CEA No. 55 of 2004 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CEA No.55 of 2004 Date of decision 30.4.2009 Commissioner, Central Excise Commissionerate ... Appellant Versus M/s Malwa Industries Ltd. ... Respondent CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE H.S. BHALLA Present: Mr. Kamal Sehgal ,Advocate for the appellant Mr. Jagmohan Bansal, Advocate for the respondent 1. Whether Reporters of local papers may be allowed to see the judgement ? 2. To be referred to the Reporter or not ? 3. Whether the judgement should be reported in the Digest ? M.M.KUMAR, J. These two appeals* filed by the revenue under Section 35(H) (1) of the Central Excise Act, 1944 (for brevity 'the Excise Act') are directed against the order dated 17.10.2004 passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (for brevity 'the Tribunal'). The common issue raised in these appeals is whether credit on Basic Excise Duty (for brevity 'BED') can be utilised for payment of Additional Duty of Excise leviable under Additional Duty of Excise (Goods of Special Importance)Act, 1957 (for brevity 'the 1957 Act'). However, the revenue has claimed that the following substantive questions of law would emerge from the order of the Tribunal: “1.Whether Cenvat credit earned on account of Basic Excise Duty can be utilised towards payment of Additional Duty of Excise (ST) leviable under the Additional Duty of Excise (Goods of Special Importance) Act, 1957; CEA No. 55 of 2004 2 2. Whether Additional duty of Excise (ST) is included in the expression any 'duty' mentioned in any 'duty of excise' whereas the provisions of erstwhile Rule 57 AB(1)(b) C.E. Rules, 1944 provide that the CENVAT credit can be used for payment of any 'duty of excise”? FACTS For the sake of convenience, we refer facts from CEA No. 54 of 2004.. The dealer- respondent are engaged in the manufacture of 100% cotton yarn and 100% cotton Denim Fabrics falling under Chapter 52 of the 1st Schedule to the Central Excise Tariff Act, 1985 and were availing the facility of Cenvat credit. The goods manufactured by the dealer- respondent attract duty of excise under Section 3 of the Central Excise Act, 1944 and Additional Duty of Excise (ST) under the 1957 Act. During the year 2001, dealer- respondent had exported cotton denim fabrics on payment of central excise duty amounting to Rs.10,16,460/- through Cenvat credit. The jurisdictional Deputy Commissioner on the basis of rule 57 AB(1)(b) of Central Excise Rules, 1944 (for brevity, 'the Rules') had sanctioned and paid rebate claims to dealer- respondent. However, subsequently it was realized that as per the statutory provisions, the Cenvat credit could not be used for payment of 'duty' and the term 'duty' was limited to Basic Excise Duty (BED) and Special Excise Duty (SED) only. Accordingly the use of the said credit for payment of Additional Excise Duty (ST) ( for short 'AED ST') was found to be irregular and therefore the rebate claims sanctioned earlier were considered erroneous. Accordingly, show cause notices were issued to the dealer- respondent directing them to show cause as to why the rebate claims CEA No. 55 of 2004 3 amounting to Rs. 10,16,460/- which was erroneously sanctioned and paid be not recovered from them under Section 11 A of the 1944 Act. During the period of April and May, 2001, the dealer- respondent had also utilised CENVAT credit amounting to Rs. 84,20,670/- for payment of Additional Excise Duty (ST). It was alleged that as per the statutory provisions, the CENVAT credit could be used for payment of 'duty' and the said term was limited to mean BED and SED only and the use of said credit for payment of AED(ST) was irregular. Accordingly a show cause notice was issued requiring respondent to show cause as to why (i) AED (ST) amounting to Rs. 84,20,670/- paid by the dealer- respondent through CENVAT credit be not recovered and (ii) penal action should not be taken against them under Rule 173 Q of the Rules, 1944. The Commissioner of Central Excise, Ludhiana relying on the Board letter dated 14.12.2000 vide order in original Nos. 1/LDH/2002 dated 30.12.2002 and 104 /LDH/2003 dated 16.1.2003 dropped the proceedings arising out of the show cause notice. The Commissioner in his order has relied upon the provisions of Rule 57 AB(1)(b) of the Rules, which provides that Cenvat credit may be utilised for payment of any 'duty of excise' and also upon the clarification issued on 14.12.2000 showing that CENVAT credit can be used for payment of AED(ST). He also placed reliance upon a judgement of the Delhi High Court in the case of Parekh Prints v. UOI (1992) 62 ELT 253 wherein challenge to the constitutional validity of AED (ST) was rejected (A/1 and A/2). The order passed by the Commissioner was considered by the Board vide Review Order No. 228 R/2003, dated 30.6.2003, ordering that an appeal be preferred against the order of the Commissioner (A.3). Accordingly the appeal was filed before the Central Excise Service Tax CEA No. 55 of 2004 4 Appellate Tribunal which was rejected on 17.2.2004 by observing that there is no condition specified in Rule 57AB of the Rules which provides that Basic Excise Duty or Special Excise Duty cannot be used for payment of Additional Duty of Excise (Goods of Special Importance Act) (A.4) Mr. Kamal Sehgal, learned counsel for the revenue has vehemently submitted that BED is levied under the Excise Act whereas Additional Excise Duty is levied under the 1957 Act. According to the learned counsel both the enactments are different and credit of Basic Excise Duty cannot be utilised for Additional Excise Duty. He has maintained that the word 'duty' has been defined by Rule 2(7) of the Rules, which means duty payable under Section 3 or Section 3 A of the Act. He has maintained that as per Section 2A of the Act reference to expression duty, duties, duty of excise and duties of excise must be construed to include reference to Central Value Added Tax Act. The aforesaid expression 'duty' cannot be extended to cover any other duty except the one levied under Section 3 or section 3A of the Act. As per the provisions of Section 3 of the Act duty is levied as set forth in the 1st and 2nd schedule of the Central Excise and Tariff Act. Mr. Sehgal has also contended that the circular issued by the Central Board of Excise Custom (for brevity 'the CBEC') letter No.F No.345/18/2000-TRU, addressed to Commissioner Central Excise and Customs, Ahmedabad, cannot be regarded as conclusive especially when the same Board itself, vide order dated 30.6.2003, has examined the order in original and found that the order of the Commissioner was not sustainable in the eyes of law. He has drawn our attention to order dated 30.6.2003 passed by the CBEC. Mr. Jagmohan Bansal, learned counsel for the dealer- assessee CEA No. 55 of 2004 5 has, however, argued that credit on duty levied under the Excise Act, 1957 Act and the Additional Duty of Excise (Textile and Textile Article) Act,1978 (for brevity 'the Textile and Textile Article Act') could be availed under the Central Excise Rules as there are no separate rules for taking and using the credit of duties levied under the aforesaid Acts. He has placed reliance on the notification No. 5/94 CE (NT) dated 1.3.1994, which prescribes for availing credit of various duties. According to clause 2, Ist proviso of the notification the credit of specified duty has to be utilised towards payment of duty excise leviable under the Excise Act. Learned counsel has maintained that the aforesaid notification was substituted vide notification No. 21/99. In the notification duties paid on in puts/ capital goods on which credit could be availed be specified alongwith details where the credit could be utilised. He has placed reliance on the circular letter No. 345/18./2000-TRU issued by the CBEC clarifying that BED can be utilised for the payment of Additional Duty of Excise as well. He has drawn our attention to the relevant portion of the aforesaid letter. He has also placed reliance on clarification issued by the commissionerate in its RAC meeting held on 12.2.2002 wherein it has been observed that credit on BED can be utilised for payment of Additional Excise Duty which fact had been admitted in para 5 of the appeal. In support of his submission, learned counsel has placed reliance on the judgement of Delhi High Court in the case of Parekh Prints (supra) and argued that levy on Additional Excise Duty was upheld with the observation that the 1957 Act does not leave any doubt that additional duty was levied as duty of excise and has referred to Entry 84 of the Union List and in any case to Entry 97 of that list. It was in the aforesaid ground that the levy of additional duty was upheld. CEA No. 55 of 2004 6 DECISION After hearing learned counsel for the parties and perusing the record with their able assistance we feel that it would first be necessary to read the provisions of Rule 57(AB)(1)(b) of the Rules. The aforesaid provision was incorporated by amendment with effect from 1.4.2000, which highlights the intention of the Parliament. The Rule reads, thus:- “57AB Cenvat credit -(1) (b)- The Cenvat credit may be utilized for payment of any duty of excise on any final products manufactured by the manufacturer or for payment of duty on inputs or capital goods themselves if such inputs are removed as such or after being partially processed, or such capital goods are removed as such.” A perusal of the above Rule shows that Cenvat credit could be utilized for payment of 'any duty' of excise on any final product manufactured by the manufacturer or for payment of duty on inputs or capital goods themselves if such inputs are removed as such or after being partially processed, or such capital goods are removed as such. It may also be noticed that Article 272 of the Constitution was deleted by the Parliament with effect from 9.6.2000 wherein taxes levied and credited by the Union and its distribution amongst the Union and States was provided. As a consequence, a new decision of distribution of levy amongst the Union and the States was incorporated. Under the new dispensation, a requirement of separate accounting of Additional Excise Duty (GSI) ceased to exist from 10.10.2000. The aforesaid realization is reflected by permitting the credit of additional excise duty for utilization for CEA No. 55 of 2004 7 the payment of basic excise duty by the Board Circular No. 700/16/2003, dated 6.3.2003. The circular has clarified that the reason for amendment of Central Excise Rules permitting utilization of additional excise duty for payment of basic excise duty existed even prior to 1.3.2003. Therefore, the credit of additional excise duty, which has accrued prior to 1.3.2003, can be utilized for payment of basic excise duty. The relevant portion of the circular, which is relevant to the controversy, reads thus:- “Point No.2 Whether credit of additional duty (GSI) accrued earlier (piror to 1.3.2003) can be used for payment of Cenvat duty. Comments: In budget 2003, Cenvat Credit Rules were amendment to allow credit of AED(GSI) for payment of Cenvat duty. Prior to 1st March, utilization of credit of AED (GSI) was restricted to payment of AED (GSI) only. The said amendment was carried out consequent to the deletion of Article 272 of the Constitution of India vide Constitution (8th Amendment) Act, 2000(sic) and the issuance of Constitution (Distribution of Revenue) No. 5 Order, 2000, dated 10.10.2000 by the President. As per this order, 1.5% of the total sharable taxes and duties are to be distributed to the states in lieu of AED (GSI) instead of the earlier system of AED (GSI) being distributed amongst the States as per the pattern recommended by the Second Finance Commission. Under the new dispensation the requirement of separate accounting of the AED(GSI) no longer exists since 10.10.2000. As the reason for CEA No. 55 of 2004 8 the amendment to Cenvat Credit Rules existed even prior to 1st March, 2003, it was considered appropriate not to put any cap on the use of the AED (GSI) credit accruing prior to 1.3.2003 in the said credit rules. It is accordingly clarified that credit of additional duty (GSI) accrued earlier (piror to 1.3.2003) can be used for payment of Cenvat duty as well as AED(GSI)” (emphasis added). We are further of the view that the amendment, which has been made in Rule 57(AB) of the Rules by using the expression of 'any duty of excise' is significant and intentional. In the earlier Notification No. 5/94-CE (NT), dated 1.3.1994, it was specifically provided that credit can be utilized only for payment of duty of excise leviable under the Excise Act. The amendment has been made with an intention to allow the dealer-assessee to utilize the credit of basic excise duty for payment of additional excise duty. The aforesaid view is supported by the Division Bench judgement of the Gujarat High Court rendered in the case of Maheshwari Mills Limited v . Union of India, (1992) 58 ELT 9. It has been held that the narrow construction on the expression duty occuring in Rule 2(v) cannot be accepted to mean only 'duty' of excise leviable under the Excise Act because the language of Section 3 of Textile & Textile Article Act, is clear to include the additional duty. The Division Bench has further held that the word 'additional duty' embraces the idea of joining one thing to another, which means that the additional duty gets itself annexed to the basic duty at the point of time and place when the basic duty also is required to be assessed. It is appropriate to mention that credit of duty levied under the CEA No. 55 of 2004 9 Excise Act as well as under the 1957 Act is availed in accordance with the Rules. There are no separate rules for taking and using credit of duty levied under the 1957 Act, as has been rightly contended by learned counsel for the dealer-respondent. It is further significant to notice that in the Notification No. 21/1999, it has been specifically provided that the duties paid on inputs capital goods on which credit could be availed and where the credit can be utilised. The relevant extract of Notification No. 5/94-CE(NT) reads, thus:- “The credit of specified duty allowed in respect of inputs shall be utilised towards payment of duty of excise leviable under the Central Excises and Salt Act, 1944 (1 of 1944), on the final products or, as the case may be, on the inputs, if such inputs have been permitted to be cleared under rule 57F of the said Rules.” In the present case Notification No. 27/2000-CE(NT) dated 31.3.2000 would be relevant as it reflects the period post April 2001, which is the period relevant in the present case. The matter does not rest there. The Central Board of Excise and Custom issued a letter from file No. 345/18/2000-TRU, clarifying that credit of basic excise duty can be utilized for the payment of additional duty of excise. The relevant extracts of the said circular are set out hereinunder:- “The issue has been examined. The wording of Rule 57AB(2) (b) states that the credit in respect of the AED(T&TA). AED (GSI) shall be utilised, only towards payment of duty of excise on the linal products leviable under the said AED(T&TA) Act or under the said AED(GSI) Act. The use of the word said CEA No. 55 of 2004 10 establishes a link whereby the credit of AED (T&TA) paid on inputs can be utilised for payment of duty under the AED (T&TA) on final product and not on AED(GSI) leviable on the final product. The reading of the Commissioner that the rule permits cross utilization of credit under the AED(T&TA) Act and AED(GSI) Act is not correct. It may be submitted that as under the old rule so under the new rule as well, the credit in respect of BED paid on any inputs or goods can be utilised for payment of additional duty on the final product under the AED (T&TA) Act as well as AED (GSI) Act. However, credit of AED Act cannot be utilised for payment of BED on the final product. To sum up the CENVAT rules provide for: “(a) utilisation of credit in respect of BED for payment of additional duty under the AED(T&TA) or AED(GSI) on the final product, (b) utilisation of credit in respect of AED(T&TA) only for payment of additional duty on the final product under the AED (T&TA) Act. (c) utilisation of credit in respect of AED(GSI) only for payment of additional duty on the final product under the AED (GSI) Act” (emphasis added) It is, thus, clear that the additional duty of excise could be paid by utilizing the credit of basic excise duty. The Chandigarh Commissionerate in its Regional Advisory Committee (RAC) meeting held on 12.2.2002 has also clarified that the credit of basic excise duty can be utilised for payment of additional excise CEA No. 55 of 2004 11 duty. The aforesaid factual position emerges from para 5 of the order dated 31.12.2002 (A1) passed by the Commissioner. The contents of para 5 of the aforesaid order shows that utilization of credit in respect of BED for payment of additional duty under the AED(T&TA) or AED(GSI) on the final product, utilization of credit in respect of AED(T&TA) only for payment of additional duty on the final product under the AED(T&TA) Act and utilization of credit in respect of AED(GSI) only for payment of additional duty on the final product under the AED(GSI) Act. It is well settled that the circulars issued by the Board are binding and aims at adoption of uniform standards. In that regard reliance has been rightly placed on the judgment of Hon'ble the Supreme Court in the case of Paper Products Ltd. v. Commissioner of Central Excise, (1997) 7 SCC 84, holding that circulars are binding on the department. Reliance has also been placed on earlier judgments of Hon'ble the Supreme Court in the cases of CCE v. Usha Martin Industries, (1997) 7 SCC 47; Ranadey Micronutrients v. CCE, (1996) 10 SCC 387; CCE v. Jayant Dalal (P) Ltd., (1997) 10 SCC 402; and CCE v. Kores (India) Ltd., (1997) 10 SCC 338. In para 5 of the judgement rendered in the case of Paper Products Ltd. (supra) Hon'ble the Supreme Court has concluded as under:- “5. It is clear from the abovesaid pronouncements of this Court that, apart from the fact that the Circulars issued by the Board are binding on the Department, the Department is precluded from challenging the correctness of the said Circulars even on the ground of the same being inconsistent with the statutory provision. The ratio of the judgment of this Court further precludes the right of the Department to file an CEA No. 55 of 2004 12 appeal against the correctness of the binding nature of the Circulars. Therefore, it is clear that so far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the Circular which is in force at the relevant point of time.” It is, thus, evident that the revenue is precluded from challenging the correctness of the circular even on the ground of the same being inconsistent with statutory provisions. It goes further to limit the right of the revenue to file an appeal against the correctness of the binding nature of the circular. Therefore, there is no escape from the conclusion that the circular is binding on the revenue. As a sequel to the aforesaid discussion we answer both the questions in favour of the dealer-respondent and against the appellant- revenue. Accordingly, the appeals are dismissed and the order dated 17.10.2004, passed by the Tribunal as also that of the Commissioner are upheld. A copy of the order be placed on the file of connected appeals. (M.M.Kumar) Judge (H.S. Bhalla ) 30.4.2009 Judge okg/ajay-1 * 1. CEA No. 55 of 2004 (Commissioner, Central Excise Commissionerate v. M/s Malwa Industries Ltd. 2. CEA No. 51 of 2006 (Commissioner of Central Excise Commissionerate v. M/s Malwa Industries Ltd.