New Swadeshi Sugar Mills v. Commissioner Of Central Excise, Patna

In this appeal which has been preferred by the appellants against the part of the impugned order-in-appeal, the issue relates to the entitlement of the appellants to the utilisation of the Modvat credit already earned by them prior to the enforcement of the new Cenvat Credit Rules, 2002.

2. The facts are not much in dispute. The appellants prior to the enforcement of the new Cenvat Credit Rules, 2002, were working under the Cenvat Credit Rules, 2001. They had two units-one for the manufacture of sugar and molasses and the other for distilling of denatured spirit (dutiable product) and rectified spirit (Non-dutiable product). They applied for grant of single licence for both the units, as the distilling unit was using molasses manufactured by sugar unit, as inputs, for the manufacture of dutiable and non-dutiable products named above, and both the units were located in the same premises. The Commissioner has allowed their prayer and granted them the single licence. Under the Cenvat Credit Rules, 2001, the appellants were also paying duty at the 8% of the value of the exempted goods cleared by them in lieu of the Cenvat Credit availed by them on the inputs utilised in the manufacture of their goods. They were also paying duty on the dutiable products i.e denatured spirit.

3. On the enforcement of the new Cenvat Credit Rules w.e.f 1-3-2002 (in short Rules of 2002), the appellants had accumulated Cenvat credit in their record. The utilisation of the credit has been denied to them by the adjudicating authority by referring to Rules 6 and 9 of these Rules on the ground that the appellants manufactured both dutiable and non-dutiable products and that Rule 6 specifically prohibited availment of credit by such a unit. The learned Counsel has contended that from the co-joint reading of the Rules 9 and 3(3) of the Credit Rules, 2002, it is quite clear that the appellants are entitled to utilise the already collected Cenvat credit for payment of duty for any product and that Rule 6(3) has got no application to their case. He has also referred to the ratio of law in the case of K.M Sugar Mills Ltd. v. CCE, Allahabad, [2001 (133) E.L.T 567],

4. On the other hand, the learned JDR has contended that since the appellants were engaged in the manufacture of dutiable and non-dutiable products in the same unit, Rules 6 and 3 of the Rules, 2002 specifically prohibited the availment of Cenvat credit and as such, they are not entitled to utilise the same.

5. I have heard both the sides and gone through the record. From the record, it is quite evident that on the date of enforcement of the new Cenvat Credit Rules, 2002 w.e.f 1-3-2002, the appellants had accumulated Cenvat credit in their record as they were paying duty on the dutiable product i.e denatured spirit as well as amount at the rate of 8% for the utilisation of the duty paid inputs, in the manufacture of non-dutiable product i.e rectified spirit.

6. Rule 9 of the Cenvat Credit Rules, 2002 clearly enacts that any amount of credit earned by the manufacturer under the Cenvat Credit Rules, 2001, as they existed prior to 1st day of March, 2002, and remaining unutilised credit on that day, shall be allowable as Cenvat credit to such manufacturer under these rules and be allowed to be utilised in accordance with these Rules. The perusal of this rule leaves no doubt that it allows the utilisation of the already earned credit by a manufacturer under the earlier Cenvat Credit Rules, 2001. Then Rule 3(3) of the Rules, 2002 permits the utilisation of the already earned Modvat credit for payment of any duty of excise on any final products or for payment of duty on inputs or capital goods.

7. Rule 6 which has been relied upon by the Revenue only speaks of non-availability of the Modvat credit to a manufacturer after the enforcement of these rules, when he is engaged in the manufacturer of exempted goods also falling under Heading 22.04 of the Tariff Act. From the perusal of this rule, it is evident that under the new Cenvat Credit Rules, 2002, no credit shall be allowed to the manufacturer on such quantity of inputs which is used in the manufacture of exempted goods and those exempted goods have been detailed in clause 3(a) of this rule. This rule nowhere takes away the right of a manufacturer to utilise the already accumulated credit under the earlier Cenvat Credit Rules of 2001. This rule only prohibits the availability of credit under the new Credit Rules, 2002, to a manufacturer engaged in the manufacture of exempted goods specified therein.

8. The already accumulated earned credit by a manufacturer can be utilised by him for the payment of duty of any product, as is evident from the cojoint reading of the Rules 3(3) and 9, as observed above. The ratio of law laid down in KM. Sugar Mills (supra) is also fully attracted to the case of the appellants. In that case, it has been observed that where rule itself provides for utilisation of credit for payment of any duty of excise on any final product, then there is no warrant to give it a restricted meaning. Apart from this, the right of the appellants to claim the utilisation of the already earned credit before the enforcement of the Cenvat Credit Rules, 2002, also stands saved by the provisions of Section 38-A of the Act which enacts that where any rule, notification, order is amended, repealed, superseded, then such amendment, repeal, supersession shall not affect the previous provisions of any rule, notification or order so amended, repealed, rescinded or anything done or suffered thereunder and will also not affect any right, privilege or liability acquired or incurred under any rule, notification or order, so amended, repealed, rescinded. This very view has been taken by the Larger Bench of the Tribunal in Kisan Sahkari Chini Mills Ltd. v. CCE, Kanpur, [2001 (131) E.L.T 370]. Under the earlier Cenvat Credit Rules, 2001, the appellants had a right to utilise the Modvat credit standing in their, account, in the statutory record, for discharge of duty on the dutiable products, and the same did not stand affected, in view of the provisions of Section 38A of the Act, on the introduction of the new Cenvat Credit Rules, 2002. Therefore, the appellants are entitled to utilise the Cenvat credit earned by them and lying in their balance as on 28-2-2002 prior to 1-3-2002, for discharge of duty of any dutiable product.

9. Consequently, the impugned order of the adjudicating authority to the extent of disallowing the utilisation of the Modvat credit of amount in question is set aside. The appeal of the appellants is allowed with consequential relief, as per law.

(Order dictated and pronounced in the open Court).