2017 (1) TMI 350 - HC - Central Excise

Court upholds reversal of MODVAT Credit, dismisses writ petition. Petitioners' arguments deemed untenable.

The court dismissed the writ petition and discharged the rule, upholding the demand for reversal of MODVAT Credit. The petitioners' arguments were deemed ... Reversal of Cenvat credit - Rule 57C & 57A of the CER, 1944 - Held that: - We have perused the entire paper book and found that there is no explanation provided, much less reasonable and plausible by the petitioners for the decision to initially reverse the MODVAT Credit, but later on shifting their stand and refusing to reverse it. It is for that the show cause notices were issued and the explanation was sought - Once they had no application to the facts and circumstances of the petitioners' case, then, we do not think that the concurrent findings in the orders impugned before us to be perverse or vitiated by error of law apparent on the face of the record - Petition fails - decided against the assessee. Issues Involved:1. Constitutionality of Rule 57C of the Central Excise Rules, 1944.2. Legality and validity of the demand for reversal of MODVAT Credit under Rule 57C.3. Interpretation of remission of duty versus exemption or nil rate of duty under Rule 57C.4. One-to-one correlation between inputs and final products under the MODVAT Scheme.Issue-wise Detailed Analysis:1. Constitutionality of Rule 57C of the Central Excise Rules, 1944:At the hearing, the petitioners' counsel did not press for the relief to declare Rule 57C unconstitutional and ultra vires Article 14 of the Constitution of India and/or Rule 57A of the Central Excise Rules, 1944. Therefore, this issue was not adjudicated upon by the court.2. Legality and validity of the demand for reversal of MODVAT Credit under Rule 57C:The petitioners, engaged in manufacturing aluminium castings, challenged the demand for reversal of MODVAT Credit for inputs used in the manufacture of castings cleared without payment of duty. The Assistant Collector of Central Excise and Customs, Pune, issued three show cause notices alleging that the petitioners had wrongly availed MODVAT Credit on inputs used in the manufacture of castings cleared under Chapter X procedure. The demand was confirmed on 18th February 1994, and the appeal was dismissed on 28th December 1994, relying on the tribunal's decision in Kirloskar Oil Engines Ltd. vs. Collector of Central Excise, Pune.The petitioners argued that Rule 57A conferred a substantive right to avail credit of duty paid on inputs used in the manufacture and clearance of final products. They contended that Rule 57C, which disallows credit if the final product is exempt or chargeable at nil rate of duty, did not apply as the duty was remitted, not exempted. The respondents supported the impugned order, asserting that the reversal of MODVAT Credit was valid since the final products were cleared without payment of duty.3. Interpretation of remission of duty versus exemption or nil rate of duty under Rule 57C:The petitioners argued that remission of duty under Chapter X should not be equated with exemption or nil rate of duty. They relied on the larger bench decision of the tribunal in Kirloskar Oil Engines and the Supreme Court judgment in Collector of Central Excise, Pune vs. Dai Ichi Karkaria Limited. The respondents countered that the reversal of MODVAT Credit was justified as the final products were cleared without payment of duty, invoking Rule 57C.The court referred to the show cause notices and the allegations therein, noting that the petitioners were availing MODVAT Credit on inputs used in the manufacture of aluminium castings cleared under Chapter X procedure. The court observed that the petitioners initially reversed the MODVAT Credit but later discontinued this practice, citing a tribunal decision in Premier Tyres Limited. The Assistant Commissioner concluded that the petitioners' stand was untenable, as the goods cleared under Chapter X procedure had not suffered any duty payment, necessitating the reversal of MODVAT Credit.4. One-to-one correlation between inputs and final products under the MODVAT Scheme:The petitioners contended that there was no one-to-one correlation required between inputs and final products under the MODVAT Scheme. They argued that once there was a vested right to seek credit of duty paid on inputs, this right could not be denied or restricted based on the inputs used in the manufacture of corresponding final products. The court referred to the larger bench decision in Kirloskar Oil Engines, which held that Rule 57C mandates that no credit of duty paid on inputs used in the manufacture of a final product shall be given if the final product is fully exempt from duty or chargeable to nil rate of duty.The court concluded that the petitioners' exercise was correctly termed as 'jugglery' by the impugned order. The petitioners failed to provide a reasonable explanation for their decision to initially reverse the MODVAT Credit and later refuse to do so. The court found no serious legal infirmity in the concurrent findings of the authorities and dismissed the writ petition.Conclusion:The writ petition was dismissed, and the rule was discharged. The court upheld the demand for reversal of MODVAT Credit, finding the petitioners' arguments untenable and their actions unjustified. The court emphasized the clear mandate of Rule 57C and the lack of a reasonable explanation from the petitioners for their inconsistent practices regarding MODVAT Credit.