1. These two stay applications have been filed alongwith appeals against two adjudication orders passed by the Commissioner of Central Excise, New Delhi both dated 15-12-1993 against applicants, M/s. Maruti Udyog Ltd. (MUL) and applicants, M/s. Bharat Seats Ltd. (BSL). In the order against applicants, M/s. MUL, there is a demand of Rs. 39,95,72,061.00 and a penalty of Rs. 10 crore and against the applicants BSL, the duty is Rs. 25,45,78,948.00. The penalty on them is Rs. 6.5 crore. These duties have been demanded by way of recovery of wrongly availed Modvat credit. The applicants, MUL manufacture motor vehicles for which seat is one of the inputs. Applicants, BSL is a joint venture with M/s. MUL, manufacture seats for motor vehicles exclusively for supply to MUL. The seat assembly consists of three parts. These three parts are first manufactured by BSL and thereafter sold to MUL. The parts, thereafter, are re-issued by M/s. MUL to BSL for manufacture of seats on job work basis, after which, M/s. BSL supplies the complete seats to M/s. MUL, who use the seats in the manufacture of their motor vehicles. Prior to 21-1-1989, parts of seats used to be physically transported by BSL to MUL under a gate pass. MUL availed Modvat credit on the basis of those gate passes. Thereafter, the parts were physically re-supplied to the BSL under the procedure for the purpose of sending inputs to job workers as per Rule 57F(2) of Central Excise Rules. However, for the period, after 21-1-1989, parts of seats did not physically move from the factory of BSL to that of MUL nor was there any physical movement of them to BSL. However, Central Excise duty was paid by BSL and credit was taken by MUL of the duty paid as per the gate passes. They were issuing necessary challans under Rule 57F(2).
2. Department initiated proceedings against MUL that for the period after 21-1-1989, when there was no physical movement of the parts, MUL is not entitled to Modvat credit thereon. The case against the applicants, BSL is that the parts of the seats, manufactured by them are wholly exempted from duty under Serial No. 1 of Notification 80/90.
Consequently, BSL could not have paid duty on these parts as they are exempted under notification. As a further consequence, the department's case is that BSL is not entitled to Modvat credit of the excise duty paid on raw-material used by it in the manufacture of parts of seats because of the bar for Modvat credit under Rule 57C of Central Excise Rules which lays down that no credit of duty paid on inputs used in the manufacture of a final product shall be allowed if the final product is exempted from whole of duty of excise payable thereon. Proceedings were initiated against both these applicants by issue of a show cause notice dated 5-10-1993 in both the cases seeking to recover the Modvat credit and proposing to levy penalty on them, and the Commissioner passed the impugned order, ultimately ordering the reversal of Modvat credit of the amounts already referred to above in the case of both the applicants and also levying penalty on them as mentioned above.
3. Shri V. Sridharan, ld. Counsel for the applicants, submitted that in the case of the applicants BSL, the department is wrong in saying that the Modvat credit should not be availed of by them. The applicants' contention is that Serial No. 1 of Notification 80/90 will not cover the seats manufactured by applicants because that entry relates to steel furniture and seats of automobile are not steel furniture and these are also not parts of steel furniture. He relied upon the Punjab & Haryana High Court decision in the case of Jiwan Singh and Sons and Anr. v. Senior Superintendent of Central Excise, Jullundur and Another reported in 1979 (4) E.L.T. (J 265) holding that seats for motor vehicles are not furniture which had been followed by the Tribunal in its decision in Madras Radiators & Pressings Ltd. v. C.C.E., reported in 1989 (44) E.L.T. 247 (Tribunal). Even if it is considered that the goods are exempted under the notification, the bar for taking Modvat credit under Rule 57C cannot be applied for which the ld. Counsel relied upon the Tribunal's decision in the case of Everest Converters v. C.C.E., reported in 1995 (80) E.L.T. 91. The Tribunal held that Rule 57C cannot be applied in a case where the assessee opts to pay duty without claiming the exemption under the notification available to him.
The ld. Counsel, thereafter, referred to a series of stay orders passed by the Tribunal in similar circumstances, in cases, arising under unconditional exemption Notification No. 1/93, which gave exemption to non-registered SSI units upto clearance value of Rs. 30 lakhs. In all those cases, the department had sought to deny Modvat credit where the units had paid excise duty without availing of the exemption. But in all these cases, the Tribunal had consistently been granting unconditional stay on the prima facie view that the Modvat credit cannot be denied in these circumstances. The ld. Counsel, further, submitted that in their own case, there is an order of the Commissioner (Appeals) dated 24-9-1992 holding that the automobiles seats, manufactured by them, is covered by Serial No. 4 of the Notification 80/90, whereunder there is lower rate of duty at 20 per cent. The Commissioner (Appeals) order has become final and, therefore, the department cannot invoke the Rule 57C saying that the seats are totally exempted from duty. The ld. Counsel also submitted that approved classification list cannot be up-set by invoking Rule 57-1 which is not in pari materia with Section 11A of the Central Excises & Salt Act for recovery of short levy. Here there is no short levy as such, but payment of duty in the face of exemption. Financially, the applicants BSL are a small company and its sales are made to MUL which has made profit of about Rs. (sic) crore for the period ending 31-3-1996.
4. In respect of applicants, MUL, ld. Counsel contended that the Commissioner's order merely relies on the requirement of Rule 57G(2) of the Central Excise Rules which lays down that no credit shall be taken unless the inputs are received in the factory under cover of gate pass.
However, though in the present case the inputs were not physically received in the factory, but all the other documentation requirements have been carried out and thus there was a constructive receipt of the inputs though not in the physical sense. The fact that the inputs were not received first into the factory of MUL for being despatched for job work under Rule 57F(2), according the ld. Counsel, is not an infirmity and he referred to the Finance Minister's speech presenting the budget for the year 1987 indicating that receipt of inputs is permissible directly by job workers for all items under Modvat Scheme as an important procedural change made in the budget. The Government's booklet on Guide to Modvat also says that raw material can be directly sent from supplier without first going into the factory of the manufacturer. The procedure adopted by the applicant is in conformity with the above facility given to the assessees. The ld. Counsel submitted that the parts of seats are sold by the applicant BSL as a supplier of raw material and as such it need not go to the factory of MUL operating under Rule 57F(2). It can go directly to the factory of the job worker, namely, BSL. The ld. Counsel cited Tribunal's decisions where Modvat had been held permissible even when the inputs have been received directly in the factory of the job workers. The ld. Counsel, further, urged that the Commissioner has mis-read the Trade Notice reproduced in 1986 (25) E.L.T. (T41) in saying that intermediate product should be accompanied by documents evidencing payment of duty on the inputs used in them and concluding that in the present case, the intermediate product, "seats", at the time of their receipt were not accompanied by duty paying documents of the parts. However, the applicants MUL are relying upon Para 3.1 of the Trade Notice and the procedure therein, which is relevant to their case and not Para 4 relied upon by the Commissioner. Again, ld. Counsel pointed out that Notification 351/86 was amended in March, 1987 to include goods under Chapter 94, which has been omitted to be noticed by the Commissioner.
The ld. Counsel argued that the Commissioner is wrong in concluding that BSL have captively consumed the parts for their factory and for such captive consumption, gate passes cannot be issued as there is no removal under Rules 4 and 49. Therefore, the documents, on the basis of which MUL had taken Modvat, are not valid documents. But the ld.Counsel submitted that the Commissioner has overlooked the Explanation to Rules 9 and 49, Proviso to Rule 52A(2) and Rule 173G(2), which provides for issue of gate passes, even for captive consumption. It was contended that none of the particulars mentioned in the gate passes or 57F(2) challans were in any way incorrect and there is stage by stage correlation possible of all these documents. It was pleaded that applicants MUL are a unit paying large amount of revenue and that there is no mala fide intention on their part to wrongly avail Modvat credit.
5. Shri Joginder Singh, ld. C.D.R. appeared for the Revenue. Applicants BSL had taken Modvat credit not legally due to them on the parts of seats manufactured by them because of the bar for such credit under Rule 57C when read with Notification 80/90 which exempts both the parts of seats and seats themselves from duty. The whole set up arranged by both the applicants was clearly to get around this bar from Modvat credit for which they had arranged to show that parts are sent to MUL, who in turn, would show that they had sent the parts back to BSL for job work under Rule 57F(2) and receive back seats from them. A visit to their factory by the officers of the department, revealed that these arrangements were only on paper and the large number fabricated documents had been issued for availing of wrong credit which the Commissioner has called ficticious rightly as these documents contained particulars of activity which, in fact, did not take place at all.
Officials of the applicants have also admitted such manipulation. The case law relating to steel furniture cited, is of little relevance because the decisions pertain to old Central Excise Tariff. It was not known to the department that there was no movement of the parts from BSL and that they had consumed it in their own factory making seats.
The ld. C.D.R., further, pointed out that the Commissioner's order is one to recover wrongly availed Modvat credit under Rule 57-1 and not relating to any modification to the classification list. The ld. C.D.R.also urged that the case law cited by the applicants to say that even if there is an exemption, the assessee can choose to pay duty and Modvat credit cannot be denied, is factually distinguishable because in this case there was a double stage exemption which the applicants have sought to get around in order to avail of Modvat credit. The ld. C.D.R.also contended that previous stay orders, by themselves, do not have precedent value. In respect of applicants, MUL, the ld. C.D.R. wondered as to why if they are not having any facility to manufacture seats, they should receive parts of the seats only to send it to a job worker.
Further, there is no removal from the place of manufacture for home consumption, how payment of duty would arise, according to the department. In this case goods were neither removed nor received back or any duty need be paid thereon because of the exemption. The ld.C.D.R. further, argued that the requirement under Rule 57G that the inputs should be received in a factory under cover of valid duty paying document, is not merely an enabling provision, but a prohibitory Rule which prohibited credit unless the goods are received under proper gate pass or such other valid document. Applicants MUL in this case took credit without receiving the goods and the ld. C.D.R. contended that the assessee cannot choose the rules, which he will follow and those he will not follow. The applicants MUL have flouted the provisions of Rule 57F(2) for which they had obtained permission. The ld. C.D.R. drew attention to the Commissioner's order citing the Supreme Court decision in the case of McDowell & Co. v. C.T.O. that tax evasion should be put down and in this case the applicants have made use of a device for evasion of tax.
6. The submissions made by both the sides have been carefully considered. The main charge against applicant MUL is that they had received gate passes of parts of seats without the inputs actually being received and they had taken Modvat credit thereon and had thereafter purported to send them to BSL for being made into seats under Rule 57F(2) on job work. Rule 57G prescribes the documents like Gate Pass, etc. as valid documents evidencing duty pay merit on inputs.
As was shown before us the wording of this Rule has undergone amendments from the time of its introduction in March, 1986 till April, 1987. To begin with, as on 1-3-1986, the Rule indicated that the inputs at the time of their receipt in the factory should be accompanied by a gate pass, etc. evidencing payment of duty. On 1-3-1987, the Rule on this aspect underwent an amendment and it was laid down therein that no credit shall be taken unless the inputs at the time of receipt in the factory are accompanied or followed subsequently, within a period specified by Commissioner, by a gate pass, etc. evidencing duty payment on the inputs. The Rule was again amended on 15-4-1987 to say that no credit shall be taken unless the inputs are received in the factory under cover of gate pass, etc. A reading of the evolving of the Rule as above, would show the basic requirement for taking of credit was the receipt of the inputs under cover of a gate pass. Though the inputs on receipt may be taken into stock, the taking credit of input duty will have to wait till receipt of gate pass evidencing duty payment. The legislative development of the Rule, as noted above prima fade, could not be taken to mean that credit can be taken on the basis of gate passes without the inputs being received in the factory, which seems to have happened in this case, and, in that view of the matter, the Commissioner's conclusion that there has been non-compliance with the provisions of Rule 57G(2) in respect of taking of credit by applicant MUL, prima facie, appears justified.
7. The applicants have also contended that the modality adopted by them is in accordance with the facility for sending of input directly to job worker without first coming to the user factory. But this contention has to be seen in the context of the fact that the applicants MUL had not intimated the department about the arrangement and had adopted the procedure on their own. No formal application seems to have been made for direct sending of input to job worker as per prescribed application under Rule 57F(2) wherein Column 5 requires information "whether the raw-materials are supplied directly to the job worker without first bringing the materials to the factory of the applicant manufacturer." On the other hand, the department's case is that they had detected this lapse on visit to the applicants' factory and check of their records.
Prima facie, there is a failure on the part of applicant MUL to adhere to the prescribed procedure. The issues are, therefore, arguable, and it cannot be said that applicants MUL have made out a case for total waiver of pre-deposit of duty and penalty for hearing their appeal. As regards the quantum of the pre-deposit to be made, the fact that the Commissioner, himself, has dropped the demand for the period prior to 21-1-1989 when there was physical to and fro movement of parts and of seats between BSL and MUL, could be taken as a relevant aspect, and, accordingly, we direct that the appeal of MUL be heard on the condition that they deposit Rs. 20 crore (Rupees twenty crores only) on or before 15-10-1996 which may be done by reversal of credit in their RG 23A Part II Modvat credit register. On compliance with this direction, the pre-deposit of the balance of duty amount and of the penalty is dispensed with and its recovery stayed pending disposal of the appeal.
8. In respect of applicants, BSL, the department's case is mainly that they are not eligible to take Modvat credit on the parts of seats because these are exempted under Notification 80/90 and, therefore, such a credit is barred under Rule 57C. On this aspect, the various Tribunal's decisions, cited before us by the ld. Counsel, especially the decision of the Tribunal in the case of Everest Convenors v. C.C.E.reported in 1995 (80) E.L.T. 91 (Tribunal), prima facie, would go to support the contention of the applicants, BSL. The Tribunal had held in that case that it is the choice of the assessee either to avail of full exemption or to pay duty and avail of Modvat credit. The Tribunal observed that once it is held that availment of exemption notification is an option with an assessee, the expression in Rule 57C "final product is exempt from whole of duty of excise ..." has to be read "...
final product avails of exemption from whole of duty of excise leviable thereon ...", otherwise this will frustrate the basic purpose of the scheme of Modvat credit, i.e. to avoid cascading effect of duty upon duty. In this context, the further fact also has to be considered that so far as this applicant is concerned, there is an order of the Commissioner (Appeals) in their favour holding that the seats are eligible to exemption under Serial No. 4 of Notification 80/90, which would mean that they would bear a rate of duty at concessional rate of 20 per cent. It is said before us that this order has attained finality having not been appealed against. This would also go against invoking Rule 57C against this applicant. However, the fact remains that this applicant had also been found to issue gate passes showing the consignee as the applicant MUL when there was in fact no clearance of the goods outside their factory at all. In that context, so far as provisions of Section 35F are concerned, pre-deposit by this applicant will also be called for. Accordingly, we direct that for hearing of appeal, the applicant, BSL should pre-deposit a sum of Rs. 5 crore on or before 15-10-1996 and on compliance with this direction, the pre-deposit of the balance amount of duty and penalty is dispensed with and recovery stayed pending disposal of the appeal. Matters to come up for ascertaining compliance with this order on 28-10-1996.