IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- OTHER TAX REF. CIVIL No. 5 of 2005 KAMRA BOTTLING CO V/S COMMISSIONER CENTRAL EXCISE JAIPUR Mr. R.D. Sidhu, for the appellant / petitioner/ Mr. Rishabh Sancheti for Mr. V.K. Mathur, for the respondent Date of Order : 3.4.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI SANGEET LODHA,J. ORDER ----- This is a petition under Section 35(H) of the Central Excise Act by the assessee, on the following question framed in the application :- “Whether the substantive benefit of exemption can be denied for procedural irregularities?” The necessary facts are, that the petitioner is a manufacturer of aerated water. The manufacturer used to manufacture aerated water in two brands; one being Campa, and another being Mr. Dik Soda. Out of the two products, the product manufactured in the name of Campa is excisable. However, the product in the name of Mr. Dik is not excisable, being covered by exemption notification. The controversy involved in the present case arose in the circumstances, that petitioner is using inputs in manufacture of two products, and is availing MODVAT Credit on such inputs. As the inputs for the two products are common, the question arose, because the petitioner sought to avail the MODVAT Credit, with respect to the product, on which excise duty is not leviable. But the department did not allow such Credit, on the ground, that there is no provision for reversal. Learned Assistant Collector vide order dated 16.03.95 held, that full exemption upto Rs. 30 lacs under the Notification 1/93, in respect of Dik brand aerated water is not admissible. It was also held, that Classification list effective from 01.03.94 and 01.04.94 are accordingly modified, to deny the benefit of full exemption upto Rs. 30 lacs, to Dik brand Aerated water. It may be clarified here, that there is no controversy, as to whether the Dik brand product is liable to excise duty or not, as admittedly it is exempted. The only controversy is, as to whether in the circumstances of the present case, the petitioner is entitled to avail the MODVAT Credit, with respect to inputs used for manufacture of products, on which no excise duty is leviable? The petitioner filed appeal which was dismissed vide order dated 06th June, 2000, and then a further appeal was filed before the learned Tribunal, which too was dismissed vide order dated 06th February, 2003. The petitioner placed strong reliance on the judgment of Hon'ble Supreme Court, in the matter of Chandrapur Magnet Wires (P) Ltd. Vs Collector of C. Excise, Nagpur, reported in 1996(81) E.L.T.3 (S.C.) Page 3. This reliance was placed before the learned Commissioner, so also the learned Tribunal, and also before us. Learned Tribunal found, that in Chandrapur Magnet Wire's Case, the Hon'ble Supreme Court considered the case of an SSI unit, which availed the benefit of SSI exemption, 2 in respect of final product after reversing the input- credit, which they had earlier taken. In the instant case, the reversal of input-credit was, admittedly, made after clearance of the final product, under the exemption notification, and therefore, it was found, that ratio in Chandrapur Magnet case is not applicable to the instant case. With the assistance of learned counsels for the parties, we have gone through the impugned judgment, and have closely gone through the judgment of Hon'ble Supreme Court, in Chandrapur Magnet case. In Chandrapur Magnet’s case, of course the controversy involved was, as to whether there is any provision for reversal of MODVAT Credit, with respect to the products, which are not liable to excise duty, or in other words are exempted goods ? However, in that case, as a fact, it was noticed, that the appellants therein had reversed the MODVAT Credit availed by them, and it was found to have been reversed prior to clearance of the goods. The Hon'ble Supreme Court quoted para 3 of the notification dated 28.02.93, which provides, that where a manufacturer produces, alongwith dutiable final products, final products, which would be exempt from duty by a notification, and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs, used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products. (Emphesys Supplied) In our view, this notification and the judgment of Hon’ble the Supreme Court, firstly, nullify and negative 3 the stand taken by the department, that there is no provision for reversal of the MODVAT Credit taken, and since in that case, it was found as a fact that the credit was reversed before clearance of the goods, the appeal of the assessee was allowed. In the present case also, so far the legal proposition, about the appellant's entitlement to exemption from payment of duty on exempted goods is concerned, on that there is no dispute, inasmuch as the appellant cannot be made liable to pay the excise duty on exempted goods, simply because he has availed MODVAT Credit. But the question here precisely is, as to whether the appellant is entitled to retain the MODVAT Credit already availed by him on such inputs consumed in production of such exempted goods ? In our view, the proviso contained in para 3 of the said notification, as referred to above, is a complete answer, which in no ambiguous terms provides, that the credit of duty paid on the inputs, used in such exempted products is debited, in the credit account, specially by using the words, “before the removal of exempted final products.” An attempt was made by the learned counsel for the petitioner to contend, that the petitioner had been consistently following the practice of submitting monthly returns in register RG 23, and therein, he was showing reversal of credit, which was always being considered by the department, and therefore, he is entitled to avail the credit, and on the basis of that register, it was sought to be contended, that this amounts to the petitioner reversing the credit, before removal of goods. In our view, the contention cannot be accepted, for the simple reason, that the question as to whether reversal has been effected before removal of the goods or after removal of the goods, is purely a question of fact, 4 and all the authorities below have found it as a fact, that un-disputedly the appellant reversed the credit after removal of the goods. On our request, learned counsel for the petitioner read to us, even the memo of appeal, submitted before the Tribunal below, and even therein also, we did not find any contention, to the effect, that the appellant had reversed the credit, before removal of the goods. Rather the whole burden of the appeal was, that simply because the appellant had availed the MODVAT Credit, he cannot be denied exemption from payment of excise duty, on exempted goods. Thus, since admittedly the appellant had not reversed the credit before removal of the exempted final products, we do not find any error in the orders of the authorities below. The reference application is therefore, dismissed. ( SANGEET LODHA ),J. ( N P GUPTA ),J. /bjsh/ 5