2014 (4) TMI 258 - HC - Central Excise

Court upholds Assessee's right to choose tax exemption or duty payment, emphasizing binding decision

Commissioner of Central Excise Versus M/s. Grand Card Industries & Others

The court ruled in favor of the Assessee, affirming their right to choose between availing the exemption under the notification or paying duty on the ... Option for payment of duty - SSI Exemption - Whether the option is available to the Assessee either to avail the exemption or to pay duty on the final product by taking modvat credit on inputs in terms of Rule 57A of the Central Excise Rules, 1944 - The stand of the Revenue that since the respondent was a SSI Unit and covered under the Notification No.1/93 and clearance of goods upto a value of ₹ 30 lakhs was exempted from payment of duty, the benefit of MODVAT scheme could not be availed in terms of Rule 57C is counter–productive and not beneficial for the respondent Assessee. It works against them and makes them in-competitive and places them at a disadvantage. Held that:- The object of the MODVAT Scheme is to reduce cost of final product by taking credit for the duty paid on the inputs - The object of the Exemption notification is to grant benefit to the SSI Units for clearing goods without payment of duty upto a particular limit - Both the MODVAT scheme and the exemption notifications are beneficial legislation. The beneficial notification have to be strictly initially but liberally interpreted. If the interpretation of the Revenue is to be accepted that there was no choice to SSI Units to either avail the MODVAT Scheme or the benefit of the exemption notification, then the SSI units are prejudiced and may even become unviable. The purpose of the MODVAT Scheme is to prevent and neutralise cascading effect of the duty paid on inputs. If the interpretation of the revenue is accepted then a manufacturer not registered as a SSI unit would be entitled to benefit of the MODVAT scheme for unlimited value and pass on benefit to the purchaser. But an SSI unit covered by the exemption notification would not be entitled to the benefit of the MODVAT scheme but would be entitled to clear goods at nil duty or lesser duty only upto a limit. Because he cannot pass on the MODVAT credit, to the purchaser, he is denied a level playing field and suffers disadvantage. This clearly is not the purpose behind the MODVAT scheme and the exemption notification. Manufacturers are admittedly covered both under the MODVAT Scheme and the exemption notification, if the right to chose is not granted then it would be disadvantageous for a manufacturer to get itself registered as a SSI unit. This would thus be to the detriment of the manufacturer to register as a SSI unit. This consequence is clearly not intended by the legislature/Rule - Respondents admittedly have not claimed or availed of any benefit under the exemption notification but have sought to claim benefit of only the MODVAT Scheme as was available to other manufacturers - Respondents have only sought to forego the benefits of the exemption notification available to SSI units - Assessee in our view would have the option either to avail the exemption under the exemption notification or to pay duty on the final product by taking MODVAT credit on inputs in terms of Rule 57A of the Rules. - Decided against Revenue. Issues Involved:1. Whether the option is available to the Assessee either to avail the exemption or to pay duty on the final product by taking MODVAT credit on inputs in terms of Rule 57A of the Central Excise Rules, 1944.Detailed Analysis:Issue 1: Availability of Option to Avail Exemption or Pay Duty with MODVAT CreditThe primary issue in this case revolves around whether an Assessee, eligible for an exemption under Notification No. 1/93-CE, has the option to either avail the exemption or pay duty on the final product by taking MODVAT credit on inputs under Rule 57A of the Central Excise Rules, 1944.Facts and Background:- The Respondent Assessees, small scale industrial units (SSI Units), were eligible for an exemption on clearances up to Rs. 30 Lakhs as per Notification No. 1/93 dated 28.02.1993.- Instead of claiming this exemption, the Assessees opted to take MODVAT credit under Rule 57A and paid full duty on the inputs used in manufacturing the final products.- The Department denied the MODVAT credit, arguing that since the Assessees were eligible for exemption and no duty was payable on the final products, they could not claim MODVAT credit under Rule 57C.- The Commissioner of Central Excise (Appeals) upheld this view, denying MODVAT credit to the Assessees.- The Customs Excise and Gold (Control) Appellate Tribunal, however, allowed the appeals, holding that the Assessee could not be denied MODVAT credit if they chose not to avail the exemption.Legal Provisions and Interpretation:- Rule 57A allows credit of any duty of excise paid on inputs used in manufacturing final products, which can be utilized towards payment of duty on the final products.- Rule 57C stipulates that no credit of the specified duty paid on inputs shall be allowed if the final product is exempt from the whole of the duty of excise or is chargeable to nil rate of duty.- The Supreme Court in ICHALKARANJI MACHINE CENTRE (P) LTD. V. CCE clarified that the MODVAT scheme aims to allow relief to a manufacturer on the duty element borne by him in respect of the inputs used by him, thus reducing the cost of the final product.Exemption Notification No. 1/93:- This notification provides an exemption for SSI Units on clearances up to Rs. 30 Lakhs, intended to promote small scale industries by making their products more competitive.- The notification is beneficial and should be construed liberally once it is established that the subject falls within its scope.Judgment Analysis:- The court observed that both the MODVAT scheme and the exemption notification are beneficial legislations aimed at reducing the cost of final products and promoting SSI Units.- The Revenue's interpretation, which denies the option to SSI Units to choose between the MODVAT scheme and the exemption, was found to be counter-productive and disadvantageous to the Assessees.- The court held that a manufacturer should have the right to choose between availing the MODVAT scheme or the exemption notification, whichever is more beneficial.- The choice, once exercised, is binding and final, but the right to choose should not be curtailed.Conclusion:- The court concluded that the Assessee has the option to either avail the exemption under the exemption notification or to pay duty on the final product by taking MODVAT credit on inputs in terms of Rule 57A.- The reference was answered in favor of the Assessee and against the Revenue, affirming the right of the Assessee to choose the more beneficial option.Final Order:- The reference is answered in favor of the Assessee.- No orders as to costs.