Aggarwal Industries vs Customs Excise & Service Tax ...
2021 Latest Caselaw 14074 Guj

     C/TAXAP/1042/2008                              ORDER DATED: 15/09/2021




            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                         R/TAX APPEAL NO. 1042 of 2008

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                   AGGARWAL INDUSTRIES
                           Versus
 CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL & 1 other(s)
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Appearance:
MR ANAND NAINAWATI(5970) for the Appellant(s) No. 1
MR ANKIT SHAH(6371) for the Opponent(s) No. 1,2
MR DHAVAL D VYAS(3225) for the Opponent(s) No. 1,2
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 CORAM:HONOURABLE MS. JUSTICE SONIA GOKANI
       and
       HONOURABLE MR. JUSTICE RAJENDRA M. SAREEN

                                Date : 15/09/2021

                        ORAL ORDER

(PER : HONOURABLE MR. JUSTICE RAJENDRA M. SAREEN)

1. This tax appeal was admitted for considering following substantial questions of law:

"(1) Whether on the facts and in the circumstances of the case the CESTAT was right in dismissing the appeal when the orders challenged before it have travelled beyond show cause notice and were bad in law and were passed in violation of principles of natural justice?

(2) Whether, on the facts and in the circumstances of the case, the CESTAT was justified in holding that the benefit of deemed credit under order No.TS/36/94TRU dated 1.3.1994 will not be available to the rerollers

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whose value of clearances have crossed? 75 lakhs in a particular financial year?

(3) Whether on the facts and in the circumstances of the case, the CESTAT was right in holding that whatever interpretation was put on Notification No. 1/93 would affect the availment of the benefit of the deemed credit order No.TS/36/94TRU dated 1.3.1994 ?"

2. The order challenged by the appellant- assessee in the present tax appeal passed by CESTAT is rather brief and reads as under:

"Both sides duly represented by Shri A.D.Maru, leamed advocate appearing for the appellants and Smt. A. Vasudev, Jt. CDR appearing for the Revenue, fairly agree that the disputed issue as to whether the reroller, whose aggregate value of clearances in a financial year have exceeded 75 lakhs, are eligible or not for the benefit of deemed credit, stands decided by Larger Bench decision of the Tribunal in case of M/s. Digambar Foundary vs. Collector reported in 2000 (118) ELT 85 (Tribunal) which stands subsequently followed by the Tribunal in case of M/s. Vinubhai Steel Co.(P) Ltd., reported in 2003 (161) ELT 326 (Tribunal Mumbai). As such, by following the ratio of above decision,

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we reject the appeals,"

3. It can thus be seen that the Tribunal dismissed the appeal of the assessee relying on the Larger Bench judgment of the Tribunal in case of M/s. Digambar Foundary Versus Collector, reported in 2000 (1008) ELT 85 (Tribunal) which was also followed in later judgment in case of M/s. Vinubhai Steel Co. (P) Ltd., reported in 2003 (161) ELT 326 (Tribunal Mumbai).

4. We notice that the judgment in case of M/s. Vinubhai Steel Co. (P) Ltd., came to be challenged before this Court in Tax Appeal No.56 of 2005 and connected appeals. Division of this Court by its judgment and order reported in (2015) 330 ELT 858 allowed the appeal and set aside the judgment and order of the Tribunal.

5. Both the questions raised in this appeal are identical to what have been decided in case of M/s. Vinubhai Steel Corp.(P) Ltd. (supra) and where the Court has held thus on both the issues :-

"14. From the facts and contentions noted hereinabove, it is apparent that the goods manufactured by the assessees namely, bars and rods were exempted from payment of central excise duty right from the year 1963 till 1994 when the Notification No.202/88 dated 20th May, 1988 came to be rescinded with effect from 1st March, 1994. However, at the same time, while

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rescinding the said notification, the items falling under Tariff Heading No. 72 came to be brought within the purview of Notification No.1/93-CE effective from 1st April, 1994 whereby exemption for first clearances of specified goods up to the value of 30 lakhs and concessional duty thereafter, in case of SSI units having clearances not exceeding rupees two crores in the preceding year came to be granted. The said notification provided for different slabs for availment of the benefit thereunder; however, such benefit was available in the aggregate, to clearances of Rs.75,00,000/-. While the benefit of the said notification was available upto a limit of clearance of Rs.75,00,000/-, for the purpose of being eligible to the benefit thereof, the aggregate value of clearances of all excisable goods for home consumption should not have exceeded Rs.200 lakhs in the preceding financial year. By the order dated 1st March, 1994 issued in exercise of powers under rule 57G(2) of the rules, the benefit of deemed credit was given to manufacturers of goods falling within the ambit of Notification No.1/93. Thus, to be eligible to the benefit of Notification No.1/93, certain criteria as set out therein had to be satisfied. Such criteria related to the aggregate value of clearances made in the past year. Under Notification No.1/93, the benefit

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thereunder has been provided till clearances reached 75,00,000/- and thereafter, the normal rate of duty was payable by such manufacturers. The Government of India Order dated 1st March 1994 granting facility of deemed credit, was available to re-rollers availing of the exemption under Notification No.1/93. It appears that the Government, taking into consideration the ground realities in regard to purchase of material by the re-rollers from the open market, by virtue of such order, has exempted them from the requirements of production of gate pass etc. evidencing payment of duty in respect of ingots and rerollable materials of iron and steel purchased from outside and lying in stock on or after the 1st day of April 1994. The moot question that arises for consideration is whether the deemed credit provided to the rerollers under the order dated 1st March 1994 is available to them even if their clearances exceed Rs.75,00,000/-.

15. On behalf of the revenue it has been contended that while providing the benefit of deemed credit under the Government order dated 1st March, 1994, the Government had presumed that the goods in question would be duty paid goods, but only benefit of not producing evidence of such duty having been paid had been granted.

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It would, therefore, be necessary to refer to the provisions of rule 57G(2) of the rules and more particularly to the second proviso thereto in exercise of powers whereunder, the above order has been passed.

16. Rule 57G of the rules makes provision for the procedure to be observed by the manufacturer and to the extent the same is relevant for the present purpose reads thus:

RULE 57G. Procedure to be observed by the manufacturer.- (1) Every manufacturer intending to take credit of duty paid on inputs under rule 57A, shall file a declaration with the Assistant Collector of Central Excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products and such other information as the Assistant Collector may require, and obtain a dated acknowledgment of the said declaration.

(2) A manufacturer who has filed a

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declaration under sub-rule (1) may, after obtaining the acknowledgment aforesaid, take credit of the duty paid on the inputs received by him:

Provided that no credit shall be taken unless the inputs are received in the factory under the cover of a Gate Pass, and A.R.1, a Bill of Entry or any other document as may be prescribed by the Central Board of Excise and Customs [constituted under the Central Boards of Revenue Act, 1963] in this behalf evidencing the payment of duty on such inputs:

Provided further that having regard to the period that has elapsed since the duty of excise was imposed on any inputs, the position of demand and supply of the said inputs in the country and any other relevant considerations, the Central Government may direct that with effect from a specified date, all stocks of the said input in the country, except such stocks lying in a factory, customs area [as defined in the Customs Act, 1962] or a warehouse as

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are clearly recognizable as being non- duty paid, may be deemed to be duty-

paid and credit of duty in respect of the said inputs may be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing payment of duty.

17. On a plain reading of the second proviso to rule 57G (2) of the rules, it is clear that what the same envisages is that having regard to the circumstances described therein, the Central Government may direct that with effect from a specified date all stocks of inputs (as described therein) as are clearly recognizable as being non- duty paid, may be deemed to be duty paid. Thus, the proviso contemplates issuance of an order in respect of goods that are clearly recognizable as being non-duty paid which shall be deemed to be duty paid and credit of duty in respect of such inputs may be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing payment of duty. The contention that the Central Government would have presumed the goods to be duty paid, therefore, flies in the face of the second proviso to rule 57G(2) of the rules and therefore,

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does not merit acceptance.

18. With a view to properly appreciate the controversy involved in the present case, it may be germane to refer to the Central Government order dated 1st March, 1994 which came to be issued vide Notification:TS/36/94-TRU dated 1st March 1994 which reads thus:

"Deemed credit in respect of rerollable material - Chapters 72 and 73 In exercise of the powers conferred under the second proviso to Rule 57G(2) of the Central Excise Rules, 1944 (1 of 1994), and in supersession of Order F.No.

342/5/91-TRU, dated the 7th July, 1992, as amended, the Central Government hereby directs that the ingots and rerollable materials of iron and steel purchased from outside and lying in stock on or after the 1st day of April, 1994 with rerollers, availing of the exemption under Notification No.1/93 Central Excises, dated the 28th February, 1993 will be deemed to have paid duty, and the credit of duty under Rule 57A of the said Rules in respect of such ingots and rerollable

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materials used without undergoing the process of melting, in the manufacture of goods falling under Chapter 72 or 73 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), may be allowed at the rate of Rs.920/- per tonne, without production of documents evidencing payment of duty.

2. This Order shall come into force on the 1st day of April, 1994."

19. Thus, what the above Order dated 1st March, 1994 envisages is grant of benefit of deemed credit to re-rollers availing of the exemption under Notification No.1/93. The next question that arises for consideration as to what meaning can be attributed to the words "availing of exemption under Notification No.1/93", which is the principal controversy arising in the present case.

20. For this purpose it would be germane to refer to the contents of Notification No.1/93. By the said notification which has been issued in exercise of powers under section (1) of section 5A of the Central Excise Act, 1944 the Central Government has exempted the excisable goods of the description specified in the Annexure below the

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notification and falling under the Schedule to the Central Excise Tariff Act, 1985 and cleared for home consumption on or after the 1st day of April in any financial year, by a manufacturer from a factory, which is an undertaking registered with the Director of Industries in any State or the Development Commissioner (Small Scale Industries) as a small scale industry under the provisions of the Industries (Development and Regulation) Act, 1951 by way of three different slabs as provided under sub clauses (a), (b) and

(c) to clause (1) thereof. The second proviso to clause (1) of the notification postulates that the aggregate value of clearances of the specified goods in terms of sub-clauses (a), (b) and (c) taken together, shall not exceed rupees seventy five lakhs. Clause (3) of the notification provides that nothing contained in the notification shall apply if the aggregate value of clearances of all excisable goods for home consumption,- (a) by a manufacturer, from one or more factories, or (b) from any factory, by one or more manufacturers, had exceeded rupees two hundred lakhs in the preceding financial year.

21. Thus, from the heading of the notification it is clear that the benefit thereunder is available to S.S.I. units provided they have not exceeded

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clearances of rupees two crores in the preceding financial year. What is stated in the heading is provided under clause (3) of the notification which limits the entitlement to the benefit of the notification to S.S.I. units, the aggregate value of whose clearances have not exceeded rupees two hundred lakhs. In effect and substance, clause (3) of the notification provides for the eligibility criteria for getting the benefit of the said notification and accordingly provides that such S.S.I. units whose aggregate clearances in the preceding financial year have not exceeded two hundred lakhs shall be eligible to get the benefit of the said notification. Assigning a plain meaning to the language used in the Government Order dated 1st March, 1994, the rerollers who are eligible to get the benefit of the Notification No.1/93 and are availing exemption thereunder are eligible to get the benefit of deemed credit thereunder.

22. The question that next arises for consideration is as to whether the limit of Rs.75,00,000/- for availing the benefit under the Notification No.1/93 also extends to the Government Order dated 1st March, 1994 as is sought to be contended on behalf of the revenue. In the opinion of this court, the provision whereby the benefit of notification No.1/93 is limited to the aggregate value of

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clearances of specified goods to the extent of rupees seventy five lakhs relates to the extent of benefit that can be claimed under the said notification. However, the same is not an eligibility criteria for availing of the benefit of the said notification. A reroller who avails of the benefit of Notification No.1/93 is by dint of such fact eligible for the benefit of deemed credit under the Order dated 1st March, 1994 and the benefit under the said order is not qualified by the limit provided for availment of the benefit of Notification No.1/93. The decision of the Tribunal in the case of Digambar Foundary v. Commissioner of Central Excise (supra), whereby it is held that the eligibility to avail of the benefit under the order would be only to the extent the clearances do not exceed Rs.75,00,000/-, is, therefore, an incorrect interpretation of the Order dated 1st March, 1994 as well as the Notification No.1/93.

23. The above view taken by this court, finds support in various decisions rendered by other High Courts. The Himachal Pradesh High Court in the case of Sood Steel Industrial (P) Ltd. v. Commissioner of Central Excise (supra) has in relation to a similar controversy held thus:

"13. In our view, the order of the Larger

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Bench of the CEGAT is not correct. The benefit of the Notification No.1/93-C.E. is available to any manufacturer whose total clearances in the preceding financial year did not exceed Rs.2 crores. The deemed credit order clearly states that all concerns availing of exemption under Notification No.1/93- C.E., dated 28-2-1993 will be deemed to have paid duty under Rule 57-I of the Rules and the credit may be allowed to them at the rate fixed without production of any documents evidencing the payment of duty. Any manufacturer whose total clearances did not exceed Rs.2 crores was entitled to the benefit of exemption under the Notification No.1/93-C.E. No doubt the benefits under this notification were limited to clearances of Rs.75 lacs but this does not mean that manufacturers whose clearances exceeded Rs.75 lacs were not availing the exemption under the notification. In our considered view, the only interpretation which can be given is that the wording used in the notification identifies the category of manufacturers who are satisfying the

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criteria as set out in Notification No.1/93-C.E. and are availing of the benefit of the said notification. The trade note limiting this benefit to those manufacturers whose clearances do not exceed Rs.75 lacs is totally illegal and against the deemed credit order issued by the Ministry. We may also point out that though the department may be bound by its trade note, the industry is not bound by the same and has a right to challenge the same."

24. The Madras High Court in the case of Ganesh Steels v. CESTAT, Chennai (supra) has, on the question of interpretation of the provisions of Notification No.1/93 read with the Government Order dated 1st March, 1994 has agreed with the view taken by the Himachal Pradesh High Court and has held thus:

"15. We agree with the view taken by the Division Bench of Himachal Pradesh High Court. Notification No.1/93-C.E., dated 28-2-1993 deals with payment of full/concessional/slab exemption rate of duty for the specified goods up to the aggregate value of clearances not

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exceeding Rs.75 lakhs, subject to various conditions and limitations as provided in that exemption Notification. The exemption under that Notification was not available if the aggregate value of clearances of all excisable goods for home consumption (a) by a manufacturer from one or more factories; or (b) from any factory by one or more manufacturers had exceeded Rs.200 lakhs in the preceding financial year. Notification No.1/93-C.E., dated 28-2-1993 did not deal with availing of credit. Whereas the Ministry's Deemed Credit Order TS/36/94-TRU dated 1-3- 1994 is that goods should be lying in stock on or after 1-4-1994 with the re- rollers. As per the Ministry's Deemed Credit Order dated 1-3-1994, re-rollers availing exemption under Notification No.1/93-C.E., dated 28-2-1993 will be deemed to have paid the duty.

16. In the present case, Appellant has not crossed the value of clearance of Rs.200 lakhs during the preceding financial year and availed full exemption under Notification No.1/93-

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C.E., dated 28-2-1993 up to 24-12-1994 and thereafter started paying duty. Therefore, Appellant cannot said to be not availing exemption under Notification No.1/93-C.E., dated 28-2- 1993 during the year 1994-95. The Deputy Commissioner of Central Excise recorded factual finding that Appellant satisfied the conditions viz., (i) the inputs were re-rollable materials of steels; (ii) the inputs were purchased from outside and were lying in stock;

(iii) the Appellant were re-rollers availing exemption under Notification No.1/93- C.E., dated 28-2-1993 and (iv) the process carried was heating and not melting and that the goods manufactured were classifiable under Chapter 72. When the Deputy Commissioner had recorded such factual finding that the Appellant satisfied the conditions - Notification No.1/93- C.E., dated 28-2-1993 and Ministry's Deemed Credit Order TS/36/94-TRU, dated 1-3-1994 and applying the ratio laid down by the Division Bench of Himachal Pradesh High Court in 2009 (241) E.L.T. 186

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(H.P.) [Sood Steel Industrial (P) Limited v. Commissioner of Central Excise], we are of the view that the order of Tribunal cannot be sustained."

25. The Karnataka High Court in Pashupati Steels v. Commissioner of Central Excise, Bangalore (supra) has also taken a similar view.

26. In the light of the above discussion, question No.2 in Tax Appeals No.56/2005 to 74/2005 is answered in the negative, that is, in favour of the assessee and against the revenue. The Tribunal was not justified in holding that the benefit of deemed credit available under Order TS/36/94-- TRU dated 1st March, 1994 passed by the Central Government in exercise of powers conferred under rule 57G(2) of the erstwhile Central Excise Rules, 1994 could be denied to the re-rollers whose value of clearances have crossed Rs.75,00,000/- in a particular financial year for the purposes of exemption Notification No.1/93 on the ground that such re-rollers could not be said to be availing of exemption under the aforesaid Notification No.1/93 dated 28-2-1993. In the light of the above view adopted by this court, it is not necessary to answer question No.1.

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27. The question No.1 in Tax Appeals No.464/2014, 465/2014 and 466/2014 at the instance of the revenue is answered against the revenue and in favour of the assessee. The Tribunal was justified in holding that the respondents who were availing the benefit of Notification No.1/93-CE dated 28th February, 1993 were entitled to avail the benefit of the deemed credit order after crossing the value clearance limit of Rs.75,00,000/-.

28. However, it may be noted that in Tax Appeal No.466 of 2014, the respondent M/s Sonthalia Steel Re-Rolling Mills had availed the benefit of deemed modvat credit of Rs.5,74,098/- on 24th December, 1995 for input lying in stock, after the Notification:TS/36/94-TRU dated 1st March, 1994 came to be rescinded vide Notification:TS/8/95- Tru.-CE (NT) dated 16th March, 1995 whereby the Central Government in exercise of powers under the second proviso to sub-rule (2) of rule 57G of the rules rescinded the order dated 1st March, 1994 with effect from 1st April, 1995. Thus, to the extent M/s. Sonthalia Steel Re-Rolling Mills had availed the benefit of the order dated 1 st March, 1994 after it came to be rescinded with effect from 1 st April, 1995, it was not entitled to such benefit. The 2nd question in the appeals preferred by the

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revenue, is therefore, answered in favour of the revenue and against the assessee. The Tribunal was not justified in setting aside the Order-in- Appeal passed by the Commissioner (Appeals) without giving any findings on the issue of admissibility of deemed modvat credit after the order dated 1st March, 1994 came to be rescinded with effect from 1st April, 1995.

29. In the light of the above discussion, the tax appeals preferred by the assessees are hereby allowed by quashing and setting aside the impugned orders passed by the Tribunal to the extent the Tribunal has held that the assessees are not entitled to the benefit of the order dated 1st March, 1994 after crossing the aggregate value of clearances of Rs.75,00,000/-. Tax Appeal No.466 of 2014 is partly allowed by setting aside the impugned order passed by the Tribunal to the extent the Tribunal has allowed the appeal in respect of the benefit of deemed modvat credit of Rs.5,74,098/- availed by the respondent - assessee on 24th December, 1995. Tax Appeals No.464 and 465 of 2014 are hereby dismissed."

6. In other connected appeals and against the very judgement and order impugned in the present appeal, Patran Steel Industries versus the Customs Excise and Service Tax Appellate Tribunal, preferred Tax Appeal No.1041 of 2008 and the Division Bench of this Court allowed the said appeal and set aside the very judgement and order of the Tribunal, vide

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judgement and order dated 29.08.2018, reported in 2018(8) TMI 1678, following the decisions in the connected appeals more particularly in the case of M/s. Vinubhai Steel Co.(P) Ltd. (supra) and M/s. Vinubhai Steel Co. (P) Ltd. (supra).

7. In the result, the present appeal is also allowed. The judgment of the Tribunal and the adverse orders against the assessee are set aside. Questions are answered in favour of the assessee. The tax appeal is disposed of.

(SONIA GOKANI, J)

(RAJENDRA M. SAREEN,J) R.H. PARMAR.