in relation to manufacture of which inputs, in respect of which MODVAT credit has been taken have been used under Rule 57 CC of the Central Excise Rules, 1944.

(2.) Shri Z. U. Alvi, learned Advocate, submitted that the Appellant manufacture various excisable goods and avail the facility of MODVAT credit of the duty paid on the inputs; that they procure all their major inputs in bulk in advance and at the time of receipt of the inputs, it is not known as to which final product the inputs would be sued; that they availed MODVAT credit on inputs and utilize the same immediately thereafter as none of their final products were exempted from whole of duty; that part of the inputs have been used in the manufacture of certain goods which, though as such were not exempted, were cleared without payment of duty to specific users whom certain clearances were exempted to from duty subject to fulfilment of conditions specified in the Notification, that for instance duty is exempted under Notification No. 64/85 in respect of goods required in the launch vehicle cleared after prior permission/intimation to Range Authority of a Certificate given by the Asstt. Scientific Secretary ISRO; that provisions of Rule 57 C of Central Excise Rules, 1944, are applicable in a situation where final product is exempted from whole of the duty or chargeable to nil rate of duty; that there may be a situation where the final product may remain chargeable to duty in the normal course and in certain instances a specific clearance may be effected without payment of duty under notification; that such duty free clearance cannot be termed as exempted product as such from whole of duty; that as held by the Supreme Court in Commissioner of Central Excise v. Dai -Ichi Karkaria Ltd., 1999 (65) ECC 354 (SC) : 1999 (112) ELT 353 (SC), there is no correlation of the raw materials and the final products; that if corresponding to a number of exempted clearances, the corresponding credit is said to be correlated and disallowed, this would tantamount to establishing one to one correlation between the inputs and clearances of final products. He, submitted that it has been held by the Larger Bench of the Tribunal in the case of Commissioner of Central Excise v. Ashok Iron and Steel Fabricators, 2003 (87) ECC 668 (LB) : 2002 (140) ELT 277 that if at the time of receipt of the inputs and availment and utilization of the credit of the duty thereto the final products were dutiable which subsequently came to be exempt from duty, credit availed and utilized is not required to be reversed; that the present matter is factually identical to Ashok Iron and Steel case; that the Larger Bench under the said decision has followed the judgment of Kerala High Court in the case of Commissioner of Central Excise v. Premier Tyres Ltd., 2001 (130) ELT 417 (Ker). He therefore, contended that as the MODVAT credit has been taken by them validly at the time of receipt of inputs, it cannot be subsequently disallowed if the same is used in the manufacture of goods which are exempted subject to compliance of a specific conditions. He also contended that realization of 8% amount of sale value of clearance is by no means duty of excise and as such Section 11 -A (1) and 11 AC of the Central Excise Act cannot be made applicable. Reliance has been placed on Board's Circular F. No. 332/8/96 dated 29.9.97 and Circular No. 591/28/2001 CX dated 16.10.01; that further, it has been held by the Tribunal in the case of Thermax Ltd. v. Commissioner of Central Excise, 2002 (144) ELT 403 (Tri) that there is no machinery provisions for any recovery of 8% amount of sale value of exempted goods under Rule 57 CC. Finally, he submitted that as the show cause notice has been issued on 9.2.2001 for the period February 1996 to October 2000, the demand is time barred; that the Department was aware of the clearance of excisable goods availing the exemption as they were filing RT 12 returns regularly; that the Appellants normally pay Central Excise duty about Rs. 70 to 80 crores every year and hence it is very unlikely that in respect of liability of Rs. 4 -5 lakhs per year, they would intentionally suppress facts to avoid payment of such a meager amount; that intent to evade payment of duty cannot be attributed to them. Reliance has been placed on the decision in the case of Commissioner of Central Excise v. Chemphar Drug and Liniments, 1989 (21) ECC 66 (SC) : 1989 (40) ELT 276 (SC). He also mentioned that since there being no duty is involved provisions of Section 11 AC of the Central Excise Act cannot be invoked and penalty cannot be imposed under the said provisions; that penalty is also not imposable under Rule 173Q once the penalty under Section 11 AC has been imposed.

(3.) Countering the arguments, Ms. Charul Baranwal, learned Senior Departmental Representative, submitted that in respect of period prior to the introduction of Rule 57 CC, provisions of Rule 57 C would be applicable which provided that no MODVAT credit will be available if the inputs are used in the manufacture of exempted products; that the goods which have been cleared by them are clearly exempted from payment of duty; that the Notifications have been issued under the provisions of Section 5A of the Central Excise Act and the goods being exempted from payment of whole of duty, provisions of Rule 57C and 57CC are attracted; that the decision in the case of Premier Tyres and Ashok Iron and Steel are not applicable to the facts of the present matter as in both these decisions, the products were exempted subsequently to the availment of MODVAT credit and at the time of availment of the MODVAT credit, the products were dutiable. He, further, submitted that the Commissioner has given a specific finding in the impugned Order relying upon the decision in the case of Shiv Industries v. Commissioner of Central Excise, 1996 (88) ELT 71 that where details recorded in MODVAT account were inadequate and were not sufficiently descriptive to intimate that credit have been availed on inputs used in the final products cleared without payment of duty, extended period of time can be invoked for recovery of erroneous MODVAT credit given; that Appellants were maintaining consolidated RG 23 A Part II account and they were required to submit a prescribed proforma showing particulars of reversal of credit on the inputs used in the manufacture of exempted final products which had not been submitted by them; that penalty is imposable under Rule 173Q as they had availed of MODVAT credit of the duty paid on inputs used in the manufacture of exempted products.