CESTAT, CHENNAI BENCH
K.G. DENIM LTD.
v.
Commissioner of Central Excise, Salem
P. G. Chacko, Judicial Member
And P. Kartikeyan, Technical Member
Final Order No. 1337 of 2007
Appeal No. E/1467 of 2004
October 8, 2007
Rule 3 of the Cenvat Credit Rules, 2001 - Cenvat credit - Period from July, 2001 to October, 2001 - Assessee paid Additional Excise Duty (AED) on inputs under Additional Duties of Excise (Textile and Textile Articles) Act, 1978 [AED (T&TA) Act] and utilized same for payment of Basic Excise Duty (BED) and AED paid under Additional Duties of Excise (Goods of Special Importance) Act, 1957 [AED (GSI), Act] on its final products as per rule 3(3) - Revenue by invoking extended period of limitation issued a show cause notice on 24-4-2003 and denied benefit of Cenvat credit on ground that matter was governed by rule 3(6) and demanded duty along with interest and penalty - However assessee contended that non obstante clause in sub-rule (6) had nothing to do with sub-rule (3) and, therefore, right of a manufacturer of final products to utilize Cenvat credit of any of specified duties of excise paid on inputs, for payment of any duty of excise on any final products was not affected by anything contained in sub-rule (6) - Whether benefit provided under sub-rules (3) of rule 3 can be availed only to extent permitted under restrictive provision viz. sub-rule (6) of rule 3 - Held, yes - Whether therefore, assessee could have utilized Cenvat credit of AED (T&TA) only towards payment of same kind of duty of excise but since that was not done, cenvat credit was rightly denied to assessee - Held, yes [Paras 4 and 5]
Section 11A of the Central Excise Act, 1944 - Recovery of duties not
levied or not paid or short-levied or short-paid or erroneously refunded -
Period from July, 2001 to October, 2001 - Whether, in view of facts stated
under heading ‘Cenvat credit’, since assessee had been filing periodical
returns and connected documents and had also supplied documentary materials to
department at stage of switching over to deemed movat credit scheme which
documents if verified would have disclosed that it had utilized AED (T&A)
for payment of AED (GSI) and BED on final products during period of dispute, it
could not be held to have suppressed any fact - Held, yes - Whether, therefore,
extended period of limitation under section 11A(1) could not be invoked for
recovery of duty from assessee - Held, yes [Para 7]
The assessee had paid Additional Excise Duty (AED) on inputs under Additional Duties of Excise (Textile and Textile Articles) Act, 1978 and during the July, 2001 - October, 2001 utilized the same for payment Basic Excise Duty (BED) and AED paid under Additional Duties of Excise (Goods of Special Importance) Act, 1957 on its final products in terms of rule 3(3). The revenue by invoking extended period of limitation issued a show-cause notice on 24-4-2003 and denied benefit of Cenvat credit on the ground that matter was governed by rule 3(6) and demanded duty along with interest and penalty. On appeal, the Commissioner (Appeals) having found that the assessee had reversed certain amount before the issuance of show-cause notice, sustained the demand of balance amount and reduced the quantum of penalty. In instant appeal, the assessee contended that non obstante clause in sub-rule (6) had nothing to do with sub-rule (3) and, therefore, the right of a manufacturer of final products to utilize Cenvat credit of any of the specified duties of excise paid on inputs, for payment of any duty of excise on any final products was of affected by anything contained in sub-rule (6). It was further contended that taking of credit of AED (T&TA) and utilization thereof for payment of AED (GSI) were always known to the department and the proposal in the show-cause notice was based on the returns and other documents filed by it, therefore, it was not open to the department to allege suppression of facts against it and invocation of extended period of limitation was not sustainable.
The assessee’s right to utilize
the credit of AED (T&TA) paid on inputs, for payment of duty of excise on
its final products was governed by the provisions of rule 3(6). The argument of
the assessee that, while under the Cenvat Credit Rules, 2004, a manufacturer of
final products could utilize Cenvat credit of AED (T&TA) paid on inputs,
only for the payment of the same kind of duty on his final products by virtue
of the non obstante clause
[containing mention of sub-rule (4)] of rule 3(7) of the said rules, he could
utilize similar credit for payment of any duty of excise on final products
under rule 3(3) unaffected by anything contained in sub-rule (6) of the said
rule, there being no mention of sub-rule (3) in the non obstante clause
of sub-rule (6). Though this argument might seemed to be impressive
superficially, it was found, on deeper analysis, to be inconsistent with the
legislative purpose which is writ large on the scheme of the law embodied in
the Cenvat Rules. [
It is settled law that a
provision of law incorporating a non obstante clause containing mention of another provision has overriding effect
The dispute in the instant case revolved round the non obstante clause occurring in rule 3(6) which read:
“Notwithstanding anything contained in sub-rule (1)”. The enacting part of sub-rule
(6), relevant to the instant case, is clause (b), which says that Cenvat
credit in respect of (i) AED (T&TA); (ii)
AED (GSI); (iii) NCCD and (iv) CVD shall be utilized only towards payment of AED (T&TA), AED
(GST) and NCCD respectively. Thus sub-rule (6)(b) provides for manner of utilization of Cenvat credit of various duties
of various duties of excise. On the other hand, sub-rule (1) is the main
provision which confers the right to take Cenvat credit of specified duties
paid on inputs and capital goods, on the manufacturer of final products. A
sub-rule which provides for the manner of utilization of Cenvat credit cannot
override one which has created the very right to take such credit. This is
because, unless credit is taken, it cannot be utilized. In other words, the non
obstante clause occurring in sub-rule
(6) cannot be construed as having given overriding effect to the provisions of
the said sub-rule vis-à-vis
sub-rule (1). [Had sub-rule (3) been mentioned instead of sub-rule (1) in the non
obstante clause of sub-rule (6), it
would have made sense]. It could only be ignored as superfluous. Therefore,
clause (b) of sub-rule (6) of
Rule 3 should be construed without reference to the non obstante clause occurring in the sub-rule.
Both the sub-rules deal with
utilization of Cenvat credit and that, while sub-rule (3) is in the nature of a
general provision providing for utilization of Cenvat credit for payment of any
duty of excise, sub-rule (6) restricts utilization of credit to payment of the
same kind of duty of excise, that is, credit of AED (T&TA) to be utilized
only towards payment of AED (T&TA) on final product. The legislative scheme
is that the benefit provided under sub-rule (3) can be availed only to the
extent permitted under the restrictive provision viz. sub-rule (6). The two
sub-rules should be read together. [
In the result, the assessee
could have utilized Cenvat credit of AED (T&TA) only towards payment of the
same kind of duty of excise i.e.,
AED (T&TA) in terms of Rule 3(6)(b). In fact, it utilized Cenvat credit of AED (T&TA) paid on its
inputs, for payment of BED and AED (GSI) on its final products. That was not
permissible in law. The assessee, therefore did not have a case on merits. [
It was not in dispute that the assessee
had been filing returns and allied documents during the material period. It was
also not in dispute that, at the time of switching over to the deemed credit
scheme in November, 2001, copies of the relevant invoices were supplied to the
department and credit of AED (T&TA) on the existing stock was reversed. The
assessee had also claimed that it had placed before the department the relevant
documents, which, if verified, would have disclosed the fact that the assessee
had taken Cenvat credit of AED (T&TA) and utilized the same for payment of
AED (GSI) and BED on it final products. In the case of Hindustan Lever
Ltd. v. CCE 1999 (106) ELT 501 (Tri.), the department
invoked the extended period of limitation for recovery of duty on certain
quantity of excisable goods found to have been clandestinely removed. The
Tribunal found that the demand was based on RT-12 returns filed by the assessee
and on this basis held that the extended period of limitation was not
invocable. The case law thus supported the contention of the assessee that it
could not be held to have suppressed any act inasmuch as it had been filing
periodical returns and connected documents and had also supplied documentary
materials to the department at the stage of switching over to the deemed Modvat
credit scheme, which documents, if verified, would have disclosed that it had
utilized AED (T&TA) for payment for AED (GSI) and BED on final products
during the period of dispute. The case of the assessee had not been
successfully rebutted. It was, therefore, to be held that, on the facts of the
instant case, it was not open to the department to invoke the extended period
of limitation under section 11A(1), recovery of duty from the assessee. The
demand was time barred. [
In the result, the impugned
order was to be set aside and the appeal was to be allowed. [