Calcutta High Court
Commissioner Of Central Excise vs M/S. Texmaco Limited on 25 April, 2025
Author: T.S. Sivagnanam
Bench: T.S. Sivagnanam
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (CENTRAL EXCISE)
ORIGINAL SIDE
CEXA/1/2019
IA NO: GA/1/2019
COMMISSIONER OF CENTRAL EXCISE, KOLKATA-III COMMISSIONERATE
VS.
M/S. TEXMACO LIMITED
BEFORE :
THE HON'BLE THE CHIEF JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE JUSTICE CHAITALI CHATTERJEE (DAS)
HEARD ON : 25.04.2025
DELIVERED ON : 25.04.2025
Appearance:
Mr. Bhaskar Prasad Banerjee, Adv.
Mr. Abhradip Maity, Adv.
...for Appellant
Mr. Somak Basu, Adv.
Mr. Swagato Kabiraj, Adv.
...for Respondent
T.S. SIVAGNANAM, CJ. :
1. This appeal has been preferred by the appellant/revenue under Section
35B of the Central Excise Act, 1944 (the Act), challenging the order passed by
the Customs, Central Excise and Service Tax Appellate Tribunal, Kolkata, East
Regional Bench in Appeal No. E/176/2009-DB, CO-58/2009 dated 18 th May,
2018.
2. This appeal was heard by the Division Bench on 16 th January, 2019 and
the Hon'ble Division Bench held that no substantial question of law is involved
in the appeal. However, the Hon'ble Division Bench set aside the impugned
order passed by the Tribunal and directed the Tribunal to re-hear the appeal
properly in accordance with law and determine the same with reasons upon
hearing the parties within a time frame. The assessee preferred appeal before
the Hon'ble Supreme Court in SLP(C) No(s). 1716/2020. The Hon'ble Supreme
Court by order dated 14th February, 2024 set aside the order passed by the
Hon'ble Division Bench dated 16 th January, 2019 with a direction to this Court
to dispose of the appeal in accordance with law as expeditiously as possible.
This is how the matter was listed before the Court for consideration.
3. The department upon receiving the order passed by the Hon'ble Supreme
Court placed a Lay Note before the Chief Justice dated 4 th April, 2024. The
Chief Justice by Note dated 4th April, 2024 directed the matter to be placed
before the Hon'ble Division Bench as per determination. The department
directed the matter to be listed before a particular Hon'ble Division Bench by
endorsement dated 5th April, 2024. Subsequently, the matter could not be
heard since one of the Hon'ble Judges presiding over the said Division Bench
had retired. Therefore the matter was once again placed for appropriate orders
before the Chief Justice and the matter was directed to be placed before the
Hon'ble regular Bench having determination, that is, this Court. This is how
the appeal stands restored and has been taken up by this Court for
consideration.
4. We have elaborately heard Mr. Bhaskar Prasad Banerjee, learned Senior
Standing Counsel appearing for the appellant/revenue and Mr. Somak Basu,
learned Counsel appearing for the respondent/assessee.
5. The Commissioner of Central Excise, Kolkata-III issued show-cause
notice to the respondent/assessee dated 16 th July, 2008 calling upon the
respondent/assessee as to why the amount collected in the name of the central
excise duty and the amount collected in the name of education cess from the
buyers under separate invoices issued during the period from 14.8.2003 to
4.2.2006 in excess of the duty determined or paid by them to the Central
government, shall not be paid/recovered from the assessee under Section 11D
of the Act; why interest under Section 11DD should not be paid/recovered from
the assessee.
6. The assessee submitted their reply dated 19.8.2008, after which the
adjudicating authority took up the show-cause notice for adjudication and by
order dated 31.12.2008 accepted the submissions made by the assessee and
dropped the proceedings in the show-cause notice dated 16.7.2008. Aggrieved
by such order, the revenue preferred appeal before the Tribunal and the
learned Tribunal by the impugned order dated 18.5.2018 has dismissed the
appeal filed by the revenue and challenging the said order, the present appeal
has been filed.
7. The appellant/revenue has raised the following substantial questions of
law for consideration:-
"(i) Whether the respondent being the manufacturer of the final products
removed the goods without payment of Central Excise Duty as
exempted goods and issued invoice for imbursement of Central
Excise duty and collected the said amount is liable to pay Central
Excise Duty in terms of Section 11D of the Central Excise Act, 1944?
(ii) Whether the amount of reversal of Cenvat Credit in terms of Rule
6(3)(b) of the Cenvat Credit Rules by other unit can be construed as
payment of Central Excise duties and the respondent can deny his
liability to pay Central Excise duty by virtue of the said reversal?
(iii) Whether the decision of Unison Metals Limited -Vs- Commissioner of
Central Excise, Ahmedabad-I, reported 2006(204) E.L.T 323(Tri. LB)
is applicable to the present case?"
8. After we have elaborately heard the learned Advocates for the parties, we
find that the issue which falls for consideration in the instant case lies in a
very narrow compass. The contention of the appellant/revenue is that the
assessee has a unit at Belgharia which manufactures couplers/bogies and
supplies to their another unit at Agarpara as well as to other manufacturers.
The revenue contended that the assessee collected a particular sum of amount
under the invoices describing the amount as central excise duty without
depositing the same. Similarly, they also collected the education cess.
Therefore, it was contended that the assessee was required to pay the said
amounts collected in the name of central excise duty and education cess.
9. The contention of the assessee was that it is not in dispute that from the
Belgharia unit, the couplers/bogies were removed to the Agarpara unit without
payment of duty as provided under Notification No.6/2002-CE and after
remitting 8% or 10% of the price of the same in terms of Rule 6(3)(b) of the
CENVAT Credit Rules, 2002/04. Further, the assessee contended that the
Agarpara unit manufactures railway wagons with inputs namely, couplers and
bogies received from their Belgharia unit as well as their own manufacture of
couplers and bogies. Further, the allegation that the assessee collected the
amount from the railways under invoices describing the same as central excise
duty was denied as being incorrect. In this regard, relevant invoices were
referred to wherein the assessee has claimed for reimbursement of total price of
couplers and bogies as per procurement invoices. Further, paragraph 2(iv) of
the contract dated 9.7.2003 and contract dated 21.5.2004 with the Railway
Board and the Clarification issued by the Railway Board vide letter dated
7.12.2006 were referred to wherein the amount of 8% or 10% remitted by the
manufacturer of the bogies and couplers as per Rule 6(3)(b) of the Rules, would
be reimbursed by the railway as part of cost of wagons supplied by the
assessee company against submission of documentary evidence of payment of
8% or 10%. Therefore, the assessee contended that there is no dispute that the
assessee company is not liable to pay duty on either couplers, bogies or wagons
and therefore, question of collection of any amount in excess of the duty paid
does not arise at all. In support of their contention, the assessee placed
reliance on the decision of the larger Bench of the Tribunal in the case of
Unison Metals Ltd. vs. Commissioner of Central Excise, Ahmedabad-1, [2006
(204)ELT 323 (Tri.LD)]. The learned Tribunal considered the factual position and
found that the reversal of the amount was done by the assessee's Belgharia
unit from where the couplers and bogies were collected without payment of
duty by the assessee and there was no dispute about the reversal of 8% or
10%. Furthermore, the Tribunal on facts noted that the amounts were duly
debited by the Belgharia unit in terms of Rule 6(3) of the Rules and it was not
alleged that the Belgharia unit raised any demand for recovery of the said
amount separately from where it was recovered through the bill and they have
been paid. Furthermore, the Tribunal noted that in the assesseess's own case
in Excise Appeal No.465/2007, dated 13.5.2016, the appeal was allowed by
relying upon the decision of the larger Bench in the case of Unison Metals Ltd.
Therefore, the learned Tribunal accepted the case of the assessee and
dismissed the appeal filed by the revenue.
10. Further, it is relevant to take note of the Circular issued by the Central
Government being Circular No. 870/08/2008-CX, dated 16.5.2008, wherein
reference was made to an earlier Circular being Circular No. 599/36/01-CX,
dated November, 2001, wherein the issue of applicability of the provisions of
Section 11D of the Act in cases of payment made under the erstwhile Rule
57CC(1) of the Central Excise Rules, 1944 was examined. It was brought to the
notice of the Central Board that there are some decisions of the Tribunal
contrary to the said Circular. Further, Rule 6 of the CENVAT Credit Rules,
2004 has been amended with effect from 1.4.2008, which necessitated the
Board to re-examine the earlier Circular in the light of the subsequent
developments. The Board took note of the decision of the larger Bench of the
Tribunal in the case of Unison Metals Ltd., wherein it was held that Section
11D provides that any amount which has been collected as excise duty and not
paid to the credit of the Central Government shall be liable to be recovered. The
Central Board pointed out that the scheme of law is that the manufacturer
shall collect amount falsely representing them as central excise duty and
retained them, thus, unjustly benefitting themselves. However, in case of
payments made under the erstwhile Rule 57CC(1), Section 11D of the Act is
not applicable since the amount of 8% or 10% has already been paid to the
revenue and no amount is retained by the assessee. To be noted, that the
decision of the larger Bench of the Tribunal in Unison Metals Ltd. was accepted
by the department.
11. In the light of the same, the matter was re-examined by the Central
Government. It is noted that Sub-rule (3) of Rule 6 of the CENVAT Credit
Rules, 2004 has been amended with effect from 1.4.2008 to provide for
payment of an amount equal to 10% of the value of the exempted goods,
instead of 10% of the exempted goods as provided earlier. The value is to be
determined as per Section 4 or Section 4A of the Central Excise Act, 1944 read
with the Rules made thereunder.
12. In the light of the above position, it was clarified by the Central Board
that as long as the amount of 8% or 10% is paid to the Government in terms of
the erstwhile Rule 57CC of the Central Excise Rules, 1944, or Rule 6 of the
CENVAT Credit Rules, 2004, the provisions of Section 11D shall not apply even
if the amount is recovered from the buyers. Therefore, it was further clarified
that the CENVAT credit of the said amount of 8% or 10% cannot be taken by
the buyer since such payment is not a payment of duty in terms of Rule 3(1) of
the CENVAT Credit Rules, 2004. With the above clarification, Circular No.
599/36/01-CX, dated November, 2001, was withdrawn.
13. In the instant case, the assessee has adopted the CENVAT credit account
and has remitted the amount. Whether this procedure can be followed would
be another issue. Such issue came up for consideration before the Hon'ble
Division Bench of this Court in the case of Kesoram Spun Pipes And Foundries
Ltd. vs. Commissioner of Central Excise & Ors., APO No.391 of 2017, GA
No.2872 of 2017 in WPO No.681 of 2014 and by judgment dated 15.3.2019 the
assessee's appeal was allowed and the order passed in the writ petition was set
aside. At this juncture, it would be relevant to take note of the following
paragraphs of the said judgment.
"The matter pertains to Rule 6 of the CENVAT Credit Rules, 2004.
Such Rule pertains to the obligation of the manufacturer to make a
distinction in maintaining accounts relating to the use of inputs in taxable
and exempted goods if inputs on which CENVAT credit has been availed of
are used in the manufacture of both exempted goods and taxable goods.
Broadly speaking, if the manufacturer avails of CENVAT credit in respect
of inputs and manufactures final products which are chargeable to duty or
tax as well as final products that are exempted goods, then the
manufacturer is required to maintain separate accounts for receipt,
consumption and inventory of inputs for use in the manufacture of dutiable
final products and separate accounts for similar purpose for use of the
exempted inputs in the manufacture of exempted goods. Rule 6(3)(a) of the
said Rules of 2004 provides a scheme. However, since the appellant in this
case did not follow such scheme, the same is not relevant for the present
purpose. Rule 6(3)(b) of the said Rules of 2004 provides as follows:
"if the exempted goods are other than those described
in condition (a), the manufacturer shall pay an amount
equal to ten per cent of the total price, excluding sales
tax and other taxes, if any, paid on such goods, of the
exempted final product charged by the manufacturer for
the sale of such goods at the time of their clearance
from the factory;"
There are Explanations which apply to the entirety of Rule 6(3) of the
said Rules, including the following first Explanation:
"The amount mentioned in conditions (a) and (b) shall be
paid by the manufacturer or provider of output service
by debiting the CENVAT credit or otherwise.""
"According to the appellant, the appellant calculated the 10% in
terms of Rule 6(3)(b) of the said Rules of 2004 and passed it on to the
purchasers of the relevant goods from the appellant; but instead of
depositing such amount of 10% collected from the purchasers of the
appellant's exempted goods, the appellant debited the equivalent amount
from the CENVAT credit obtained by the appellant. There is no dispute that
the debit of the CENVAT credit matched the amount recovered by the
assessee on account of excise duty from its vendors."
"It is clearly such position which was addressed at paragraph 8 of
the judgment of the larger Bench of the Tribunal in Unison Metals Limited.
Though such judgment dealt with the 8% duty that was relevant at that
point of time under Rule 57CC of the 1944 Rules, the legal principle
enunciated was that if there was several modes of making the payment
and one of them was adopted, that would do. That appears to have been
the ratio in Unison Metals Limited as accepted by the authorities in the
circular of May 16, 2008. That the circular of May 16, 2008 came after the
judgment of the adjudicating authority was delivered makes no difference
since such circular is clarificatory in nature and does not change the
position at all.
Since the appellant in the present case adopted the scheme under
Rule 6(3)(c) of the Rules of 2004 to which the first Explanation to the sub-
rule was also attracted, there was an option available to the appellant to
either make over the amount that was realized by the appellant by way of
excise duty from the appellant's purchasers or to debit the CENVAT credit
obtained by the appellant by the equivalent amount. There is no dispute
that the appellant did, in fact, debit the CENVAT credit by the equivalent
amount. If the CENVAT credit can be seen as money in the hands of the
assessee in some other form, the debiting of the CENVAT credit by an
equivalent amount, tantamounts to such amount having made over to the
excise authorities or refunded to the excise authorities or the like."
14. The above legal position has been rightly taken note of by the Tribunal
apart from noting that in the assessee's own case in Excise Appeal No. 465 of
2007, dated 13.5.2016 following the decision of the larger Bench of the
Tribunal in the case of Unison Metals Ltd., granted stay of the demand.
15. In the light of the above discussion, we find the Tribunal was fully
justified in dismissing the revenue's appeal and we find no questions of law,
much less substantial questions of law, arising for consideration.
16. The appeal thus fails and is dismissed.
17. Consequently, the stay application, IA No: GA/1/2019, also stands
dismissed.
(T.S. SIVAGNANAM, CJ.)
I agree :
(CHAITALI CHATTERJEE (DAS), J.)
sm/SN
