IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 874 of 2010 For Approval and Signature:
HONOURABLE MR.JUSTICE V. M. SAHAI HONOURABLE MR.JUSTICE N.V. ANJARIA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the judgment ?
Whether this case involves a substantial question 4 of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge?
========================================================= COMMISSIONER OF CENTRAL EXCISE - Appellant(s) Versus M/S ARIES DYE CHEM INDUSTRIES - Opponent(s) ========================================================= Appearance :
MR YN RAVANI for Appellant(s) : 1, MR DEVAN PARIKH for Opponent(s) : 1, =========================================================
CORAM : HONOURABLE MR.JUSTICE V. M. SAHAI
and HONOURABLE MR.JUSTICE N.V. ANJARIA Date : 19/06/2012 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE N.V. ANJARIA)
1. This appeal is directed against the order dated 07.01.2010 in Appeal No. 1583 of 2009 passed by Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad. It was admitted for determination of following substantial question of law:-
“Whether in the facts and circumstances of the case, the Tribunal was justified in law in applying Rule 4(5)(a) of the Cenvat Credit Rules, 2004 without first determining as to whether Rule 3(4)(b) read with Rule 3(5) of the Cenvat Credit Rules, 2004, 2004 stands attracted or not?”
2. Heard learned advocate Mr. Y.N. Ravani for the appellant, and learned senior counsel Mr. Deven Parikh assisted by learned advocate Mr. Nirav Shah.
3. The facts in the background are that the respondent assessee was engaged in the manufacture of dyes and dyes intermediates. In course of search of the factory premises of the assessee undertaken by the Central Excise Officers on 4th March 2008, it was found that the assessee had imported raw materials like Beta Napthol, 6 Nitro, PNA, H Acid, etc., both on payment of customs duty as well as without payment of customs duty. According to the Department, while co-relating the raw material imported under the Advance Authorisation Scheme, and Target Plus Scheme, with the inputs consumed for manufacture of final products, it was noticed that the input Beta Napthol was cleared without subjecting it to any further process, but the same was cleared under the cover of job work challans to M/s. Bodal Chemicals Ltd., M/s. Shivam Chemicals, Vapi and M/s. Shree Chemicals, Vapi. However, the material had not been received back after processing under the cover of job work, but finished goods were received under the invoices and Central Excise duty and VAT were paid by the said three manufacturers.
3.1 Thus, it was concluded that the appellant had not sent the imported materials for job work, but had effected sale. It was further noticed that the appellant had availed CENVAT credit of duty paid by said three manufacturers on the supplied products. At the same time, the appellant had not reversed the CENVAT credit already availed on the inputs while clearing those inputs to said manufacturers under the job work challans. In other words, it was the case of the Department that the appellant had utilised the CENVAT credit, which was not available to it.
3.2 After investigation, a show cause notice was issued, and after adjudication the Additional Commissioner of Central Excise by his order dated 05.05.2009 disallowed the CENVAT credit amounting to Rs.21,78,003/-. He ordered reversal and recovery of the same with interest. The assessee filed appeal before the Commissioner (Appeals) who by his order dated 7.10.2009 upheld the order of the Additional Commissioner. The assessee preferred further appeal before the Tribunal, which allowed the appeal, bringing the Department before this Court by way of the present appeal.
4. It was the case of the Department that the inputs were not sent for job work. The parties to whom they were sent had paid duty on the manufacture, which should have been reversed by the appellant. On the other hand, it was the submission of the assessee that no revenue loss had actually occurred, inasmuch as the appellant imported the material, and to get the credit, paid the duty on the same, and cleared it for job work, which was available to it under Rule 4(5) of the Cenvat Credit Rules, 2004. The job worker added some additional material, and paid duty again, which was already paid by the appellant, and therefore, the appellant had no alternative but to take credit of the same in the books of account, else, it would have resulted in excess payment. According to the assessee, the credit taken was nothing but in respect of what was actually paid.
4.1 Rule 3(4)(b) inter-alia provides that the CENVAT credit may be utilized for payment of an amount equal to CENVAT credit taken on inputs, if such inputs are removed as such or after being partially processed. Rule 3(5) says that when inputs or capital goods on which CENVAT credit has been taken are removed as such from the factory or premises of the provider of the output service, the manufacturer of final product or provider of output service shall pay an amount equal to the credit availed in respect of such inputs. Rule 4 of the CENVAT Credit Rules, 2004 deals with conditions of allowing the CENVAT credit. Sub-rule (5)(a) provides that the CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing etc. or for the manufacture of intermediate goods necessary for manufacture of final products, on fulfillment of the further requirements mentioned therein.
4.2 The Tribunal while allowing the appeal, relied on a decision of the Apex Court in M/s. International Auto Ltd. v. Commissioner of Central Excise, Bihar [2005 (183) ELT 239 (SC)]. In that case, the transaction in which the manufacturer of the final product, the TELCO, who had removed inputs to a place outside the factory for the purpose of manufacture of intermediate products namely `the floor plate assemblies', so that they are returned to the factory for use in the manufacture of final product, namely excavators. The Supreme Court commenting on the order of the Tribunal observed:
“The Tribunal appears to have been confused between the manufacture of the final product, namely, excavators and the manufacture of the intermediate product, namely, the floor plate assemblies. The scheme of Modvat permits the person who clears the ultimate final product to take the benefit of the Modvat scheme at the time of clearance of such final product. The manufacturer of the final product, in this case TELCO, would therefore, be entitled not only to adjust the credit on the inputs supplied by it to the intermediate purchaser such as the appellant but also to the credit for the duty paid by the intermediate purchaser on its products.”
4.3 It was further submitted by the learned senior counsel for the respondent that a Division Bench of this court in Commissioner of Central Excise vs. M/s. Rohan Dyes and Intermediates Limited in Tax Appeal No. 1086 of 2010 with Tax Appeal No. 1540 of 2010 relying on the decision in M/s. International Auto (supra) has pronounced on the question. It was submitted therefore that the questions raised for determination was no longer res integra. Learned advocate for the appellant could not dispute that position.
5. In M/s. Rohan Dyes and Intermediates (supra) an identical question fell for determination before the Division Bench. After referring to Apex Court decision in M/s. International Auto (supra) the Division Bench observed as under:
“If we apply the aforesaid principle to the facts of the present case, there is no dispute that according to the modvat scheme, it is the modvat of such final product which would have to include the cost of the inputs and in respect of which modvat credit could be taken at the time of clearance of the final product and thus, in the facts of the present case, the Tribunal rightly rejected the contention of the Revenue that the respondents should have reversed the cenvat credit taken before sending the goods to the job worker since the job worker had not followed the procedure of job work. It may not be out of place to mention here that that what was earlier provision contained in Rule 57F[2][b] is exactly the present provision of Rule 4[5A] of the Cenvat Credit Rules, 2004.”
5.1 It was further observed:-
“We do not find any substance in the contention of Mr. Ravani that the job workers cannot prefer to pay excise duty inspite of having exemption notification bearing no. 241/86 exempting the job workers from paying duty in view of the mandatory provision of Section 5A[1A] of the Act. Similarly, we are also not impressed by the submission of Mr. Ravani that it was a case of sale and not the case of job work so as to attract the aforesaid principle laid down by the Supreme Court in the above case. On consideration of the entire materials on record, we thus hold that the Tribunal below rightly applied the decision of the Supreme Court in the case of International Auto Ltd. [supra] to the facts of the present case and allowed the appeal of the respondents.”
6. In light of the above and having been in agreement with the reasons recorded by the Division Bench in M/s. Rohan Dyes and Intermediates (supra) answering the identical question, the present appeal is dismissed. The question of law is answered in affirmative and against the Department.
7. The Tax Appeal is accordingly dismissed.
(V.M. SAHAI, J.) (N.V. ANJARIA, J.) (SN DEVU PPS)