2008 (10) TMI 57 - AT - Central Excise

Manufacturer must reverse credit or pay equivalent duty to Export-Oriented Unit under CT-3 certificate.

LAKSHMI AUTOMATIC LOOM WORKS LTD. Versus COMMR. OF C. EX., TRICHY

The Tribunal held that the manufacturer cannot remove inputs without reversing the credit or paying an equivalent duty to a 100% Export-Oriented Unit ... Whether, a manufacturer of final product, who procured inputs and availed MODVAT credit thereon, was entitled to remove the inputs as such, without reversal of the credit or payment of equivalent amount of duty, to a 100% EOU under CT-3 certificate in terms of Notification No. 1/95 – Held, no – because CT-3 certificate is valid only for procurement of goods manufactured by supplying units – held that inputs can only be cleared either on payment of duty or exported under bond Issues Involved:1. Entitlement of the manufacturer to remove inputs without reversal of MODVAT credit or payment of duty to a 100% Export-Oriented Unit (EOU) under CT-3 certificate during the period March 1996 to May 1998.Detailed Analysis:1. Entitlement to Remove Inputs Without Reversal of MODVAT Credit or Payment of Duty:Background and Facts:- The appellants are manufacturers of knitting machines and procured parts/components for this purpose, taking credit of the duty paid on such inputs.- They supplied their final products to 100% EOUs without payment of duty against CT-3 certificates in terms of Notification No. 1/95-C.E., dated 4-1-1995. Additionally, they cleared some inputs (on which CENVAT credit was taken) to the 100% EOUs without paying excise duty or reversing the credit.- The department contended that inputs should have been cleared only after reversal of the CENVAT credit or payment of appropriate duty as stipulated under Rule 57F(3).Appellant's Submissions:- The appellants argued that 100% EOUs are entitled to receive inputs without payment of duty and that the requirement to procure inputs directly from the factory of manufacture is procedural.- They cited Ministry's Circular No. 283/117/96-CX., dated 31-12-1996, which clarified that 'clearance of inputs as such for export under bond can still be treated at par with final product.'- They relied on various decisions, including Lakshmi Machine Works v. Commissioner of Central Excise, Coimbatore, and Gharda Chemicals Ltd. v. Commissioner of Central Excise, Pune-II, to support their claim.Respondent's Submissions:- The respondent argued that the appellants were permitted to clear only their 'final products' to 100% EOUs under Notification No. 1/95, and not the inputs manufactured by third parties.- The inputs should be utilized for the intended purpose of manufacturing final products. Clearance of inputs for home consumption should be on payment of duty or reversal of credit.- The eligibility for duty-free procurement by 100% EOUs directly from the factory of manufacture does not apply to inputs on which CENVAT credit has been taken by the appellant.Tribunal's Findings:- The Tribunal held that the appellant cannot be deemed as the manufacturer of the inputs received from third parties after the amendment dated 29-6-1995. They are merely suppliers of Cenvated-inputs to 100% EOUs.- Extending the benefit of Notification 1/95 to such clearances would render one of the conditions of the Notification redundant.- Rule 57F governs the clearances, and the relevant provisions do not permit the supply of such inputs to 100% EOUs on a deemed export basis.- The provisos to Rule 57F(4) relied upon by the appellant permit utilization of the credit attributable to inputs used in final products even when supplied to 100% EOU. However, in this case, the inputs supplied as such to 100% EOU have not been used for manufacture of final products by the appellants.- The Tribunal rejected the appellant's reliance on the Ministry's instruction dated 31-12-1996, stating it was not applicable to supplies to 100% EOUs.Conclusion:- The Tribunal concluded that the appellants are not entitled to remove the inputs without reversal of the credit or payment of an equivalent amount of duty.- The contrary view taken by the Tribunal in the case of Gharda Chemicals Ltd. and other cases was overruled, and the reference was answered against the appellants and in favor of the Revenue.- The case was directed to be placed before the regular Bench for final disposal of the appeals.Pronouncement:- The judgment was pronounced in open court on 10-10-2008.