Judgment:
1. Shri S. Madhavan, ld. C.A., who argued the stay application for the applicants, submitted that Modvat credit on certain quantities of thermocol used as packing material for their final product, namely, black and white picture tubes were denied to them on the ground that the same packing material was also used for packing the inputs received by them, namely, glass shells manufactured by M/s. Teletube Electronics. Glass shells attracted nil rate of central excise duty.
The Commissioner by the impugned order found that the applicant, M/s.
Samtel (India) Ltd. were in fact availing the Modvat credit on the packing material on the basis of removal of such packing material from their factory to the factory of M/s. Teletube which was located just across the factory of M/s. Samtel (India) Ltd. and no payment of duty in terms of Rule 57F(1) had been paid nor was the prior permission of the proper officer obtained. The ld. C.A. submitted that there was no dispute about the fact that the entire quantity of duty paid thermocol had been received by the applicants in their factory. The said packing material was also used for packing of dutiable final products, namely, picture tubes manufactured by the present applicants. In fact, the said packing material was supplied by the applicants to pack the inputs manufactured by their supplier, though the same packing material was also used by the present applicants for the packing of their final products. Ld. C.A. had showed us samples of the thermocol packing material used for the purpose at the time of making submissions before us for buttressing his submissions that the same material had been used both for purposes of packing the inputs as well as the final products since the dimensions of both the products were the same. He submitted that though there was a technical non-compliance of the provisions of Rule 57F(2), this could not be made a ground for dis-allowing the substantive benefit of Modvat credit. He also pleaded that the SCN dated 12-7-1994 which was issued three years and 7 months after the date of filing of the application under Rule 57F(2), i.e. 6-12-1990 was hit by limitation. Further, though the SCN had alleged suppression of facts by the applicant, the Commissioner had not rendered any finding on suppression of facts but had arrived at an independent finding that the applicant had contravened the provisions of the rules with intent to evade payment of duty. He relied on case law in support of his contention that the extended period of limitation would not apply in the facts of the case. He referred in this connection to the Apex Court decisions reported in 1989 (40) E.L.T. 276 and 1989 (43) E.L.T. 195.
2. Shri P.K. Jain, ld. SDR submitted that the transfer of packing material from the factory of the applicant to the suppliers of the inputs was merely an arrangement in paper. The appellants themselves had admitted that they had not complied with the requirements of obtaining prior permission of the proper officer under Rule 57F(1)(ii) as well as Rule 57F(2). The clearance of packing material was made under cover of private gate passes and credit had been taken for such clearances and the same had been utilised in contravention of the Rules. He submitted that the stay application made in the above circumstances be rejected.
3. Heard the submissions of both sides. Applicants have not themselves disputed the fact of their not obtaining the prior permission of the proper officer before clearing the packing materials to the manufacturers of the inputs. We have also perused the case law cited by the ld. C.A. in support of his contention that the substantive benefit of Modvat credit available for duty paid inputs cannot be denied on the ground of procedural infraction alone. We observe that the points raised by the ld. C.A. are arguable. Since consideration of the said points would require detailed examination of the case law and evidence brought on record which cannot be done at this stage and considering the submissions made on behalf of the Department, we direct the applicants to deposit an amount of Rs. Five lakhs on or before 5th February, 1998. The matter will be listed for considering the compliance report on 16th February, 1998. On making the said deposit demand/recovery shall remain stayed till the disposal of the Appeal.
4. The applicant shall note that non-compliance of the directions contained in this order would lead to the dismissal of their appeal without further notice.