Kamra Bottling Versus Commissioner of Central Excise

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR


OTHER TAX REF. CIVIL No. 5 of 2005


KAMRA BOTTLING CO
V/S
COMMISSIONER CENTRAL EXCISE JAIPUR


Mr. R.D. Sidhu, for the appellant / petitioner/
Mr. Rishabh Sancheti for Mr. V.K. Mathur, for the respondent


Date of Order : 3.4.2008


HON'BLE SHRI N P GUPTA,J.
HON'BLE SHRI SANGEET LODHA,J.


ORDER


This is a petition under Section 35(H) of the
Central Excise Act by the assessee, on the following
question framed in the application :


“Whether the substantive benefit of exemption can
be denied for procedural irregularities?”


The necessary facts are, that the petitioner is a
manufacturer of aerated water. The manufacturer used to
manufacture aerated water in two brands; one being Campa,
and another being Mr. Dik Soda. Out of the two products,
the product manufactured in the name of Campa is excisable.
However, the product in the name of Mr. Dik is not
excisable, being covered by exemption notification.


The controversy involved in the present case arose
in the circumstances, that petitioner is using inputs in
manufacture of two products, and is availing MODVAT Credit
on such inputs. As the inputs for the two products are



common, the question arose, because the petitioner sought
to avail the MODVAT Credit, with respect to the product, on
which excise duty is not leviable. But the department did
not allow such Credit, on the ground, that there is no
provision for reversal.


Learned Assistant Collector vide order dated


16.03.95 held, that full exemption upto Rs. 30 lacs under
the Notification 1/93, in respect of Dik brand aerated
water is not admissible. It was also held, that
Classification list effective from 01.03.94 and 01.04.94
are accordingly modified, to deny the benefit of full
exemption upto Rs. 30 lacs, to Dik brand Aerated water.
It may be clarified here, that there is no
controversy, as to whether the Dik brand product is liable
to excise duty or not, as admittedly it is exempted. The
only controversy is, as to whether in the circumstances of
the present case, the petitioner is entitled to avail the
MODVAT Credit, with respect to inputs used for manufacture
of products, on which no excise duty is leviable?


The petitioner filed appeal which was dismissed
vide order dated 06th June, 2000, and then a further appeal
was filed before the learned Tribunal, which too was
dismissed vide order dated 06th February, 2003.


The petitioner placed strong reliance on the
judgment of Hon'ble Supreme Court, in the matter of
Chandrapur Magnet Wires (P) Ltd. Vs Collector of C. Excise,
Nagpur, reported in 1996(81) E.L.T.3 (S.C.) Page 3. This
reliance was placed before the learned Commissioner, so
also the learned Tribunal, and also before us.


Learned Tribunal found, that in Chandrapur Magnet
Wire's Case, the Hon'ble Supreme Court considered the case
of an SSI unit, which availed the benefit of SSI exemption,



in respect of final product after reversing the input-
credit, which they had earlier taken. In the instant case,
the reversal of input-credit was, admittedly, made after
clearance of the final product, under the exemption
notification, and therefore, it was found, that ratio in
Chandrapur Magnet case is not applicable to the instant
case.


With the assistance of learned counsels for the
parties, we have gone through the impugned judgment, and
have closely gone through the judgment of Hon'ble Supreme
Court, in Chandrapur Magnet case.


In Chandrapur Magnet’s case, of course the
controversy involved was, as to whether there is any
provision for reversal of MODVAT Credit, with respect to
the products, which are not liable to excise duty, or in
other words are exempted goods ? However, in that case, as
a fact, it was noticed, that the appellants therein had
reversed the MODVAT Credit availed by them, and it was
found to have been reversed prior to clearance of the
goods. The Hon'ble Supreme Court quoted para 3 of the
notification dated 28.02.93, which provides, that where a
manufacturer produces, alongwith dutiable final products,
final products, which would be exempt from duty by a
notification, and in respect of which it is not reasonably
possible to segregate the inputs, the manufacturer may be
allowed to take credit of duty paid on all inputs, used in
the manufacture of the final products, provided that credit
of duty paid on the inputs used in such exempted products
is debited in the credit account before the removal of such
exempted final products.


(Emphesys Supplied)


In our view, this notification and the judgment of
Hon’ble the Supreme Court, firstly, nullify and negative



the stand taken by the department, that there is no
provision for reversal of the MODVAT Credit taken, and
since in that case, it was found as a fact that the credit
was reversed before clearance of the goods, the appeal of
the assessee was allowed. In the present case also, so far
the legal proposition, about the appellant's entitlement to
exemption from payment of duty on exempted goods is
concerned, on that there is no dispute, inasmuch as the
appellant cannot be made liable to pay the excise duty on
exempted goods, simply because he has availed MODVAT
Credit. But the question here precisely is, as to whether
the appellant is entitled to retain the MODVAT Credit
already availed by him on such inputs consumed in
production of such exempted goods ?


In our view, the proviso contained in para 3 of
the said notification, as referred to above, is a complete
answer, which in no ambiguous terms provides, that the
credit of duty paid on the inputs, used in such exempted
products is debited, in the credit account, specially by
using the words, “before the removal of exempted final
products.”


An attempt was made by the learned counsel for the
petitioner to contend, that the petitioner had been
consistently following the practice of submitting monthly
returns in register RG 23, and therein, he was showing
reversal of credit, which was always being considered by
the department, and therefore, he is entitled to avail the
credit, and on the basis of that register, it was sought to
be contended, that this amounts to the petitioner reversing
the credit, before removal of goods.


In our view, the contention cannot be accepted,
for the simple reason, that the question as to whether
reversal has been effected before removal of the goods or
after removal of the goods, is purely a question of fact,



and all the authorities below have found it as a fact, that
un-disputedly the appellant reversed the credit after
removal of the goods.


On our request, learned counsel for the petitioner
read to us, even the memo of appeal, submitted before the
Tribunal below, and even therein also, we did not find any
contention, to the effect, that the appellant had reversed
the credit, before removal of the goods. Rather the whole
burden of the appeal was, that simply because the appellant
had availed the MODVAT Credit, he cannot be denied
exemption from payment of excise duty, on exempted goods.


Thus, since admittedly the appellant had not
reversed the credit before removal of the exempted final
products, we do not find any error in the orders of the
authorities below.


The reference application is therefore, dismissed.


( SANGEET LODHA ),J. ( N P GUPTA ),J.


/bjsh/