“AS IF MANUFACTURED”-LARGER BENCH DECISION

“AS IF MANUFACTURED”-LARGER BENCH DECISION

The dispute regarding levy of duty on clearance of inputs or capital goods as such has been settled by larger bench of CEGAT in case of CCE, Vadodara Vs. Asia Brown Boveri [ 2000 (92) ECR 484]. It has put an end to the legal fiction created by words “as if manufactured” contained in erstwhile Rule 57F (i) (ii) of Central Excise Rules prevailing at that time. His decision is equally important in light of current CENVAT provisions contained in Rule 57AB. To analyze the situation, we have to consider both the provisions along with the latest decision of larger bench.

The Rule 57F(1) of earlier Modvat Rules reads as follows: -

57F(1) – “The input in respect of which a credit of duty has been allowed under Rule 57A may –

(i) Be used in or in relation to manufacture of final products for which such inputs have been brought into the factory; or

(ii) Shall be removed, after intimating to the Assistant Commissioner of Central Excise, having jurisdiction over the factory and obtaining a dated acknowledgement of the same, from the factory for home consumption or for export under bond as if such inputs have been manufactured in the factory:

Provided that where inputs are removed from the factory for home consumption on payment of duty of excise, such duty shall in no case be less than the amount of credit that has been allowed on respect of such inputs under Rule 57A.”

Likewise, the explanation to Rule 57AB(b) prescribed the same condition for clearance of Cenvated inputs and capital goods as such. It reads as follows: -

“Explanation- When inputs or capital goods are removed from the factory, the manufacturer of final products shall pay the appropriate duty of excise leviable thereon as if such inputs or capital goods have been manufactured in the said factory, and such removal shall be under the cover of an invoice prescribed under Rule 52A.”

It is clear that the same wordings of “as if manufactured” have been used in both the Rules. This has given rise to the legal fiction and given rise to a liability on the manufacturer to clear the goods after payment of duty.

The larger bench has relied upon the earlier decision of three member bench decision of Tribunal in case of Collector of Central Excise, Coimbatore Vs. American Auto Services [1996 (63) ECR 131]. In this decision, the Tribunal has held that the assessment finalized at the end of manufacturer need not be reopened at purchaser’s end. The legal fiction is created to recover the credit already utilized by the manufacturer of such inputs. This is amply clear from the provisions of Rule 57F (i) (ii) which directs the user of inputs to maintain the same level of rate of duty even if duty has been lowered. This same benefit availed by revenue is also required to be extended to the user of inputs, when rates go up by recovering only the rate of duty utilized by him at the time of taking credit.

Considering the ratio of this decision, larger bench held that aforesaid three member bench ruling as correct.

The same ratio applies in present Rule 57AB (b) as it uses the same words “as if manufactured.” Moreover, it uses the words “appropriate duty of excise” was interpreted by three member bench as it does not mean effective rate of duty and only credit taken should be recovered. Therefore, the ratio of aforesaid, decision is squarely applicable in the instant case.

However, it can be contended that safeguard to Revenue which was earlier available, when the rates go down is not present in new set of Cenvat Rules. The three bench as well as larger bench gave the decision relying heavily on such argument. Moreover, in case of Capital goods, credit is to be taken @ 50% of duty but duty is to be paid on the assessment finalized at the end of original manufacturer and not reversal of credit. As such, duty will be more view the credit is taken by assessee.

But the decision clearly held that the duty suffered earlier and already utilized to be paid back. These words clearly implies that only credit utilized is to be reversed and no duty is payable. As such, the larger bench decision is equally applicable on the present set of Rules.

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“AS IF MANUFACTURED”-LARGER BENCH DECISION

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