Full Judgment
The Department alleged that since the amount of duty has not been shown as paid against the relevant column of gate passes, the appellants were not entitled to the benefit of Modvat credit. Accordingly, a show-cause notice was issued to the appellants asking them to explain as to why Modvat credit of Rs. 8,81,0654/- taken by them during the period June 1992 to July 1992 should not be disallowed and why the amount utilised should not be recovered from them. In reply to the show-cause notice, the appellants submitted that the forwarding gate passes indicated the particulars of the gate passes under which duty was paid; that the supplier of the inputs had obtained permission of the Excise Authorities for inspection of the goods under Rule 173H of the Central Excise Rules, 1944; that the duty on the goods was paid by re-rollers when they rolled billets into wire rod/bar. The appellants submitted that they have got the original gate passes showing payment of duty by the re-rollers. They submitted that since the inputs were duty paid and they had the evidence in the form of duty paying documents, therefore, they have rightly taken Modvat credit on the inputs. The Dy. Collector held that since the GPI under which the goods were received by the appellants showed nil rate of duty, the appellants were not entitled to the benefit of Modvat credit on the inputs and accordingly disallowed Modvat credit and confirmed the demand. In appeal, the ld. Collector (Appeals) held that in this case, the manufacturer produced billets and cleared them on payment of duty; that the other manufacturer produced rods by taking Modvat credit in respect of billets and then cleared the rods on payment of duty; that strictly speaking this is not a case of Rule 173H of Central Excise Rules, 1944; that the permission granted by the Asstt. Collector, Gwalior was for bringing the goods for test only; that the purport of this permission was perhaps being wrongly interpreted; that in any event, the Modvat credit is not permissible to the appellants even though it is argued that the Asstt. Collector has granted permission under Rule 173H; that the case of the appellants therefore, is not covered by the instruction referred to by the ld.Advocate and since the inputs were not received, a document prescribed as duty paying document by the CBEC under Rule 173G(2) of the Central Excise Rules, 1944, the Modvat credit is not permissible and accordingly rejected the appeal of the appellants and hence the appeal before us.
2. Shri R.C. Gupta, ld. Advocate appearing for the appellants submits that the limited dispute in the instant case is that the GPI issued in their name does not show the payment of duty but it gives the reference of the original GPI under which duty was paid by the manufacturers of wire rods/bars. He submits that Rule 57G(2) speaks of duty paying document as GPI, AR-1, Bill of Entry. He submits that the appellants had not only produced the GPI issued in the name of the appellants but had actually produced the GPI under which the manufacturer of the inputs (wire rods/bars) had paid duty. He submits that the supplier of the product had permission from the Excise Authorities for receiving the duty paid goods in their premises under Rule 173H. He submits that as the goods were duty paid and sufficient evidence of payment of duty was available with the appellants, they are entitled to the benefit of credit of duty paid on inputs under the Modvat scheme and had rightly availed that benefit. In support of his contention he cited and relied upon the judgment of this Tribunal in the case of Rathi Alloys Steel Ltd. reported in 1996 (88) E.L.T. 538 (Tribunal). The ld. Counsel submitted that the case was fully covered by the ratio of this decision of this Tribunal and therefore, prays that the appeal may be allowed.
3. Shri Satnam Singh, ld. DR appearing for the respondent Commissioner submits that the fact remains that GPI under which the appellants received the goods did not show any payment of duty and that simply a reference was made in this GPI, the duty was paid by another GPI. He submits that the GPI on which duty was paid was not endorsed in the name of the appellants, therefore, the lower authorities have rightly denied them the benefit. He reiterated the findings of the ld.Collector (Appeals) as set out in the preceding paragraph.
4. Heard submissions of both sides. The short point for determination in this appeal is whether the appellants were entitled to taking credit of duty on inputs under the Modvat scheme. The appellants not only produced the GP1 in their name but also the GP1 under which duty was paid on wire rod/bars. In the instant case, the inputs are wire rods/bars. We note that in addition to the GP1 in the name of the appellants, the appellants received the original GP1 under which duty was paid. In the forwarded GP1 in the name of the appellants there was a reference of the earlier GP1. We also note that the supplier of the product to the appellant had permission to receive the duty paid goods in his factory under Rule 173H. We find that similar issue had come up before the Tribunal in the case of Rathi Alloys & Steel Ltd. cited above. The Tribunal in para 3 had held as under : "3. The stand taken by the authorities below in the present case would nullify a facility available under Rule 173H which permits a manufacturer to receive reprocessed duty paid goods if they are returned by the consignee to whom they had been originally sent.
After reprocessing under Rule 173H the manufacturer is entitled to clear them without payment of further duty. This 1 facility is allowed only because duty has already been paid at the time of their original removal from the factory. This position seems to have been appreciated and taken into account while issuing the trade notice referred to by the learned Counsel. The said trade notice is extracted below :- "Modvat-Grant of credit for inputs returned under Rule 173H of the Central Excise Rules, 1944 (Bombay-I Collectorate Trade Notice No. 89/1989, dated 3-11-1989).
Attention of the Trade is invited to this Collectorate Trade Notice No. 6/88, dated 25-1-1988 under which instructions were issued regarding removal of inputs under Rule 57F(2) of the Central Excise Rules, 1944 for the purpose of repair, reconditioning etc.
2. It has now been decided that apart from sending the inputs in respect of which Modvat credit has been taken for the purpose of repair, reconditioning etc. under Rule 57F(2) as envisaged under the above mentioned Trade Notice, such inputs can also be sent on payment of duty under Rule 57F(1)(ii) of the Central Excise Rules, 1944. In such cases, inputs sent to the original supplier may be subjected at his place to processes covered either by Rule 173H or 173L of the Central Excise Rules, 1944.
3. In the former case (Rule 173H), the re-issue of the goods will be covered by gate pass showing payment of Nil duty and hearing a cross reference to the original Gate Pass. For proper checking of Modvat credits in such cases the following cross-reference on Nil duty Gate Pass I would be necessary :- This cross-reference shall be on the body of the Nil duty GP1 (Preferably on the adverse side) and shall be given under the signature of the Gate Pass issuing authority. A certified photocopy of the original GP1 (on which duty was paid at the time of removal from their factory) shall also be enclosed to facilitate this cross-reference. The Gate Pass issuing authority can certify the said photocopy under his signature and stamp. Since this Nil duty Gate Pass shall have a cross-reference to the original Gate Pass under which full duty has been paid, Modvat credit can be allowed on such inputs to be received on the basis of such gate pass.
4. In the latter case Rule (173L), since returned goods after reprocessing would have discharged full duty once again, there will be no difficulty in allowing Modvat credit to the receiver on the basis of gate pass covering such consignment." This coupled with the certificate issued by the concerned Superintendent of Central Excise would appear to be sufficient for grant of Modvat benefit to the appellants. But while allowing the appeal it will be necessary to give a direction that apart from the certificate containing a cross-reference to the original duty-paying document and the amount of duty paid thereon, it will be also necessary to obtain such original duty-paying documents also so that the same may be taken note of for the purpose of defacing the same and taking other steps necessary for ensuring that no credit is availed of on the strength of such duty-paying documents except for the reprocessed inputs in question received by the appellants. The appeal is allowed on the above terms.
Following the ratio of the judgment of the Tribunal, we hold that the appellants were entitled to taking credit on the basis of the document produced by them.
In the result, the impugned order is set aside and the appeal is allowed.