Judgment:
1. The appeal is directed against the Order-in-Appeal passed by the Commissioner of Central Excise (Appeals), New Delhi upholding the decision of Deputy Commissioner of Central Excise, New Delhi demanding Central Excise duty of Rs. 2,77,090/- consequent to disallowing of Modvat credit taken by the appellant. Such disallowance was on the ground that the appellant being entitled to the benefit of full exemption of duty under Notification No. 1 /93, dated 28-2-1993, Rule 57C of Central Excise Rules got attracted and credit hence became inadmissible.
2. Learned Counsel for the appellant, Ms. Ginni Bedi placed reliance upon the Tribunal decision in Everest Convertors v. Collector of Central Excise, Calcutta-II [1995 (80) E.L.T. 91 (Tribunal)] wherein it was held that Rule 57C of Central Excise Rules, 1944 was not applicable in such a case and that a Notification having character of exemption cannot be forced upon an assessee if it does not suit him. It was further held therein that if an assessee does not claim the benefit of Notification, its benefit shall not be extended to him. It was pointed out by the learned Counsel that a similar view has been taken in a series of decisions by the Tribunal. On this ground, it was pleaded that the impugned order be set aside and the appeal allowed.
3. Opposing the plea of the learned Counsel, Shri V.R. Sethi, learned Departmental Representative supported the impugned order placing reliance on the express wording of the Rule 57C. He pointed out that this Rule makes credit non-permissible if the final product made by using the inputs on which credit had been taken is wholly exempt from duty or chargeable to nil rate of duty. In the present case, the wording of Notification No. 1/93 would clearly point to the goods at the hands of the appellant being wholly exempt. In the circumstances, the bar contemplated under the said Rule would come into play rendering Modvat credit taken liable to be reversed. He referred to the judgment of the Andhra Pradesh High Court in Ganesh Metal Processing Industries v. Union of India [1996 (81) E.L.T 11] wherein the scope of Rule 57C has been elaborately discussed. It was submitted by him that though this decision referred to Rule 57C in connection with another Notification different from 1/93, the ratio therein would squarely apply to the facts of this case whereby it would be seen that it was not open to the appellant to take the credit when they were eligible for full exemption. He pleaded that the order-in-appeal may be upheld and the appeal dismissed.
4. The arguments of both the sides have been duly taken note of by me.
It is seen that in the present case Modvat credit had been taken by the appellant and utilised for payment of duty on the final product cleared by them in the manufacture of which such inputs had been used. The stand of the Department in disallowing the credit is that Rule 57C is attracted as the final product was chargeable to nil rate of duty and that it would make no difference to the applicability of Rule 57C if, notwithstanding the availability of the aforesaid exemption, the appellant chose to pay duty contrary to the provisions thereof. It has, therefore, been held that since such disallowed amount had already been utilised, an equivalent amount was recoverable. I, however, find that the disputed Modvat credit amount has been utilised only for payment of duty on the very goods which are held to be eligible for exemption.
Disallowing of wrongly taken Modvat credit can be effectuated either by reversing the credit if available in the RG 23A Part II account or by recovery of the sum separately if the same is not available in the account, having already been utilised for payment of duty. In the present case, since the amount of credit was in fact utilised for payment of duty of goods which are admitted by the Department to be eligible for exemption and hence not liable for duty, utilisation of such credit for payment of duty thereon would serve the purpose of disallowance of credit as required under Rule 57C. There would be a case for confirming the demand by bringing into play Rule 57C if credit had been taken but kept intact due to the inputs being used for the manufacture of the exempted goods which were cleared without payment of duty availing of such exemption and such credit was being utilised for other goods not relatable to the inputs in question. That would be the only way Rule 57C will come into reckoning. Such a situation does not present itself in the present case as the credit was not left unutilised vis-a-vis the final product made from the inputs in question. In view of this position and in the light of the Tribunal decision in Everest Converters case (supra), I accept the plea of the appellant and set aside the impugned order. The appeal is allowed.