Full Judgment
On considering the reply to the show cause notice and hearing them in the matter, the Collector confirmed the demand and ordered for reversing the amount in their Modvat credit account. Penalty of Rs. 5 lakhs was imposed on the appellant M/s. Batliboi & Co. Ltd. under Rule 173Q(1)(bb). The Collector also imposed penalty of Rs. 25,000/- on the appellant D.J. Vora.
2. Learned Counsel Shri M.H. Patil appeared for the appellants along with learned Counsel Shri Arun Mehta. It was contended that the demand is barred by limitation under Rule 57-I of the Central Excise Rules. In substantiating this argument the learned Counsel pointed that in 1987-88 there had been two show cause notices issued to them on the ground that the appellants had not made specific declaration in respect of their inputs. The matter after having confirmed by the adjudicating authority had come up before the Tribunal and in one case the Tribunal had remanded the matter and in another case which is more recent and relating to the period March to December, 1987, the Tribunal in its Order No. C-II/2369/98 WZB, dated 27-10-1998 had held that part of the demand relating to inputs other than steel are hit by limitation, and in respect of the demand relating to steel items of inputs the Bench had remanded the matter. The previous order remanding the matter was because of the finding of the Tribunal that the appellant had not maintained RG-23A Part I during the relevant period for the steel items, whereas in the present demand, the appellants have been maintaining RG-23A Part I. The earlier order of remand by the Tribunal was by its Order Nos. 635 & 636/93 WRB, dated 29-4-1993, wherein also the Tribunal while remanding, had observed that when the receipt of all the inputs are reflected in the RG-23A Part I and related gate passes which had been submitted to the department, the demand may also be hit by time bar. The learned Counsel further submitted in their case that the RT-12 returns for the period relevant in this appeal, have been in fact finalised and in some cases adjustment of duty has also been directed in assessment memorandum. Another point urged on limitation was that there is evidence of the records of the appellants having been audited for the relevant period where no objection had been taken. In this context, the learned Counsel also referred to the Tribunal's decision holding that, where the assessee's factory had been visited and records had been audited by the authorities regularly, no duty demand can be made, invoking the longer period, and also decision to show that the demand for the longer period cannot be based merely on an audit objection. In this case the present demand, the learned Counsel urged, had been made because of an audit objection. Yet another argument made resisting the demand on grounds of limitation was that, in any case before the actual issue of the show cause notice which was in 17-3-1993, the appellants themselves had addressed a letter to the department wherein they have pointed out that, in the past they had declared their inputs on broad terms and that now were submitting a detailed description of the inputs used by them in the manufacture of final product. It was therefore pleaded that the demand is barred by limitation and there is a case of dispensing with the penalty on the appellant.
3. Shri A. Ashokan, learned DR pointed out that the appellants cannot urge that they were unaware of the necessity of making a precise declaration of their inputs under Rule 57G for Modvat purposes for which he relied in this context on a trade notice issued by the Collector on the basis of the Board's circular which had been circulated in 1988 being Trade Notice No. 14/88, dated 26-2-1988. The Trade Notice conveyed the Board's non-acceptance of the proposal to give broad description by way of chapter heading of the inputs. The learned DR further relied upon the Tribunal's decision in the case of Asian Paints v. CCE - 1997 (93) E.L.T. 198 to argue that the furnishing of a specific declaration of inputs for purposes of Modvat credit is mandatory. It was also argued by the learned DR that when the declaration is not specific, it will amount to suppression.
4. We have duly considered the submissions. We find that the appellants have made out a case on limitation. The Tribunal's decision which they have relied upon is relevant and is of the very same appellant and for a period earlier to the one with which we are concerned. The proceedings against them in those cases was also on similar grounds as in the present case that the description of the inputs by the appellants in their declaration was in broad terms. Even while dealing with this case the Tribunal in its decision remanding the matter, has observed that where RG-23A Part I and gate passes have been submitted to the department the demand may be hit by limitation. This was in its order dated 29-4-1993. In the specific and more recent order of the Tribunal issued on 27-10-1998, they have given a positive finding that in respect of items other than steel for the period the demand was hit by limitation and set aside that demand. Apart from this decision of the Tribunal in their own case, it has been shown that the monthly RT-12 returns submitted by the appellants during the relevant period have all been finalised and where adjustment was required suitable directions have been given for making such adjustments in the assessment memorandum and monthly RT-12 returns. Further, the audit authorities have gone on records having checked the Modvat availment of the records of the appellants from time to time. The department had not raised any objection at that time and in such a situation the conduct of the appellants has also to be considered that they had themselves come forward by giving a more detailed description of the inputs and sought condonation of their earlier declaration with broad description of the inputs. It is also not the case of the department that the duty paid nature of the inputs is in question or that their use in the final product is in doubt. The appellants have also cited decisions by the Tribunal wherein it has been held that where the audit has been conducted, it will be inadmissible to raise a demand invoking the longer period for recovery of duty. The Asian Paints decision of the Tribunal cited by the learned DR is more on the issue on merits of the case about the mandatory nature of the declaration under Rule 57G, whereas in this case we are still in the threshold situation whether the demand will be hit by limitation or not under Rule 57-I; thereafter only will arise the question of merits. In this view of the matter we are satisfied, as observed earlier, that the appellants have made out a case that the demand is hit by limitation under Rule 57-I of the Central Excise Rules.
5. The impugned order is set aside and the appeals are allowed. The appellants be entitled to consequential relief as per law.