Radha Mohan Textiles PVT. LTD. vs. Union Of INDIA And Ors.
Original PDF →Facts
The petitioner, Radha Mohan Textiles Pvt. Ltd., manufactured man-made fabrics. Grey fabrics were cleared on payment of duty to job workers for processing. After processing, the fabrics were returned, and the petitioner paid duty. The petitioner availed Cenvat credit for duty paid on processed fabrics, then cleared them for export on payment of duty under a rebate claim. The Deputy Commissioner sanctioned rebate and allowed Cenvat credit. The Commissioner of Central Excise reviewed this, holding the petitioner was not entitled to credit for rebate. The Commissioner (Appeals) upheld the Commissioner's view, setting aside the original order. The petitioner's revision was dismissed by the revisional authority, leading to the present writ petitions. The dispute centers on the interpretation of Rule 16 of the Central Excise Rules, 2002, concerning the treatment of amounts paid when goods undergo processes not amounting to manufacture.
Held
The Court held that the revisional authority erred in not considering the explanation appended to Sub-Rule (2) of Rule 16 of the Central Excise Rules, 2002. This explanation clarifies that the amount paid under Sub-Rule (2), even when the process does not amount to manufacture, shall be allowed as Cenvat credit as if it were a duty paid by the manufacturer who removes the goods. The Court found that the statutory scheme mandates that such payments are to be treated as Cenvat credit. The revisional authority's failure to apply this provision resulted in an illegal exercise. Consequently, the impugned order of the revisional authority was set aside. The order of the adjudicating authority, which allowed the rebate and duty refundable in Cenvat credit, was upheld and restored. Any deposit made by the petitioner under a stay order was to be refunded, and the bank guarantee discharged.
Key Issues
1. Whether the revisional authority erred in holding that the petitioner was not entitled to take credit for amounts paid as duty when the goods were subjected to processes that did not amount to manufacture, contrary to the explanation to Sub-Rule (2) of Rule 16 of the Central Excise Rules, 2002? Petitioner's argument: The petitioner contended that the revisional authority misinterpreted Rule 16 of the Central Excise Rules, 2002. It was argued that the authority incorrectly held the petitioner was required to pay an amount equal to Cenvat credit taken, as the goods were subjected to processes that did not amount to manufacture. Therefore, the amount paid was not central excise duty and should be treated as a deposit. The petitioner relied on the explanation to Sub-Rule (2) of Rule 16, which states that the amount paid under this sub-rule shall be allowed as Cenvat credit as if it was a duty paid by the manufacturer who removes the goods. Revenue's argument: The respondents argued that the petitioner's claim hinged on whether the goods underwent a manufacturing process before being sent for job work. Since the petitioner did not dispute that the goods did not undergo any manufacturing process before being sent for job work, the orders of the Appellate and Revisional Authorities were not illegal.
Sections Cited
Rule 16
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
Order 21/02/2024
All these writ petitions are disposed off by this common order as common issue based on similar facts as between the same parties in the matter of claim of rebate of duty raises in respect of different parties.
For brevity and convenience, the facts stated in D.B. Civil Writ Petition No.10608/2009 are being referred to.
The broad facts emerging from impugned order and the records of the case are that the petitioner was engaged in the manufacture of man made fabrics falling under Chapter 55 of the
[2024:RJ-JD:9586-DB] (4 of 9) [CW-10608/2009] Schedule to the Central Excise Terrif Act, 1985. The grey fabrics manufactured by the petitioner were cleared on payment of amount equal to the duty amount to the job workers for production of processed fabrics. The job workers, after processing the fabrics, returned the same on payment of duty to the petitioner. The petitioner availed Cenvat credit of duty paid on the processed fabrics and after carrying out processes such as sorting, packing etc. cleared the said processed fabrics for export on payment of duty under rebate claim. The Deputy Commissioner, Central Excise Division, Bhilwara sanctioned rebate of duty paid on goods exported in cash and transaction and allowed to take credit of the rest of the duty amount in respective Cenvat account. The Commissioner of Central Excise, Jaipur-II, however, reviewed the order in revision holding that the petitioner was not entitled to take credit which would entitle to rebate of duty paid on goods exported. The department filed appeal before the juri ictional Commissioner (Appeals-II) Customs and Central Excise, Jaipur. The appellate authority accepted the view taken by the Commissioner of Central Excise and set aside the order in original passed by the adjudicating authority with direction that instead of cash rebate the petitioner be allowed to take back the amounts paid as amount duty in their respective Cenvat credit accounts. Aggrieved by the said order, the petitioner preferred revision which was dismissed vide impugned order dated 05.06.2009 giving rise to present petition.
Though number of grounds have been raised in the petition including a challenge to the finding that the additional process of sorting and packing is not part of the manufacturing process and,
[2024:RJ-JD:9586-DB] (5 of 9) [CW-10608/2009] therefore, the benefit of Cenvat credit is not available, during the course of arguments, learned counsel of the petitioner confined submission to only one aspect. It is contended that the order of the revisional authority proceeds on misleading of the provision contained in Rule 16 of the Central Excise Rules, 2002. He would submit that it was incorrectly held that the petitioner was required to pay amount equal to the Cenvat credit taken, since the goods were subjected to process which did not amount to manufacture and, therefore, whatever was paid by him in the guise of duty, cannot be treated as central excise duty as it was not required to be paid. On such consideration, it has been held that the petitioner should have correctly followed the provision of Sub- Rule(2) of Rule 16 by paying the amount equal to Cenvat credit taken. As the petitioner attempted to make themselves eligible for claiming such cash rebate of duty by wrongly paying duty, therefore, the amount paid by the petitioner is to be treated as deposit amount with the Government.
Learned counsel for the respondents would argue that the petitioner’s claim depends upon whether the goods were subjected to manufacturing process being removed and sent to job workers for job work. Since the petitioner does not join issue on the aspect that the goods did not indicate any manufacturing process before being removed for being sent for job work, the orders passed by the Appellate Authority and Revisional Authority do not suffer from any illegality.
We have heard learned counsel for the parties and perused the records as also the impugned order passed by the revisional authority. The revisional authority having adjudicated the
[2024:RJ-JD:9586-DB] (6 of 9) [CW-10608/2009] provision contained in Rule 16 of the Central Excise Rules, 2002 in para 10 of its order, proceeds to record its finding as below:
“10. It is quite clear that applicant has admitted the fact that sort, Grading, packing etc. of the impugned goods does not amount to manufacture and claimed benefit under rule 16 of the Central Excise Rule 2002 in the appeal memorandum, filed before Commissioner (Appeals). The careful reading of sub rule (2) of rule 16 makes it clear that the said sub rule stipulates that in case of goods being removed after processes which does not amount to manufacture then an “amount” equal to Cenvat Credit taken was to be paid and in other Cases of manufacturing “duty” is to paid after correctly determining value. Thus, in this case Govt. holds that applicant was required to pay an amount equal to the Cenvat Credit taken. Since the goods were subjected to process which do not amount to manufacture. Whatever was paid by them in the guise of duty can not be treated as Central Excise duty as it was not required to be paid. Applicants should have correctly followed the provision of sub rule (2) of Rule 16 by paying the amount equal to Cenvat Credit taken. Thus, applicant attempted to make themselves eligible for claiming of cash rebate of duty by wrongly paying duty. As such, the amount paid by applicants is to be treated as deposit amount with the Government.”
Rule 16 of the Central Excise Rules, 2002 read as below: “RULE 16. Credit of duty on goods brought to the factory. (1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assesse shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules. (2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section
[2024:RJ-JD:9586-DB] (7 of 9) [CW-10608/2009] (2) of section 3 or section 4 or section 4A of the Act, as the case may be. [Explanation.—The amount paid under this sub-rule shall be allowed as CENVAT credit as if it was a duty paid by the manufacturer who removes the goods.] (3) If there is any difficulty in following the provision of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the Commissioner.”
The rule is sub divided in 3 sub-rules. Under Sub-Rule(1), it is provided that where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being remade, refined, reconditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take Cenvat credit of the duty paid as if such goods are received as inputs under the Cenvat Credit Rules 2002 and utilise this credit according to the said rules.
The Sub-Rule(2) further deals with a different situation. If the process to which goods are subjected before being removed does not amount to manufacture, then also the manufacture is required to pay an amount equal to Cenvat credit received under Sub-Rule(1) at the rate applicable on the duty of removal and on the value determined under Sub-Section(2) of Section 3 or Section 4 or Section 4A of the Act, as the case may be.
Even when goods are removed without manufacturing process, an amount equal to Cenvat credit taken under Sub-Rule (1) shall have to be paid. That means in other cases where goods are removed after manufacturing process, the removal of goods
[2024:RJ-JD:9586-DB] (8 of 9) [CW-10608/2009] attracts duty on goods received under Sub-Rule (1) at the rate prescribed therein.
Explanation appended to Sub-Rule (2), however, is important for our discussion. It explains that the amount paid under Sub- Rule (2) shall be allowed as Cenvat credit as if it was a duty paid by the manufacturer who removes the goods.
The statutory scheme, therefore, is that even where the process to which goods are subjected before being removed does not amount to manufacture, the payment made by the manufacturer in the manner and to the extent provided in Sub- Rule (2) shall be allowed as Cenvat credit as if it was a duty paid by the manufacturer who removes the goods.
The legal consequences flowing from the aforesaid explanation under Sub-Rule(2) would be that the amount shall not be treated as such but by virtue of explanation has to be allowed as Cenvat credit as if it was the duty paid by the manufacturer.
We are little surprised to see that the revisional authority while deciding the issue has not taken into consideration the explanation appended to Sub-Rule (2) of Rule 16 of the Rules of 2002. 15. During the course of hearing also we verified but learned counsel for the respondents would not satisfy us with the explanation on which the entire case of the petitioner stands, was not added to the provision at the relevant time i.e. at the time of removal of goods and passing various orders. Therefore, we have to proceed on the premise that while taking decision, the revisional authority failed to apply the provisions contained in the
[2024:RJ-JD:9586-DB] (9 of 9) [CW-10608/2009] explanation appended to Sub-Rule (2) of Rule 16, resulting in an illegal exercise.
In view of the above, the order impugned cannot be sustained in law and is, therefore, set aside. The order passed by the adjudicating authority on 27.10.2005 is upheld by which the rebate was allowed as also the duty refundable in Cenvat credit consisting of basic Cenvat duty and educational cess.
The order passed by the revisional authority in all the cases are set aside and in all the cases the order passed by the adjudicating authority is restored.
As there was a stay of the operation of the impugned order of demand subject to the condition that the petitioner shall deposit 50% of the amount demanded and furnish bank guarantee for the remaining amount, the deposit made by the petitioner shall be refunded and bank guarantee shall stand discharged.
All the petitions are accordingly allowed. (MUNNURI LAXMAN),J (MANINDRA MOHAN SHRIVASTAVA),CJ 3-jayesh/-
Reproduced from the public record of the Rajasthan High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.