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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANAT JODHPUR J U D G M E N TCENTR.EXCISE APPEAL No. 9 of 2006MEWAR POLYTEX LTDV/SUNION OF INDIADate of Judgment : 26.8.2008PRESENTHON'BLE SHRI N P GUPTA,J.HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J.Mr. Ramit Mehta, for the appellant / petitioner Mr. Rishabh Sancheti for Mr. V.K. Mathur, for the respondentBY THE COURT : (PER HON'BLE GUPTA,J.)This appeal by the assessee seeks to challenge the order of the Tribunal dated4.7.2005, allowing the appeal of the Revenue, and setting aside the order of theCommissioner (Appeals), who in turn had set aside the order in original, whereby (by order in original), the Assistant Commissioner had disallowed the modvat credit of Rs.5,37,799/-,and confirmed the recovery thereof, and also imposed a penalty of Rs.50,000/- under Rule173 Q (1)(bb) of the Central Excise Rules, 1944. The appeal was admitted on 7.4.2006, byframing the following substantial question of law:-“(1) Whether modvat credit could be availed on indigenous inputs used in manufacture of goods exported to discharge the export liability under Advance Licence Scheme, after rawmaterial imparted against such export replenished the stock of inputs with the manufacture on payment of CVD?(ii) Whether availing of draw back under the Export Scheme in respect of the exporttransaction results in forfeiture of claim to avail modvat credit in respect of replenished rawmaterial under the Central Excise Act, 1954?”The necessary facts, in brief are, that the show cause notice dated 15.2.1999was issued to the assessee alleging to have wrongly taken credit to the extent of Rs.5,37,799/-under Rule 57A of the Central Excise Rules, 1944, during August 1998, and calling upon theassessee to show cause and explain, as to why aforesaid credit, wrongly taken by assesseeshould not be disallowed/recovered under provisions of Rule 57-I, and penal action under Rule 173Q (1)(bb) should not be taken, and interest should not be charged under Section 11AB. This is the precise show cause notice given. To show as to how the modvat credit waswrongly availed, it was mentioned in the notice, that the assessee is engaged in themanufacture of HDPE/PP fabrics and bags, and clearing the goods for home consumption on payment of central excise duty, as well as exporting the goods under bond without paymentof duty, and is availing modvat credit on the inputs under Rule 57A. It was alleged, that the
 
assessee vide AR4s dated 4.8.1998, 17.8.1998 and 22.8.1998 had exported certain quantity of fabrics in his own account, and in the said AR4s had given declaration, that the assessee havemanufactured the fabric as mentioned in AR4, and that the benefit of modvat under Rule 57Ahas not been availed, and have not availed the facilities under Rule 12(1)(b) and 13(1)(b), andthat export is discharge of export obligation under advance licence file, which was a falsedeclaration, as the assessee has been availing modvat credit on the inputs under Rule 57A.Likewise, in column 4, the assessee had further declared, that the export is under duty draw back, while on examination of Central excise records and R.T.12 return of the assessee, it wasfound, that the assessee had taken modvat credit on the inputs used in the manufacture of exported goods, and they have not received any duty free consignment of PP Granules(Inputs) from anyone, for exporting the goods on his behalf till the date of above-saidexports, and they have also not reversed any credit taken on the inputs used in the goodsexported vide above referred AR4s. Thus, the assessee was found to have wrongly takencredit of modvat, to the tune of Rs.5,37,799/-, which was not admissible.The Assessing Officer confirmed the demand, which was set aside in appeal,and was reconfirmed in further appeal, as mentioned above.Arguing the appeal, it was contended by learned counsel for the assessee, thatthere was no wrong declaration made in AR4, inasmuch as, as on the date of makingdeclarations AR4s, no modvat credit had been claimed, and since the goods were exported indischarge of export obligation under advance licence file, and were being exported against bond, the goods were not leviable to excise duty, and since the duty paid indigenous goodshad been used as inputs, in manufacture of the exported goods, there was nothing wrong onthe part of the assessee in subsequently claiming modvat credit, admissible under Rule 57A,as Rule 57A does not prohibit availability of modvat credit against the goods, which areexported. Thus it was contended, that the show cause notice proceeds basically on a wrong premise, about AR4 being wrong declaration, and about ineligibility of the assessee to availmodvat credit under Rule 57A on the goods, which are exported. Then it is submitted, thatmay be that subsequently the assessee availed the draw back on the replenished imports,which are imported on the CVD, and such availment of draw back may be a wrong availingof the draw back, but then, for that purpose, the department could have taken proceedingsunder the draw back rules, being Customs and Central Excise Duties Draw Back Rule, 1971,that admittedly has not been done. In that view of the matter, the issue could not be mixed up by the department, to deny the modvat credit to the assessee, and to order recovery thereof.The learned counsel for the Revenue, on the other hand, supported theimpugned order, and contended, that the assessee has played very smart, by exporting thegoods under AR4, and a bond under Rule 13, giving out, that modvat credit has not beenavailed, but then modvat credit was availed, may be hyper technically, subsequent in point of time, but then, it did relate to the same inputs. It was contended, that may be that thedepartment could have taken proceedings under the Customs and Central Excise Duties DrawBack Rule, 1971, but then, since the modvat credit was wrongly taken, he was rightly calledupon to reverse it, and recovery has been rightly ordered. It is contended, that under thescheme of things, rather on the face of the language of Rule 57A, modvat credit is available,as a credit, to be utilised towards payment of duty of excise, leviable on the final products,whether under the Act, or under any other Act, and subject to the provisions of this section,and the conditions and restrictions if any specified in the said notification. In that view of thematter, since the assessee had exported the goods under AR4, claiming that no excise dutywas payable on the exported goods, obviously on the face of the language of Rule 57A, the
 
modvat credit could also not be claimed, as it could be claimed only towards the payment of excise duty, and thus, the orders impugned passed, by the learned Assistant Commissioner,and the Tribunal, do not require any interference.We have heard learned counsel for the parties, and have considered thesubmissions, and have also gone through the impugned orders, the provisions of the Act, andthe Rules.The present one is a typical case, where, by resorting to subterfuge, andimpermissible technicalities, the modvat credit has been wrongly claimed by the assessee.This much is of course true, hyper technically, that as on the dates when the AR4s weresubmitted, and the goods were exported, the assessee had not claimed the modvat credit onthe inputs, and had not availed the facilities under Rule 12(1)(b) and 13(1)(b). But then, thatis not the end of the matter.This much is not in dispute, that if the goods were to be indigenously sold, andwere to be sold without AR4, the goods were liable to levy of excise duty, and it is only onaccount of the assessee having submitted AR4s, and the bond under Rule 13, that excise dutywas not paid. In respect of the exports made under AR4 and under bond, excise duty is notleviable, but the corresponding benefit is that the manufacturer is permitted to import inputson payment of CVD (countervailing duty), and after processing and manufacture of final product, from out of import, the assessee is permitted to avail the draw back, to the extent of the said CVD. Thus, the import on CVD, of inputs, its processing and manufacture of final product, and export thereof under AR4, is a complete cycle by itself, while manufacturingfinal product with indigenous inputs, which are duty paid, and removal thereof by payment of leviable excise duty, and availing modvat credit there-from, is another cycle, and the twocannot be mixed up, for the purpose of, either enjoying holiday in payment of excise duty, or availing modvat credit, which is not available in the other case. As against this, this preciselyhas been done in the present case by the assessee, inasmuch as, by using indigenous duty paidinputs, the finished products have been manufactured, which has been exported under AR4,without payment of excise duty, and then subsequently modvat credit has been claimed onsuch inputs. On the face of it, in our view, that is not at all permissible.One aspect of the matter, or say one line of reasoning, for non-entitlement of the assessee to claim modvat credit, in such circumstances, is clear from a bare reading of Rule 57A, sub-rule (1) and (2), which read as under:-“Rule 57A. Applicability.-(1) The provisions of this section shall apply to such finishedexcisable goods (hereafter, in this section, referred to as the final products) as the CentralGovernment may, by notification in the Official Gazette, specify in this behalf for the purposeof allowing credit of any duty of excise or the additional duty under Section 3 of the CustomsTariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereafter, in thissection, referred to as the specified duty) paid on the goods used in the manufacture of thesaid final products (hereafter, in this section, referred to as the inputs).(2) The credit of specified duty allowed under sub-rule (1) shall be utilised towards paymentof duty of excise leviable on the final products, whether under the Act or under any other Act,as may be specified in the notification issued under sub-rule (1) and subject to the provisionsof this section and the conditions and restrictions, if any, specified in the said notification.”
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