Allowed

Dharampal Satyapal Ltd. v. Commissioner Central Excise and Service Tax

Gauhati HC9 Dec 2019C.Ex.App./4/2018

Case brief

AI extract

What is this about?

The Gauhati High Court allowed appeals by Dharampal Satyapal Ltd. against the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The court set aside the tribunal's order denying CENVAT credit on reprocessed tobacco products sold in bulk, holding that the stricter provisions of the 2010 Packing Machines Rules did not apply since the goods were not processed using notified packing machines

What did the court decide?

The impugned judgment and order dated 18.07.2017 passed by CESTAT is set aside. Appeals are allowed. Parties to bear their own cost.

Dharampal Satyapal Ltd. Vs Commissioner Central Excise and… — Cheque Dishonour | Gauhati HC (2019)

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GAHC010161762017

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THE GAUHATI HIGH COURT (HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)

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Case No. : C.Ex.App. 4/2018

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1:DHARAMPAL SATYAPAL LTD.

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SHED NO. OS/2/R/16, OS/2/17 AND OS/1/2/6 INDUSTRIAL ESTATE, BAMUNIMAIDAM, GUWAHATI 781021 A CO. INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT 1956 AND HAVING ITS REGISTERED OFFICE AT 98 OKHLA INDUSTRIAL ESTATE, PHASE-III, NEW DELHI 110020 AND IN THE PRESENT APPEAL REPRESENTED BY MR. SHANTANU KUMAR SARMA THE DEPUTY GENERAL MANAGER OF THE APPELLANT COMPANY

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VERSUS

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1:COMMISSIONER CENTRAL EXCISE AND SERVICE TAX GUWAHATI, G.S. ROAD, GUWAHATI

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Advocate for the Petitioner : DR. ASHOK SARAF

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Advocate for the Respondent : MR B SHARMA

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BEFORE HONOURABLE MR. JUSTICE SUMAN SHYAM HONOURABLE MR. JUSTICE PARTHIVJYOTI SAIKIA

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JUDGMENT AND ORDER (Oral)

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Date : 09-12-2019

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( Suman Shyam, J.)

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Heard Dr. Ashok Saraf, learned senior counsel assisted by Mr. P. Baruah, learned counsel appearing for the appellant. We have also heard Mr. Bipul Sharma, learned Standing Counsel, Central

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Excise Department, appearing for the respondents.

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The common judgment and order dated 18.07.2017 passed by the learned Central Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata in Appeal Nos.E/75556-75559/14 and Appeal No.E/75434/15 has been assailed by filing the present appeal under Section35 G of the Central Excise Act, 1944.

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The following substantial questions of law had been framed by this Court in all these appeals at the time of admission :-

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“1. Whether the order dated 18.07.2017 passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), East Zonal Bench, Kolkata is based on correct appreciation of the provisions of the Central Excise Act, 1944, the Central Excise Rules, 2002, the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 and the CENVAT Credit Rules, 2004?

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Whether the provisions of CENVAT Credit Rules, 2004 are applicable in respect of the duty paid under Section 3A of the Central Excise Act, 1944 and whether CENVAT credit in the present case can be denied by taking recourse to the provisions of CENVAT Credit Rules, 2004?

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Whether the adjudicating authority could have passed final order on the grounds not taken in the show cause notice by building up a new case against the notice?”

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The case of the appellant, briefly stated, is that it has been engaged in the business of manufacturing scented tobacco falling under the first schedule of the Central Excise Tariff Act, 1985 and is also covered under Section 3A of the Central Excise Act, 1944 when sold in pouches from its factory. The appellant had received back duty paid finished products, whereafter, those were reconditioned and reprocessed and thereafter sent to the market in bulk packing. The appellant had availed CENVAT credit on such returned goods as per section 16 of the Central Excise Rules, 2002.

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However, the jurisdictional Additional Commissioner had issued show cause cum demand notice alleging that the appellant had wrongfully availed Cenvat Credit. The matter had ultimately gone up to the (CESTAT) and by the impugned order dated 18.07.2017, passed in a batch of Applications, the learned tribunal had ruled in favour of the revenue. Hence, these appeals.

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Dr. Saraf, learned senior counsel for the appellants has argued that since the reprocessed tobacco products were not packed in pouches with the aid of packing machines, those goods cannot be said to be covered under section 3A of the Central Excise Act, 1944. As such, Rule 16 of the “Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination And Collection of Duty) Rules, 2010 [for short “Rules of 2010” ] would not have any application in this case. As such, submits Dr. Saraf, the appellant’s case would fall under section 3 of the Excise Act, 1944 and therefore, would be covered by Rule 16 of the Central Excise Rules, 2002.

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Responding to the said submission Mr. Sharma, learned departmental counsel, has argued that even if it is held that Rule 16 of the Rules of 2010 is not applicable in this case, even in than, the revenue would have the jurisdiction and authority to verify as to whether the products re-processed at the factory would qualify as “inputs” within the meaning of Central Excise Rules, 2002. On such ground Mr. Sarma submits that even if the impugned order is set aside by this Court, the matter be remanded back for a fresh decision on the above issue.

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There is no dispute in this case that the scented tobacco products sold by the appellant in pouches would come under the definition of notified products within the meaning of section 3A of the Central Excise Act, 1944 and accordingly, excise duty on those pouches have also been paid by the appellant. Therefore, the only controversy in this case is as to whether even the re-processed products sold in bulk would also come with the purview of Rule 2010 thereby disentitling the appellant from claiming Cenvat Credit in respect thereof.

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We have bestowed our thoughtful consideration upon the rival submissions advanced at the bar and have also gone through the materials available on record.

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From a careful perusal of the impugned order dated 18.07.2017 we find that the learned Tribunal had rejected the claim of the appellant by relying upon Rule 15 of the Rules of 2010 by opining that the said rule creates a bar preventing the appellant from availing the benefits under Rule 16 of the Central Excise Rules, 2002. The operative part of the impugned order dated 18.07.2017 is quoted herein below for ready reference :-

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“ On plain reading of Rule 16 of Central Excise Rules, 2002, it is clear that for duty paid goods brought back to the factory, the assessee is entitled to take Cenvat Credit on inputs as per Cenvat Credit Rules, 2004. On the other hand, Rule 15 of Pan Masala Packing machines (Capacity Determination and Collection of Duty) Rules, 2008 imposed restriction that no Cenvat Credit of duty paid on inputs used in the manufacture of notified goods under section 3A of the Act shall be taken under the Cenvat Credit Rules, 2004. To sum up, the manufacturer of notified goods under section 3A of the Act is not entitled to take credit under the Cenvat Credit Rules. There is an express provision under Rule 16 of the Central Excise Rules that clearly mentions that duty paid returned goods would be treated as inputs under Cenvat Credit Rules, 2004. Rule 15 of the Pan Masala Packing machines (Capacity Determination and Collection of Duty) Rules, 2008 had debarred availment of credit under the Cenvat Credit Rules. Hence, the assessee is not entitled to take input credit in view of Rule 16 of the Central Excise Rules, 2002 on the duty paid returned goods.”

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It is submitted at the bar that although the impugned order dated 18.07.2017 refers to Pan Masala, yet, by the common order passed by the learned CESTAT, cases involving scented tobacco products have also been dealt with by the learned Tribunal.

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From the above, it is apparent that the core controversy arising in this proceeding would centre around interpretation of Rule 16 of the Central Excise Rules, 2002 as well as Rule 16 of the Rules of 2010.

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Rule 16 of the Central Excise Rules, 2002 reads as follows :-

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“ 16. Credit of duty on goods brought to the factory. -

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(1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules.

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(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.”

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Rule 2(c) of the Rules of 2010 defines “notified goods” as follows :-

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“ 2(c)."notified goods" means unmanufactured tobacco, bearing a brand name, and chewing tobacco notified under sub-section (1) of section 3A of the Act by the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 10/2010-Central Excise (N.T.), dated the 27th February, 2010.”

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As per Rule 5 of the Rules of 2010, quantity of notified goods shall be deemed to be produced by use of operating packing machine as per the entry specified in the table appended thereto.

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Rule 16 of the Rules of 2010 deals with Cenvat credit admissible on chewing tobacco in bulk packs. Rule 16 is reproduced herein under :-

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“ 16. Cenvat credit admissible on chewing tobacco in bulk packs. -

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(1) A manufacturer of chewing tobacco notified under section 3A of the Act shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of,-

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(i) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, leviable under the Act;

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(ii) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of

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2001);

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(iii the education cess on excisable goods leviable under section 91 read with section 93 of the Finance ) (No.2) Act, 2004 (23 of 2004);

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(iv the Secondary and Higher Education Cess on excisable goods leviable under Section 136 read with ) section 138 of the Finance Act, 2007 (22 of 2007);

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the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005)], paid on

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(v) chewing tobacco in bulk packs received in his factory on or after the 8th day of March, 2010 for use in manufacture of chewing tobacco notified under Section 3A of the Act.

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(2) Except as provided under sub-rule (1), no CENVAT credit of duty paid on any input, capital goods or input services used in or in relation to manufacture of the notified goods shall be taken under the provisions of the CENVAT Credit Rules, 2004.

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(3) The CENVAT credit under sub-rule(1) may be taken immediately on receipt of bulk packs of chewing tobacco and may be utilized for payment of duty leviable under section 3A of the Act on chewing tobacco:

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Provided that while paying duty, the CENVET credit shall be utilized only to the extent such credit is available on the last day of the month preceding the month for which duty is paid: Provided further that CENVAT credit in respect of -

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(i) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001;

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the education cess on excisable goods leviable under section 91 read with section 93 of the (ii) Finance (No.2) Act, 2004;

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(iii the Secondary and Higher Education Cess on excisable goods leviable under Section 136 read with ) section 138 of the Finance Act,2007

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(iv) the additional duty of excise leviable under section 85 of Finance Act, 2005,

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shall be utilised towards the payment of the said National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001, or the education cess on excisable goods leviable under section 91 read with section 93 of the said Finance (No. 2) Act, 2004, or the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 or the additional duty of excise leviable under section 85 of the

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Finance Act, 2005 respectively, on chewing tobacco notified under Section 3A of the Act and manufactured by the manufacturer.

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(4) The CENVAT credit under sub-rule (1) shall be taken by the manufacturer on the basis of an invoice issued by a manufacturer for clearance of bulk packs of chewing tobacco from his factory.

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(5) The manufacturer shall maintain proper records for the receipt, disposal, consumption and inventory of the bulk packs of chewing tobacco used for manufacture of chewing tobacco notified under section 3A in which the relevant information regarding the value, duty paid, CENVAT credit taken and utilised, the person from whom such bulk packs have been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer taking such credit.

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(6) Where the CENVAT credit has been taken or utilised wrongly, the same along with interest shall be recovered from the manufacturer and the provisions of sections 11A and 11AB of the Act, shall apply mutatis mutandis for effecting such recoveries.

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Provided further that all such bulk packs of chewing tobacco on which credit has been wrongly taken or utilised wrongly shall be liable to confiscation and the manufacturer shall be liable to a penalty not exceeding the duty on such bulk packs of chewing tobacco: Provided also that in a case, where the CENVAT credit has been taken or utilised wrongly on account of fraud, wilful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Act or the rules made thereunder with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Act.

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(7) Except as provided in this rule, no other provisions of CENVAT Credit Rules, 2004 shall apply in relation to the notified goods.”

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From a careful examination of the scheme of Rule 16 of the Rules of 2010read with Rule 5, we are of the considered opinion that the said Rule would apply only in case of notified goods coming under the purview of section 3A of the Central Excise Act, 1944 but not in case of manufactured products which would be covered by section 3 of the Act of 1944.

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In this case, there is no dispute about the fact that the re-processed products were not sent to the market in pouches by using packing machines. If that be so, it is evident that Rule 16(2) of the Rules of 2010 would not have any application in this case. Consequently, we hold that the Cenvat credit availed by the appellant on the re-conditioned products sold in bulk quantity would fall under Rule 16 of the Central Excise Rules 2002. Therefore, we are unable to concur with the views of the learned CESTAT, as noticed above, on this issue.

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Mr. Sarma has argued that even dehors Rule 16 of the Rules of 2010, the question of applicability of Rule 16 of the Central Excise Rule, 2002 on the reprocessed products cannot be readily presumed so as to hold that such goods were received as inputs so as to claim Cenvat credits under the Rules of 2002. We find from the record that the aforesaid issue was not raised in the show cause cumdemand notice and therefore, the learned CESTAT also did not have any occasion to go into the aforesaid aspect of the matter. Under the circumstances, we are not inclined to entertain the aforesaid issue in the present batch of appeals. The respondents are, however, granted liberty to initiate appropriate action in the matter in accordance with law, if so advised.

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For the reasons stated above, these appeals succeed and are hereby allowed. The impugned judgment and order dated 18.07.2017 stands set aside.

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Parties to bear their own cost.

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JUDGE JUDGE

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Comparing Assistant

Dharampal Satyapal Ltd. v. Commissioner Central Excise and Service Tax

Case brief

What is this about?

What did the court decide?

Dharampal Satyapal Ltd. v. Commissioner Central Excise and Service Tax

Case brief

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