COMMISSIONER OF CENTRAL EXCISE, MANGALORE Vs. MRPL

JUDGEMENT

(1.) Revenue has filed these appeals against in Order -in -Original No. 01/2002 dated 27 -3 -2002/2 -4 -2002 passed by the Commissioner of Central Excise, Mangalore. The respondent is a Public Sector Undertaking engaged in the business of refining of crude and marketing various petroleum products. The products manufactured by the respondent MRPL are marketed by M/s. HPCL. M/s. MRPL availed Modvat credit on the inputs used in the manufacture of their final products including Naftha. Naftha manufactured by MRPL was cleared through M/s. HPCL to IOCL as inward movement without payment of duty. M/s. IOCL subsequently cleared the goods to M/s. Mangalore Chemicals and Fertilizers for the manufacture of fertilizers falling under Chapter 31 of Central Excise Tariff Act, 1985 by availing the exemption vide Notification No. 8/96, dated 23 -7 -96.

(2.) THE dispute relates to the clearance made by M/s. MRPLs refinery at Mangalore to M/s. IOCLs terminals at Mangalore by following the warehousing procedure under Chapter 10/Rule 20 of the C.E. Rules, 2002. The Naptha is the final product of the respondent. It is cleared without payment of duty from their factory to M/s. IOCL terminal. M/s. IOCL in turn clears part of the naftha to Mangalore Chemicals and Fertilizers Ltd., by availing exemption under Notification No. 8/96. The procedures are being followed. The two show cause notices dated 15 -5 -2001 were issued for demanding duty of Rs. 49,44,915/ - for the period from 20 -7 -1996 to 31 -8 -96 under 57CC and an amount of Rs. 18,11,37,172/ - for the period from 1 -9 -1996 to 31 -3 -2000 under Rule 57CC. The main reason for issuing the show cause notices is that the respondents had not maintained separate accounts for receipt, inventory and consumption of inputs used in the manufacture of dutiable final products and Naphtha cleared under, bond to IOCL which was ultimately sold to M/s. Mangalore Chemicals and Fertilisers by availing exemption. The respondents replied to the show cause notice and after following the principles of natural justice the Commissioner decided the case. As the respondent had reversed the proportionate credit on the inputs used in the manufacture of naphtha ultimately cleared under exemption to IOCL, the Commissioner held that the demands are unsustainable. Revenue is aggrieved over the impugned order of the Commissioner on the following grounds. The CCE, Mangalore in his OIO confirmed the demand of only Rs. 84,396/ - being the Modvat credit involved in the clearance of exempted products. In doing so, the Commissioner relied on the Boards clarification issued vide Circular No. 591/28/01 -CX., dated 16 -10 -2001 wherein it is envisaged that even if an assessee does not maintain a separate inventory as required, nor does he pay an amount equivalent of 8% of the price of the exempted goods, he would be entitled to reversal of credit availed on a pro rata basis on inputs used in the manufacture of exempted goods. This could happen when the amount of credit availed on the inputs used in the manufacture of exempted product amounts to more than 8% of the price of the exempted goods. On the other hand wherever the amount of Cenvat credit availed on the inputs used in the exempted product is less than 8% amount, because in terms of the instructions contained in the above cited circular, they will opt for actual reversal of the credit. It appeared that the said circular went beyond the scope of the rules in as much as the actual reversal of credit under Rule 57CC was never envisaged in the rules. There was no option given to the assessee to either pay 8% or to reverse the actual credit.

(3.) FURTHER clarification was issued vide Boards Circular No. 654/45/2002 CX., dated 19 -08 -2002 wherein it is clarified that in terms of Rules 6 (erstwhile Rule 57CC), the assessee who has not maintained separate records of dutiable and exempted products has no option but to reverse 8% of the price of the exempted goods as per sub -rule 3(b) of the said rules. It was further stated that if the said amount is not paid, it shall be recovered along with interest in the manner as provided in Rule 12 of Cenvat Credit Rules, 2002. Rule 13 would also get attracted.