TRACTORS AND FARM EQUIPMENT LTD. Vs. CCE

JUDGEMENT

(1.) THE appellants are manufacturers of tractors (Heading 87.01 of the CETA Schedule), which was dutiable prior to 9.7.2004. They were availing Modvat/Cenvat credit on inputs used in the manufacture of the vehicles prior to the said date. On 9.7.2004, the date on which the above goods were exempted from duty under Notification No. 6/2002 -CE as amended by Notification No. 23/2004 -CE dt. 9.7.2004, there were stocks of inputs as such and of final product in their factory and Cenvat credit of the duty paid on the inputs present in stock and on the inputs contained in the final product present in stock had already been taken. The credits so taken on inputs lying as such in stock as on 9.7.2004 and on inputs contained in the finished tractors lying in stock as on that date were to the extents of Rs. 2,39,29,898/ - and Rs. 2,02,72,473/ - respectively. According to the department, these credits were liable to be reversed by the appellants as their final product was cleared on and after 9.7.2004 at 'Nil' rate of duty under the above Notification. Therefore, a show -cause notice dated 6.5.2005 was issued to them seeking to recover the above amounts from them under Rule 14 of the Cenvat Credit Rules, 2004 with interest thereon under Rule 14 of the said Rules as also to impose penalty under Rule 15 of the said Rules. The demand in the SCN was based on Rule 6(1) of the Cenvat Credit Rules (CCR, for short) which did not allow Cenvat credit on such quantity of input which was used in the manufacture of exempted goods except in the circumstances mentioned in Sub -rule (2). Accordingly, the notice alleged that the appellants were not entitled to utilize the Cenvat credit earned on the inputs lying in stock as on 9.7.2004 and the inputs contained in the final product lying in stock as on the said date. The demand raised in the SCN was contested by the party on the strength of case law concerning relevant provisions of the erstwhile Central Excise Rules, 1944. In adjudication of the dispute, learned Commissioner ordered recovery of the aforesaid amounts under Rule 14 of the CCR read with Section 11A(2) of the Central Excise Act with interest thereon under Rule 14 read with Section 11AB of the Act from the appellants and also imposed on them a penalty of Rs. 50 lakhs under Rule 15 of the CCR. His order is under challenge in the present appeal.

(2.) AFTER hearing both sides and considering their submissions, we note that the only substantive question to be decided upon in this case is whether the appellants were entitled to take Cenvat credit of the duty paid on the inputs lying in stock as on 9.7.2004 and the inputs contained in the finished tractors lying in stock as on that date.

(3.) LEARNED Counsel submitted that the above issue was already covered in favour of the appellants by Final Order No. 2103/2006 dt. 23.11.2006 passed by the South Zonal Bench, Bangalore in appeal No. E/418/2005 (TAFE Ltd. (Tractor Division) v. CCE B'lore). Ld. counsel also relied on the Tribunal's Larger Bench decision in the case of CCE Rajkot v. Ashok Iron and Steel Fabricators . Reliance was also placed on the apex court's judgment in Collector v. Dai Ichi Karkaria Ltd. , which had been followed by the Tribunal's Larger Bench in Ashok Iron and Steel Fabricators (supra) and the Bangalore Bench in Final Order No. 2103/2006 ibid. Ld. counsel submitted that a manufacturer of final product was entitled to take Cenvat credit on his inputs as long as the final product was dutiable. He argued that the credit so taken was not liable to be reversed as held by the Tribunal's Larger Bench in Ashok Iron and Steel Fabricators (supra). It was also pointed out that the Special Leave Petition filed by the department against the Larger Bench decision was dismissed by the Supreme Court as reported in 2003 (156) ELT A.212 (SC).