Eligibility of capital goods credit when unit has been taken over.

Case:- THE COMMISSIONER OF CENTRAL EXCISE, GOA Vs M/s RUDRA INDUSTRIES, M/s AUTOMOBILE CORPORATION OF GOA LTD.

Citation: - 2013-TIOL-160-HC-MUM-CX

Brief facts: - The brief fact of the case is Respondent No.1 manufactured parts and accessories of motor vehicles and they had been availing Modvat/Cenvat facilities under Rule 57Q of the Central Excise Rules, 1944. Respondent No.1 had filed a declaration for availing Modvat credit of duty paid on capital goods as required under Rule 57-T(1), declaring that the said goods shall not be used for manufacture of excisable goods which is either exempted from payable of duty by notification or chargeable to nil rate of duty. It is the case of the appellant that respondent No.1 availed credit of duty paid on the capital goods in the month of July, 1997. However, the records maintained by respondent No.1 indicated that they were not receiving raw material for production of any dutiable excisable goods, but were being used exclusively for processing of input/semi process goods on job work basis under Rule 57F(4) of the said Rules which are exempted under notification No.214/86 dated 25th March, 1986. A show cause notice was issued on 14th November, 1997 to respondent no.1 to show cause why the inadmissible credit should not be disallowed by the Superintendent, Central Excise, Bicholim. Reply was filed and after the parties were heard, the Assistant Commissioner, by order dated 14^th December, 1998, disallowed the Modvat credit, amounting to Rs. 28,03,670/-. On 29th June, 1999, the appeal filed by respondent No.1 was allowed by the Commissioner (Appeals) by remanding the matter to the Assistant Commissioner by giving a specific direction to consider whether respondent No.1 had followed all the prescribed procedure in toto as laid down under sub-rules 4 to 7, of Rule 57T and after giving certain further directions, the matter was remanded to the Assistant Commissioner. The Assistant Commissioner, by his order dated 20th December, 1999, again held that the credit was inadmissible. Against the said order, respondent No.1 filed an appeal which was allowed by the Commissioner (Appeals) by his order dated 26th April, 2000. An appeal was filed by the appellant herein before the CESTAT which was dismissed by order dated 2nd June, 2005. Aggrieved by the same appellant has filed an appeal before the High Court.

Appellant Contentions: - The Learned Counsel appearing on behalf of the appellant has invited our attention to the impugned orders passed by the CESTAT, the Commissioner (Appeals) and also the order passed by the Assistant Commissioner. It was submitted that both the lower authorities had erred in relying on the Judgment in the case of Bajaj Tempo Ltd.. vs. Collector of Central Excise, Pune, reported in1994 (69) E.L.T. 122 (Tribunal) = (2002-TIOL-125-CESTAT-MUM).It was submitted that in the case of Bajaj Tempo Ltd., (supra) the inputs utilized in manufacture of components and the final product was produced in another factory. In the said case, both the units belonged to Bajaj Tempo Ltd. However, in the present case, it was submitted that respondent No. 1 did not merge with respondent No.2. Our attention was drawn to the finding recorded by the Assistant Commissioner who, after going through the agreement, had held that the agreement stated that the Modvat account lying in the excise account of Rudra Industries shall be responsible for all its liabilities on its own after 31.7.97 and no liability shall fall on ACGL on account of agreement dated 8.10.1997. It was further submitted that both the authorities had erred in relying on the said judgment. Secondly, it was submitted that the factual aspects were not considered by the lower authorities and, therefore, it was contended that the matter should be remanded to the CESTAT with direction to consider the factual aspects. Reliance was placed on the judgment of the Apex Court in the case of Commissioner of Central Excise, Indore vs. Cethar Vessels Limited and others, reported in (2009) 17 SCC 551. It was submitted that both the authorities had erred in relying on sub rules 4 to 7 of Rule 57T, since the said rules were applicable with effect from 1st March, 1997 and the goods which are covered by the show cause notice were received prior to 1st March, 1997 and, therefore, the requirement of Rule 57T (2) would apply and not Rule 57T (4) which came into effect from 1st March, 1997. It was contended that the provisions of sub-rules 4 to 7 of Rule 57T came into force after the receipt of capital goods in the factory.

Respondent Contentions:- It was contended that the respondent no.1 had followed the provisions of earlier Rule 57T(1) and 57T(3) and had not followed the correct procedure and law in toto and the said goods were not accounted for in RG 23C Part I on the date of receipt, but were accounted for in RG 23C Part I only on 3.5.97 and therefore, the respondent No.1 had not maintained the proper account of receipt and issue of the capital goods for installation/for use in the manufacture of final products till 3.5.97. It was further contended that respondent No.1 had not manufactured dutiable excisable goods from the date of receipt of installation till 1.8.97 on which date the assessee asked for cancellation of the licence.

The learned Counsel appearing on behalf of the respondents submitted that the appeal under Section 35G could be entertained only on the substantial questions of law which were framed by the Court while admitting the appeal. It was submitted that the submissions which were made by the learned Counsel for the appellant in this Court were not pertaining to the substantial questions which were framed by the Court while admitting the appeal. It was secondly contended that the Commissioner (Appeals) had recorded findings of fact on various issues which were confirmed by the CESTAT and, as such, it was not open for the appellant to urge this Court to set aside the concurrent findings of facts. It was submitted that the judgment of the Apex Court in the case of Commissioner of Central Excise, Indore (supra) upon which reliance was placed, was entirely under different set of facts and, therefore, the ratio of the said judgment was not applicable to the facts of the present case. Thus appeal is liable to be dismissed.

Reasoning of Judgment: The Hon’ble High Court Held that appellantsubmissions are without any substance, since, firstly, when the matter was remanded back to the Assistant Commissioner by order dated 29th June, 1999, the finding of fact which was recorded in the appeal, was not admittedly, challenged by the Revenue. Secondly, no specific direction was given by the Commissioner (Appeals) to reconsider the factual position while remanding the matter. The Assistant Commissioner misconstrued the said direction and even set aside the finding of fact recorded by the Commissioner (Appeals) in its order dated 29th June, 1999. Apart from that, after the Assistant Commissioner confirmed his earlier order, by order dated 20th December, 1999, the Commissioner (Appeals) and the CESTAT had recorded a finding which was contrary to the finding recorded by the Assistant Commissioner and, as such, the said finding of fact could not have been challenged by the Revenue in the present appeal. The
Commissioner (Appeals) has recorded the following finding of fact in his order dated 26th April, 2000. Paras 7 and 8 thereof read as under :

“ 7. I have carefully gone through the facts of the case, findings given in the impugned order and the law on the subject. I find that the ratio laid down by the decision of the Tribunal in the case of Bajaj Tempo Ltd., Vs. Commissioner of Central Excise, Pune reported at 1994 (69) ELT 122 = (2002-TIOL-125-CESTAT-MUM) is squarely applicable to the present situation of the appellant. Since Notification No. 214/85-CE is a notification with an objective similar to that of notification No.217/86-CE and rule 57C considered by the Tribunal in the aforesaid decision is in pari materia with rule 57R involved in the present case.

8. I find that decision of the Tribunal in the case of Bajaj Tempo Ltd., case was followed in the case of National Aluminium Co. Ltd., Vs CCE reported at 1997(22) RLT 165 = wherein it was held that the purpose of the Notification No.217/86 is to avoid scriptory work when the wholly exempted intermediate products are used in the manufacture of dutiable final products and hence rule 57C is not applicable in respect of the inputs used in the manufacture of the products cleared under the aforesaid notification. In any event of the matter, since the appellants unit has been taken over by ACGL., who are manufacturing dutiable final products, the MODVAT credit on the capital goods in question is legally available to them, in terms of Rule 57S(5) of the Central Excise Rules 1944.”

Thereafter The CESTAT in its judgment and order dated 2nd June 2005 has clearly observed in paragraph 3 as under :

“3. After hearing both sides, and considering the material, it is found:

(a) the plea of Revenue to deny capital goods credit to goods exempted under Notification No.214/86 when such capital goods are exclusively used for such purposes would not be in consonance with the decision in the case of Bajaj Tempo Ltd. wherein Notification No.217/86 and No.214/86 was the subject matter for consideration before the Tribunal. Notification No.214/86 and No.217/86 were enabling notifications issued to avoid clerical work of payment & of duty and taking of credit, when goods were being consumed within the premises or sent out to another premises on job work. The notifications having been issued to supplement and enable the implementation of the provisions of the Modvat procedure rules cannot be a cause to deny Modvat credit. We find no infirmity in the Commissioner (Appeals) order in having found the mutuality in the two notifications and pari materia Rule 57C and Rule 57R.”

Thus it can be seen that the contention of the Revenue that the judgment in the case of Bajaj Tempo Ltd. (supra) was not applicable, was considered and rejected by both the authorities. The contention of the Revenue that the credit of capital goods was inadmissible and no benefit could be given to M/s. ACGL under Rule 57S (5) was in terms rejected by both the authorities. The substantial questions of law as framed by the Court were not pressed. It can, thus, be seen that in the present case, the Commissioner (Appeals) and the CESTAT have both recorded a finding of fact that the appellant's unit had been taken over by the ACGL and manufacturing dutiable final products, and consequently, Modvat credit on the capital goods in question is legally available to them. The finding of the Assistant Commissioner that the said two units were separate, which finding was arrived at after interpreting the agreement between the parties, was not accepted and the said finding was in terms set aside. The appellant, therefore, had no right to challenge the concurrent finding of facts in this appeal. Further the judgment of the Apex Court in the case of Collector of Central Excise, Jaipur Vs. Man Structural Limited, reported in 2009 (17) SCC 551 is concerned, a perusal of the said judgment would clearly indicate that the issue involved in the said report was entirely different and as such, the ratio of the said judgment would not apply to the facts of the present case. Hence, no case is made out for interference with the judgments and orders passed by both the authorities

Decision:- Appeal dismissed

Comment:- The crux of this case is that when a unit is taken over along with capital goods and the new unit manufactures dutiable goods, there is no bar in availing the credit on such capital goods.

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PJ/Case Laws/2012-13/1514

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