Judgment:
1. This is an appeal against the order of Commissioner (Appeals), Chandigarh, dated 31-3-1997.
2. Learned Counsel stated that in this case, the appellants manufacture inter alia moped chains and cycle chains.
3. They take Modvat credit on declared inputs for utilisation towards payment of duty on declared output. In respect of moped chains which were exported they could not utilise that the full credit and therefore, they utilised a part of it for payment of duty on waste and scrap generated during the manufacture of cycle chains which were cleared for home consumption.
4. The Department considered that in terms of Rule 57F(4) read with Proviso 1 thereof such availment of credit was not permissible and therefore, the A.C. directed reversal of credit and also imposed penalty.
5. The Commissioner confirmed the order regarding denial of Modvat credit and waived the penalty.
6. It was their submission that their action was fully covered by Rule 57F(4) and Proviso 1 relied upon by the Department was not applicable to their case. The Sub-rule (4) has three sub-clauses and their case is covered by sub-clause which relates to the waste arising in the course of manufacture of the final product. There is no dispute about the facts namely that the inputs had been declared and they were eligible to utilise the duty paid on them towards the payment of declared final products and the whole issue relates to only availment of the benefit w.r.t. the waste as aforesaid.
7. It was their submission that Proviso (1) relates to the final products which were cleared for export under bond or on payment of duty or in the production and does not relate to the question of payment of duty on the waste. Therefore, they have got a prima facie strong case and there was no cause for raising and confirming the demand.
8. Learned Counsel further stated that their case is actually covered by 57F(4)(ii) read with 57F(5)(a) which deals with utilisation of credit allowed in respect of duty paid on the inputs for payment of duty on the waste generated during the manufacture of final products.
He emphasised that it has already been held by the Tribunal in a series of cases that there is no one to one correlation. The credits taken from time to time get merge into a single mass of amount out of which duty could be paid from the various final products which may be cleared from time to time. In response to further queries from the Bench, he clarified that in the present case, the inputs are the same both for moped chains and the cycle chains but moped chains were dutiable and therefore, were declared as the final product and the credit was still left in balance because some quantity was exported. The cycle chains made from the same inputs were not so declared as the Modvat could not be claimed in respect of the cycle chains exempt from duty during the relevant period. However, it is the waste generated during the process of such manufacture which became dutiable and the credit on the inputs lying in balance was utilised for payment of duty at the time of clearance. It was also his submission that the observations made during the course of passing the stay order may also be taken into account and in this respect, he would draw attention to paragraph 9 of the stay order in particular.
9. I observe that the appellants are engaged in the manufacture of moped chains and cycle chains falling under Heading 7315.00 of the Schedule to the Central Excise Tariff Act, 1985. Moped chains were being exported under bond and cycle chains were exempt from payment of duty. Appellants were availing Modvat facility in respect of inputs used for manufacture of moped chains and the Modvat credit was not being availed on inputs used for cycle chains, separate records/accounts were maintained for both types of chains and also in respect of scrap generated from the manufacture of these chains separately. Scrap arisen from manufacture of cycle chain became dutiable from 1-3-1994 with rescinding of Notification No. 171/88, dated 13-5-1988. Since the moped chains were being exported by the appellants, the Modvat credit earned on the inputs used in the manufacture of moped chains got accumulated. While effecting clearances of scrap which had arisen during the manufacture of moped chains as well as cycle chains, appellants discharged duty of central excise on such scrap partly through PLA and partly through Modvat credit accumulated in RG 23A Part II account. The Department held the view that the appellants were required to discharge duty only through PLA as the final products were exempt from duty. The moped chains were being exported without payment of duty under bond and cycle chains were also exempt from central excise duty (as such Modvat credit earned will lapse). Therefore, show cause notices were issued for the periods 3/1994 to 7/1994, 8/1994 to 11/1994 and 12/1994 to 2/1995 separately.
After following the procedure of adjudication, the D.C. observed that the appellants had also not declared scrap as final product in their Modvat declaration filed under Rule 57G of Central Excise Rules, 1944.
He also observed that in the instant case, the final product i.e. moped chains on which Modvat credit had been taken and utilised towards the clearances of scrap generated during the course of manufacture of cycle chains is not the similar final product as envisaged under Rule 57F(4) [appears to have been inadvertently mentioned as 57G(4)] of the Central Excise Rules, 1944 at the relevant time. It was the submission of the appellants that the scrap arising out of manufacture of cycle chains by itself is a final product specified for the purposes of Modvat benefit and is covered under Heading 72.04 and the entire Chapters 72 and 73 are entitled to the benefit of Modvat credit in terms of notification issued under Rule 57A. Appellants contended that they had filed a Modvat declaration on 29-9-1994 declaring waste and scrap of iron as one of the final products and also have made a request for condonation of delay prior to 29-9-1994 with the competent authority. They have further contended that since the competent authority with whom declaration had been filed had not raised any objection and there existed no ground for disallowing the credit on inputs intended for use in the manufacture of cycle chains and its utilisation for paying duty out of RG 23A Part II on scrap and this aspect has totally been left out for consideration. They further contended that it appears that contents of the Order-in-Original No. 58/96 passed for the earlier period have been typed and signed with modifications of amounts of credit and period etc. involved and same grounds have been taken for discussion and Order-in-original Nos. 59/96 and 60/96 without taking notice of the fact that supplementary declaration had been filed on 29-9-1994. There could be no basis for denial of credit especially from 29-9-1994 onwards.
10. It is significant in this connection that in the case of Rule 57F(4), the words "any inputs" in the sentence "Credit of specified duty allowed in respect of any inputs may be utilised towards payment of duty of excise" are important and a comparison between sub-clauses (i) and (ii) shows that only sub-clause (i) refers to the inputs intended to be used in accordance with declaration filed under Sub-rule (i) of Rule 57G but sub-clause (ii) does not use these words and allows the aforesaid utilisation "on the waste, if any, arising in the course of manufacture of the final products". Similarly, in the case of Rule 57F(5), the relevant words used are "Any waste, arising from the processing of inputs, in respect of which credit has been taken may - (a) be removed on payment of duty as if such waste is manufactured in the factory". In other words, these provisions did not relate merely to such inputs as are utilised in the manufacture of the declared final product which is cleared on payment of duty but with reference to any input which may be utilised for manufacture of the final products (i.e.
to say, implying, any final product) and in waste arising from the processing of inputs. Again, that is to say, implying the inputs in respect of which credit has been taken. Learned Collector has referred to the words "such inputs" in Clause (i) of 57F(4) but that clause is not applicable to the present case and the word 'such' has not been prefixed to the word 'inputs' or the final products in the relevant clauses 57F(4)(ii) and 57F(5)(a). Since the learned Counsel has stated and the Department has not contradicted the fact that in the present case, the inputs are the same for the purpose of manufacturing moped chains and cycle chains and Rule 57F(4)(ii) read with 57F(5)(a) allows the credit to be utilised for payment of duty on waste arising from the processing of inputs in respect of which credit has been taken, I consider that the appellants' prayer is justified. In these circumstances, the duty could be paid from the accumulated Modvat credit in the absence of any provision to the contrary. Learned Commissioner has rightly set aside the penalty in the circumstances of the case and since there is no dispute in this respect at this stage and the case is confined to the payment of duty from Modvat account, the Collector's order in the later respect is set aside and the appeal allowed with consequential relief, if any due.