@JUDGMENTTAG-ORDER
Pankaj Mithal, J.@mdashThe two writ petitions are identical on facts and involve a similar controversy as to whether petitioners are entitle to exemption of excise duty to the extent of 0.5% of tolerance limit on the production of aerated and mineral water as provided by C.B.E. & C. Circular dated 8-9-1971 as reiterated and modified vide circular dated 17-9-1975 on account of the breakage of bottles during handling and movement. The facts in brief are narrated below.
2. Petitioners are engaged in manufacturing of aerated waters etc. which are excisable items under the Central Excise Tariff Act, 1985.
3. Petitioners availed CENVAT credit in respect of 0.5% of the finished goods on account of loss due to breakage in handling as per the above circulars and when the petitioners on being asked to reverse the CENVAT credit, refused to abide, they were served with show cause notices dated 23-5-2008, 1-8-2008 and 3-11-2008 by the Joint Commissioner, Central Excise, Meerut-2 to show cause as to why a sum of Rs. 15,64,299/- and Rs. 1,08,080/- for the period June 2002 to June 2007 and July 2007 to September 2007 respectively may not be recovered as excise duty on the said 0.5% of the aforesaid excise goods u/s 11A read with Section 11AB of the Central Excise Act, 1944.
4. On consideration of the interim replies furnished by the petitioners, Additional Commissioner, Central Excise vide Order-in-Original Number 49-50/Additional Commissioner dated 22-10-2009 and 17-18/Addl. Comm/M-II/2010 dated 26-2-2010 affirmed the demand. The aforesaid orders were upheld in appeal by the Commissioner, Appeals (Customs) Central Excise and Service Tax vide orders dated 10-3-2010 and 23-7-2010 whereupon petitioners preferred revisions u/s 35EE of the Act which were dismissed on 16-4-2012 and 9-8-2012 respectively.
5. The above orders confirming the demand of excise duty for the above periods on 0.5% of the aerated waters produced and manufactured by the petitioners are under challenge in these writ petitions.
6. I have heard Sri Tarun Gulati, learned counsel for the petitioners and Sri S.P. Kesarwani along with Sri R.N. Shukla, learned counsel for the respondents for the final disposal of the writ petitions at the stage of admission on the basis of the pleadings exchanged as agreed by the counsel for parties.
7. The first submission of Sri Gulati, learned counsel for the petitioners is that the Circulars dated 8-9-1971 and 17-9-1975 are binding upon the authorities and therefore petitioners are entitle to exemption of excise duty on the above 0.5% of the aerated waters produced/manufactured by them during the aforesaid period.
8. Secondly, the withdrawal of the above circulars vide Circular dated 9-7-2010 is only prospective in nature and cannot be applied to the excise goods produced prior to its issuance.
9. Sri S.P. Kesarwani has defended the orders impugned contending that the excise duty on excisable items is leviable as soon as they are produced or manufactured. The circulars issued have to be read harmoniously with the provisions of the Act and the Rules and if the earlier circulars have been withdrawn in the changed circumstances, there is no illegality in the same. The petitioners are not entitle to the benefit of the alleged two circulars as they have not claimed remission of excise duty under Rule 21 of the Central Excise Rules, 2002 framed under the Act (hereinafter for short the ''Rules'').
10. In view of the aforesaid facts and circumstances of the case and the arguments advanced by the counsel for the parties broadly, the following three points arise for consideration:--
(i) whether the circulars dated 8-9-1971 and 17-9-1975 have the binding effect upon the parties;
(ii) whether withdrawal of the said circulars vide circular dated 9-7-2010 under the changed circumstances is retrospective in nature; and
(iii) whether the benefit of the circulars can be extended to the petitioners without following the procedure for remission under Rule 21 of the Rules?
11. It is well known that duties of excise specified in the schedule to the Central Excise Tariff Act, 1985 are leviable on all excisable goods which are produced or manufactured and is to be collected in the manner prescribed. The aerated and mineral waters are undoubtedly excisable items specified in the first schedule to the Central Excise Tariff Act, 1985. Therefore, whatever quantity of aerated and mineral water is produced by the petitioners, the same is subject to payment of excise duty.
12. Section 37B of the Central Excise Act, 1944 (hereafter referred to as Act) empowers the Central Board of Excise and Custom to issue such orders, instructions and directions to the Central Excise officers as it may deem fit inter alia for the purposes of levy of duties of excise on excisable goods. It is in exercise of above power conferred by Section 37B of the Act that Central Board of Excise and Custom had issued circular dated 8-9-1971 providing tolerance limit in respect of aerated waters to the extent of 0.5% subject to investigation by the Range staff.
13. The aforesaid Circular of C.B.E. & C. C. No. 1D/3/70-CX.8, dated 8-9-1971 is reproduced herein below:--
3. Aerated Waters - Breakage of bottles after the stage of filing - Fixation of tolerance limit - question regarding -
The Board has had under examination the question regarding fixation of tolerance limit in respect of aerated waters on account of breakages of bottles occurring due to handling in course of movement from manufacturing place to bounded store room and at the time of clearance. After careful examination of the matter, it has been decided that such breakages upto 0.5% may be allowed to be written off the accounts. Care should be taken to see that this limit is not acted upon as a matter of course, and each individual case is properly investigated by the Range staff and cases where the loss exceeds 0.5% submitted to the Assistant Collector for adjudication on merits.
The inspection Group staff should carry out checks about the breakages from the accounts and other records of the factory during the course of their normal visit/inspection.
14. The aforesaid circular was followed by another No. 261/1D/75-CX.8, dated 17-9-1975 providing for calculating tolerance limit of above 0.5% on monthly basis. It reads as under:--
Reference Letter No. ID (30) 75 MP dated 3rd July 1975 received from C.E. Baroda (Copy appended). After careful consideration of C.C.E. Baroda''s recommendations the Board have decided that the clearance effected by a particular manufacture during a month may be taken as the basis for availing breakages up to 0.5% in this case. This tolerance would be on account of breakages of Bottles due to handling in the course of movements from the manufacturing place to the bonded store room, breakages during the course of storage and clearance there from. The tolerance may be calculated on monthly basis and the adjustments made at the end of the month.
15. The above circulars read together envisages to grant exemption of excise duty upto 0.5.% of aerated waters produced on monthly basis on account of breakages of bottles during handling and movement on proper investigation by the Range Staff. This exemption has been permitted after careful consideration of the practical aspect that loss to such an extent is routine and normal during handling and movement therefore, ordinarily, the production of aerated water would stand reduced by tolerance limit prescribed subject to verification by the Range Staff.
16. In the cases at hand loss due to breakages of bottles in handling upto 0.5% stand certified by the Range Staff. Therefore, production of aerated waters would stand reduced by 0.5% for the purposes of levy of excise duty.
17. The law is settled that the circulars issued in exercise of statutory power by the departments are binding upon the authorities and the officials of the department.
18. The three Judges Bench of the Supreme Court in
19. In
20. No contrary decision has been shown to me. Therefore, I have no option but to hold the above circulars dated 8-9-1971 and 17-9-1975 issued by the C.B.E. & C. were binding, as undisputedly they were in force during the period June 2002 to September 2007.
21. The above circulars have been withdrawn by the Circular No. 930/20/2010-CX., dated 9-7-2010. The withdrawal has been done for two reasons; firstly, the practice of using glass bottles for bottling aerated waters has been given up and now the use of plastic bottles does not involve any breakage; secondly, when the earlier circulars were issued the MODVAT and CENVAT credit system was not in force. The aforesaid circular is reproduced herein below:--
Circular: 930/20/2010-CX., dated 9 July 2010.
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
Subject; Tolerance of breakage of bottles due to handling during storage and clearance - Reg.
It has been brought to the notice of the Board that some of the manufactures of bottled beverages are claiming the benefit of duty exemption in respect of breakage of PET bottles up to 0.5% citing the Board''s Instruction letter No. 1D/3/70-CX 8, as amended vide tolerance of 0.5% is allowed on account of breakage of bottles due to handling in the course of movements from the manufacturing area to bonded store rooms and breakages during storage and clearance there-from. It has also been observed that in some judicial pronouncements, this benefit has been allowed to the parties, on the limited ground that the said instruction has not been rescinded/modified by the Board and further he Cenvat credit taken on bottles as input have been allowed to be retained by the assessee.
2. The matter has been examined. The instructions mentioned above were issued primarily in the context of use of glass bottles. At the relevant time, the scheme of MODVAT/CENVAT credit was not available to the assessees and, therefore, there was no issue of reversal of credit taken on bottles, which wee subsequently broken/destroyed. After the introduction of MODVAT and subsequent replacement of the same with CENVAT, any circular, instruction or provision inconsistent with the same has no relevance. As per the provisions of Rule 21 of Central Excise Rules, 2002, remission of duty before removal can be claimed on any goods lost or destroyed by natural causes or unavoidable accident, claimed by manufacturer to be unfit for consumption or marketing. The said remission is granted subject to the condition of reversal of Cenvat credit taken on inputs used in the final product, as per the , dated 1-10-2004. Rule 3(5C) was also inserted in CENVAT Credit Rules, 2004, w.e.f. 7-9-2007, to specifically provide for the same. Further, as per Rule 3(5B) of CENVAT Credit Rules, 2004, if the value of any input is written off the cenvat availed on the same is required to be reserved Therefore, if the final product (i.e. bottled beverage) is broken/destroyed then remission can be claimed and if the bottle (input) is written off by the assessee as destroyed, the same is required to be dealt with as per the provisions of Rule 3(5B) of CENVAT Credit Rules, 2004.
3. In view of the above, the application of the letters/instructions quoted in para 1 above, in the said judicial pronouncements, without recourse to the aforesaid provisions of law, is therefore per incuriam. Necessary action may be taken to safeguard revenue. Nevertheless, to avoid such disputes in future, it is stated that the instructions/letters quoted in para 1 above have no relevance in the present CENVAT scheme, and the instructions stand rescinded.
4. Trade and Industry as well as field formations may be suitably informed.
5. Receipt of this circular may kindly be acknowledged.
6. Hindi version will follow.
22. A plain reading of the above circular brings to the forefront with certainty that the aforesaid circular aims to avoid disputes in future and as such is clearly prospective in its tenor. It does not provide that it would be applicable retrospectively or to transactions/production of excise goods prior to its issuance or its enforcement.
23. The circulars dated 8-9-1971 and 17-9-1975 accords benefit to the assessee and as such are essential piece of sub-ordinate legislation furnishing legitimate aid to the construction of relevant provisions so as to give effect to internal complexity for fiscal adjustment.
24. In
25. The ratio of the aforesaid decision was followed by the Supreme Court in another case in
26. Thus, applying the above principle, as the circular dated 9-7-2010 is against the assessee, as it purports to withdraw the benefit extended to the assessee vide circulars dated 8-9-1971 and 17-9-1975, it has to be treated as prospective in nature and cannot be applied with retrospective effect.
27. This is also clear from the plain reading of the circular itself as it purports to avoid disputes in future.
28. The objects of withdrawing the circulars have no impact upon the applicability or binding nature of the circulars so long they were enforceable.
29. In view of the above, the circular dated 9-7-2010 is held to be prospective in nature and it cannot be applied to transactions relating to earlier periods i.e. to the production of excisable goods during the period June 2002 to September 2007.
30. Now I come to the third point referred to above.
31. Rule 21 of the Rules provides for remission of excise duty where excisable goods are lost or destroyed by natural causes or by unavoidable accident or are otherwise unfit for consumption or marketing subject to the satisfaction of the excise Commissioner.
32. In view of the above Rule the submission proceeds that unless petitioners claim remission therein they are not entitle to benefit of exemption on the tolerance limit as per the circulars.
33. The aforesaid Rules came into force in 2002. Earlier to the enforcement of the above Rules, Central Excise Rules 1994 were in force and applicable. The aforesaid Rules also vide Rule 49 provided for remission of excise duty pari materia with Rule 21 of the present Rules.
34. Despite the rule providing for remission in existence since 1994, the authorities had never insisted for seeking remission as per the Rules and have been extending the benefit of exemption of excise duty on 0.5% of the tolerance limit as provided by circulars referred to above on the verification/satisfaction recorded by Range Staff.
35. In the above situation, it is difficult to visualize the justification on part of the department to insist for claiming remission under Rule 21 of the Rules in respect of exemption of excise duty on 0.5% of the tolerance limit permitted in the circulars. The circular dated 8-9-1971 in plain and simple language provides that after careful examination of the matter regarding breakage of bottles of aerated waters occurring due to handling it has been considered proper to allow exemption 0.5% of the aerated waters produced to be written off but that too not as a matter of course rather by subjecting each case to investigation by the Range Staff and in case the loss exceeds 0.5%, the matter shall be referred to the Assistant Collector for adjudication on merits.
36. It means that the aforesaid circular permits exemption of excise duty on 0.5% of the aerated waters produced on account of loss due to breakage of bottles during movement subject to its verification by the Range Staff. Once such breakage is certified by the Range Staff, no excise duty on it would be payable. In case the loss is not certified or is more than 0.5%, then it has to be decided by the Assistant Collector.
37. The remission of excise duty under Rule 21 of the Rules which essentially means waiver or cancellation of excise duty legally payable in general terms where the goods have been lost or destroyed by natural causes, or by unavoidable accident or claimed to be unfit for consumption or marketing.
38. Rule 21 of the Rules gets attracted only where the party claims exemption from excise duty for the loss or destruction of goods by natural causes or due to unavoidable circumstances or where they are rendering unfit for consumption or marketing.
39. The aforesaid Rule is of a general nature whereas the circulars under which exemption is being claimed are very specific and are confined only to the wastage of excise goods namely aerated waters only and are not applicable to other goods and it refers to the wastage or loss only on account of breakage of bottles during handling and not for any other purpose. The import of Rule 21 is therefore very wide and that of the circulars very narrow. Therefore, the procedure for remission of excise duty prescribed under Rule 21 of the Rules is to be followed where it is being claimed for reasons other than those prescribed in the circulars. However, as regards 0.5% tolerance limit provided for aerated water it stands exempt on being certified by the Range Staff in terms of the circulars. The said circulars have the effect of impliedly reducing the quality of aerated water produced by 0.5% of the monthly production. In this situation, when the quantity produced stand reduced there is no necessity for claiming any remission.
40. The aforesaid circulars are not in conflict with the general provision of remission of excise duty provided in Rule 21 of the Rules but ensure fair enforcement of the provisions of the Act and has the effect of toning down the rigour of law keeping in mind the practical aspect that during handling and movement of excise goods like aerated waters, breakage is unavoidable leading to certain percentage of loss. The said circulars as such ensure just, proper and efficient levy and collection of the excise duty and for proper and effective administration of the fiscal law avoiding undue hardship to the assessee.
41. In addition to the above, when the department itself through its staff certifies the loss due to breakage of bottles in handling, their remains no justification for any further investigation in granting exemption to the extent indicated as Rule 21 of the Rules also permits remission subject to satisfaction of the Commissioner. The limited exemption of excise duty provided by the circulars is not in conflict with Rule 21 of the Rules rather it supplements the same.
42. In case the procedure for remission under Rule 21 of the Rules is applied or followed, it would amount to multiplicity of proceedings adding to the burden of the department frustrating the purpose for which the circulars were issued.
43. The above referred circulars in a way provide concession in excise duty on aerated water produced to the extent of 0.5% of the monthly production on account of loss occurring on breakages of bottles during handling and movement on being certified by the Range Staff of the excise department. This concession is in consonance with the scheme of remission provided in the Rules and therefore the benefit extended to this effect by the circulars can be denied on technicalities.
44. In view of the aforesaid facts and circumstances, irrespective of the fact that the petitioners have not claimed remission of excise duty either under Rule 21 of the Rules or Rule 49 of the 1944 Rules, they are entitle to exemption to the extent of 0.5% of the excise goods produced/manufactured by them in their monthly returns pursuant to the circulars dated 8-9-1971 and 17-9-1975 as the same has been certified by the department.
45. In view of the aforesaid facts and circumstances the impugned orders dated 22-10-2009, 31-3-2010 and 16-4-2012 are quashed. A writ of certiorari is accordingly directed to be issued. The writ petitions are allowed.
