THE COMMISSIONER OF CENTRAL EXCISE vs M/S SUNDARA INDUSTRIES (I) (P) LTD

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 10TH DAY OF DECEMBER, 2015

PRESENT

THE HON'BLE MR. JUSTICE VINEET SARAN

AND

THE HON’BLE MRS. JUSTICE S.SUJATHA

C.E.A. NO. 89/2006

BETWEEN:

THE COMMISSIONER OF CENTRAL EXCISE CENTRAL EXCISE COMMISSIONERATE, III POST BOX NO.5400, BANGALORE-01, BANGALORE III.

… APPELLANT

(BY SRI. T.M. VENKATA REDDY-ADV)

AND:

M/S SUNDARA INDUSTRIES (I)(P) LTD, 36, J.C. INDUSTRIAL LAY OUT, KANAKAPURA ROAD, BANGALORE-560 062.

… RESPONDENT

(NOTICE SERVED TO RESPONDENT HELD SUFFICIENT)

THIS CEA IS FILED UNDER SECTION 35 (G) OF CENTRAL EXCISE ACT, 1944, PRAYING THAT ARISING OUT OF ORDER DATED 10.1.2006 PASSED IN FINAL ORDER NO.63/2006 IN APPEAL nO.751/2002, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO DECIDE THE QUESTION OF LAW AS STATED THERE IN AND ETC.

THIS CEA COMING ON FOR HEARING THIS DAY, S.SUJATHA J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal is directed against the order passed by the CESTAT, Bangalore, in Final Order No.63/2006. This appeal has been filed raising the following substantial question of law:

“Whether the assessee can be granted modvat credit without fulfilling the conditions of Rule 57R of the erstwhile Central Excise Rules 1944 viz. production of a certificate from M/s KSFC to the effect that the assessee have paid the amount of CVD to them and that M/s KSFC have not claimed depreciation amount under the Income Tax Act?”

Heard learned counsel appearing for the appellant. No representation on behalf of the respondent.

The brief facts of the case are that the respondent filed a declaration on 01.02.1999 under Rule 57T of the Central Excise Rules, 1944 (hereinafter referred to as the ‘Rules’) for availing credit on capital goods. Modvat credit of Rs.15,39,877/- was availed by the respondent on automatic winding machine which was procured from Karnataka State Financial Corporation (hereinafter referred to as ‘KSFC’), under Rule 57T. The appellant proceeded against the respondent denying Modvat credit of Countervailing Duty of Rs.15,39,877/- for not furnishing the

requisite certificate/documents from KSFC in accordance with the provisions of Rule 57R of the Rules. The respondent filed objections contending that there was some dispute between KSFC and the respondent, as such, KSFC has not issued the Certificate, availing Modvat by the respondent was already informed to KSFC, in the circumstances, the KSFC cannot claim depreciation on the amount representing countervailing duty in view of Explanation 9 to Section 43 of the Income Tax Act, 1961, introduced retrospectively with effect from 01.03.1994. However, the Original Authority proceeded to pass an order denying the Modvat credit besides imposing penalty of Rs.50,000/- under Rule 173Q for the contravention of Rule 57G read with Rules 57R, which was confirmed by the Appellate Authority. Being aggrieved by the said order, an appeal was preferred by the respondent before the CESTAT. After hearing the parties, the CESTAT upheld the original order. Being aggrieved, the Revenue is in appeal before this Court.

Learned counsel appearing for the appellant- Revenue contends that the judgment relied upon by the Tribunal to arrive at a conclusion that non-compliance of a condition prescribed under Rule 57R(3) of the Rules cannot

result in the denial of a substantial benefit is not applicable to the facts of the present case. The Hon’ble Apex Court has rendered the said judgment in a different context relating to Section 25(1) of the Customs Act, 1962. Further, it is contended that in the absence of furnishing the required documents as per Rule 57(6) of the Rules, the respondent is not entitled to claim Modvat credit, which is wrongly allowed by the Tribunal reversing the judgment of the Original Authority.

We have given our thoughtful consideration to the arguments addressed by learned counsel appearing for the Revenue and perused the records. The relevant portion of Rule 57R(3) of the Rules, is extracted herein for ready reference: "RULE 57R. Credit of duty not to be allowed or denied or varied in certain circumstances and adjustment in duty credit. -

(1) xxxx

(2) xxxx

(3) The credit of the specified duty paid on the capital goods shall be allowed to a manufacturer if the capital goods are acquired by the manufacturer on lease, hire-purchase or loan agreement from a financing company subject to the following procedure, namely :-

(i) xxxx

(ii) The manufacturer availing credit of the specified duty paid on capital goods, who has entered into a financial arrangement, -

(a) xxxx (b) for financing the cost of such capital goods including the specified duty, shall produce a certificate from the financing company to the effect that the duty specified on such capital goods has been paid by the said manufacturer to such financing company, prior to payment of first lease rental installment or first hire- purchase installment or first installment of re- payment of loan, as the case may be, along with a copy of the agreement entered into with the said financing company; (iii) The manufacturer and the financing company shall not claim depreciation under the Income-tax laws on that part of the value of capital goods which represents the amount of specified duty paid on such capital goods.”

It is clear from the said Rule that in order to avail Modvat credit, it is required to repay the Countervailing duty before payment of the first instalment of the loan to the financier. This is not disputed in the present case. However, the only question of law raised before this Court is regarding availing of the Modvat credit without producing a certificate from KSFC as required under Rule 57(6) of the Rules. It has come on record that due to some disputes between the KSFC and the respondent, the respondent was not in a position to make available of the required documents to be placed before the authorities as per Rule

57(6) of the Rules, which would not be fatal to the case. The non-compliance of the said Rule would not disentitle the respondent from availing the Modvat credit having deposited the countervailing duty as prescribed under the Rules. The Tribunal having accepted this contention and following the law laid down by the Apex Court in the case of Commissioner of Customs (imports) -vs- Tullow India Operations Ltd. (2005) 13 SCC 789 has given a finding that the denial of Modvat credit to the appellant on the ground that KSFC has not furnished the required certificate would result in gross miscarriage of justice. Paragraph-28 of the said judgment reads thus:

“28.

The conditions referred to in sub-section (1) of Section 25 as regards time when such certificate is to be produced would, thus, mean those which were within the control and power of the importer. If it is not within the power and control of the importer and depends upon the acts of other public functionaries, non-compliance with such condition, subject to just exceptions cannot be held to be a condition precedent which would disable it from obtaining the benefit therefrom for all times to come.”

In view of the said judgment rendered by the Apex Court and taking into account the legal position as per Explanation 9 to Section 43 of the Income Tax Act, 1961, introduced retrospectively with effect from 01.03.1994, wherein it is made clear that the cost of the capital goods

shall be reduced by the amount of duty to excise in respect of which a claim of credit has been made and allowed under the Rules, KSFC cannot claim depreciation on the portion of the capital goods representing countervailing duty taken as Modvat credit.

Given the circumstances, we are of the opinion that the order passed by the Tribunal is just and proper and does not call for any interference by this Court. Accordingly, we answer the question of law in favour of the assessee and against the Revenue.

The appeal stands dismissed.

Sd/-

JUDGE

Sd/-

JUDGE TL

THE COMMISSIONER OF CENTRAL EXCISE vs. M/S SUNDARA INDUSTRIES (I) (P) LTD