By TIOL News Service

MUMBAI, FEB 20, 2014: THE appellant had accumulated credit of AED (T&TA) ason 1.4.2000. In addition, certain credit of the said duty was availed during 1.4.2000 to 30.6.2001. This credit could not be utilized during the period of availment as the goods chargeable to AED (T&TA) were not cleared and hence duty liability was far less than the accumulated credit. The credit was, however, utilized during January 2003 to May 2003 for payment of Additional duties of Excise (Goods of Special Importance) [AED(GSI)] and also basic excise duty leviable under CEA, 1944.

The issue involved in the appeals before the Tribunal is whether accumulated credit of AED (T&TA) can be cross utilized for payment of duty relating to AED(GSI) and for payment of basic excise duty during January 2003 to May 2003.

It is submitted by the appellant that before 1.3.2000 cross-utilization of AED(T&TA) was not permitted for purpose of payment of AED(GSI). However, new CENVAT Credit Rules were brought into force in 2000 and with effect from 1.4.2000 to 30.6.2001, due to transitional provisions contained in the new Rules, the appellant acquired right to use the said credit for purpose of payment of AED(GSI). [Tribunal decisions in Reliance Industries & Grasim Industries relied upon]. Accordingly, the appellant acquired a vested right to use the accumulated credit as on 30.6.2001 for payment of AED(GSI).

With effect from 1.7.2001, new CENVAT Credit Rules were introduced and in these rules,again the cross-utilization was not permitted. However, since they had already acquired the vested right to use the accumulated CENVAT credit relating to AED(T&TA) for payment of AED(GSI), this right cannot be taken away by the amended Rule and the amended Rule did not have any retrospective effect and, therefore, they have correctly utilized the said accumulated credit of AED(T&TA) for payment of AED(GSI) and as also BED during the period January 2003 to May 2003. Reliance is placed on the decision in Eicher Motors Ltd. vs. UOI - 2002-TIOL-149-SC-CX.

The Revenue representative submitted that, both, the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 and the Additional Duties of Excise (Goods of Special Importance) Act, 1957 operate in different fields and have different purposes. Whereas as per Section 3(2) of AED(T&TA) Act, 1978 the proceeds of AED(T&TA) shall not be distributed among the States and the proceeds go to the Union of India, as per Section 4 of AED(GSI) Act, 1957, part of the net proceeds of additional duty collected during a financial year is required to be distributed among the States. And that in view of this position, cross-utilization of CENVAT credit of AED(T&TA) is not allowed since the inception of CENVAT Credit Rules.

The Revenue representative also meticulously narrated the legal position as existing during the material period and after submitting that the decisions cited by the appellant are under a cloud inter alia relied on Arviva Industries (India) Ltd. vs. CCE, Belapur - 2013-TIOL-225-CESTAT-MUM and National Engineering Industries vs. CCE, Jaipur - 2005-TIOL-130-SC-CX and concluded that both at the time of taking the credit as also at the time of utilization, the prohibition existed and hence the appeals should be dismissed.

The Bench by a marathon order held that the claim of the appellant of cross utilization of credit of AED (T&TA) for payment of AED (GSI) cannot be entertained.

While arriving at this conclusion, the Bench adverted to the Statements of Objects and Reasons while introducing the Additional Duties of Excise (Textiles & Textile Articles) Bill, 1978, extracted the Act in its entirety and observed -

++ Section 3(2) very specifically provides that the said levy is being levied for purposes of the Union and the proceeds thereof shall not be distributed among the States. Further, if we see the schedule, the said Act mainly covers fibre, yarn and specified type of fabrics. These items are even otherwise chargeable to basic excise duty. In addition, AED(GSI) is also chargeable.

Thereafter, the Bench extracted section 4 of the AED (GSI), 1957 Act and noted -

++ Keeping in view the fact that AED(T&TA) is levied exclusively for purposes of the Union while AED(GSI) is mainly for purposes of distribution to the States, the cross-utilization of credit of AED(T&TA) for payment of any other duties of excise was not allowed from the time textile industry has been brought under the Modvat/CENVAT Scheme.

After extracting portions from the MODVAT rules 57A, 57AB in vogue till 2000/2001, the CESTAT summarized -

++ The above mentioned Rule provided various restrictions on utilization of CENVAT credit on various types of duties. While re-issuing the said Rules, there did not appear to be any intention to permit cross-utilization of AED(T&TA) for payment of AED(GSI) or vice versa. The words “under the said Act” have been used twice and separately for AED(T&TA) and AED(GSI). Even the circulars issued at the time of introduction of new Rules did not indicate any intention to permit cross-utilization of AED(T&TA).

The new CENVAT Credit Rules, 2001, rule 3 thereto, was also referred to by the CESTAT and it was observed -

++ It will be seen from the said restriction that additional duties of excise (textiles and textile articles) can be used only for payment of additional duties of excise (textiles and textile articles). Similarly, credit of AED(GSI) can be used only for payment of AED (GSI). Similar is the position in respect of National Calamity Contingent duty. Even the credit of NCC duty can be utilized only for payment of NCC duty.

++ These duties are being collected with certain objectives and are required to be accounted for under that head and also used for that purpose. In case credit of such duty is allowed to be used for duty liability of other type, the quantum and purpose of collecting the said duties will get defeated/distorted.

++ For example, if credit of AED (T&TA) is allowed to be used for payment of AED(GSI), the collection of AED(GSI) will come down by an amount equivalent to the cross-utilization of AED (T&TA). Obviously, this will distort the whole collection system. Similar will be the position if credit of NCC duty is allowed to be used for payment of duty liability under AED (T&TA) or AED(GSI).

++ It is also important that there should not be any cascading effect in respect of even individual duties. For example, if AED (T&TA) collected at the fibre stage and again at the yarn or fabric stage, then there would be cascading effect of this levy. In order to balance out the two objectives, the law provided for taking the credit and also has put restriction on utilization of such credit to the respective field.

Rule 9 of the CENVAT Credit Rules, 2001 was extracted and it was observed -

++ Thusw.e.f. 1.7.2001, the rules very clearly stated that accumulated credit has to be used as per new Rules. Thus there is no question of utilizing the accumulated credit of AED(T&TA) for purpose of payment of duty other than AED(T&TA).

The Bench concluded thus -

++ In our view if at any point of time Central Excise Rules/CENVAT Credit Rules permit cross-utilization of AED(T&TA) to AED(GSI), the same will be in conflict with Section 3(2) of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 and Section 4 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and would, therefore, require to be struck down as Rules cannot be in conflict with purposes of the Acts.

++ We have no hesitation in our mind that credit of AED(T&TA) was all along allowed to be utilized only for payment of AED(T&TA) and for no other purpose. We also note that even during the period 2000 to 2001, Rule 57AB(2)(b) used the word ‘said' Additional Duties of Excise (Textiles and Textile Articles) Act, or under the said Additional Duties of Excise (Goods of Special Importance) Act. Thus, the word ‘said' was used twice and separately for two types of additional excise duty and, therefore, in our view, AED(T&TA), even during this period, could have been used only for payment of AED(T&TA) and not for cross purpose.

++ In the case of Reliance Industries , the credit availment as well as utilization happened during the period October 2000 to June 2001. Thus availment and utilization both have taken place during the life of Rule 57AB(2)(b).

++ In the present case, a major portion of the credit was accumulated before the said Rules came into force and all the credit accumulated before April 2000 as also accumulated during April 2000 - June 2001 was utilized only during January to May 2003. In May 2003, the CENVAT Credit Rules, 2002 were applicable and Rule 3(6)(b) very specifically prohibited cross-utilization of the credit.

++ We are in agreement with the contention that utilization of the credit will be governed by the law as it stood at the time of utilization. Similarly, availment of credit will be governed by the law on the date of availment.

The appeals were disposed of.

(See 2014-TIOL-267-CESTAT-MUM)