1. These are three appeals filed by the department against the decision of the Collector (Appeals), Mum-bai who by the impugned Orders had held that the respondent in the appeals are entitled to benefit of Notification No. 204/92, dated 9-5-1992 reversing the findings of the Assistant Collector who in the Orders-in-Original had denied the benefit of the said Notification on the ground that the exported goods were manufactured by availing benefit of Modvat on the exempted materials.
2. Facts of the case are the respondents have imported goods described as Hexa Chlorocyclopentadiene and sought clearance for home consumptions. They were transferee of an advance licence issued to M/s Selective Chemicals Ltd. who was a merchant exporter. It is noticed that the export products has been manufactured by their exporting manufacturer by availing benefit in terms of Rule 56A/57A of the Central Excise Rules. However, the said benefit of Modvat was reversed subsequent to the physical shipment of the goods. The A.C. who heard the matter on the basis of condition (vi) of the Notification 204/92 r/w 67 of the import policy held that the facility should not be available as the exported material had been made after availing Modvat credit. The A.C. by his order in original denied the appellants benefit of the exemption Notification. In the impugned orders Collector (Appeal) has held that once a transfer has been made by transferability has been accepted by the licensing authority after the availment of Modvat credit was reversed the Customs authorities cannot question it as the Modvat claim became nullity. Therefore, the Collector (Appeals) in respect of all appeals rejected the contentions of the department and allowed the appeal.
3. It is contended by the department that in terms of condition No. 6 of the Notification 204/92 once the exported goods were manufactured after availing of credit under Rule 57A i.e. Modvat the exemption cannot be availed of for the import of the goods. The condition does not speak of what will happen if it is reversed. Customs authorities are not questioning the power of the licensing authorities to transfer the goods. They are only interpreting the notification and its admissibility of such benefits arising under that notification to the imported goods.
4. As agaisnt this ld. Counsel Shri Kantawala said that condition No. 6 will be applicable only to the licensee not to the transferee of licence. He invited our attention to Clause (8) of the said notification to show that once the endorsement of transferability has been certified by the licensing authority the benefit of the notification should be allowed in favour of the transferee. He also invited our attention to the judgment of the Supreme Court in Chandrapur Metals Works case. He pleads before us that whatever may be the judgment of the Orissa High Court judgment in Raj Exports Aluminium Co. Ltd. case in 1996 (87) E.L.T. 349, the case has to be seen in the touchstone of the Supreme Court case.
5. We have considered the rival submissions. The facts are not in dispute. The advance licence had been given in favour of the licences.
Selective Chemicals and the export product have been manufactured by their supporting manufacturer by availing benefits in terms of Rule 57A of the Central Excise Rules. If we see Clause (6) of the advance licence which is extracted below: "that where export goods are manufactured availing credit of Central Excise Duty or Additional Customs Duty in respect of any of the materials permitted import under the said licence, under Rule 56A or 57A of Central Excise Rules, 1944, the facility of sale or transfer of materials or the said licence shall not be available." 6. Once the Modvat credit has been taken from the reading of the above clause it will be clear that the goods which are exported should not be made taking Modvat credit and once such Modvat credit is taken, the benefit of the advance licence shall not be given, which means that at the threshold, once, credit is taken the duty exemption cannot be availed of. We want to look into the arguments of Mr. Kantawala, who emphasises that once the transferability has been given by the licensing authority the Customs department cannot question such a transfer. It is true that the transferability has been granted by the licensing authority. Once such transfer is made the importability of the goods cannot be questioned by the customs authorities. The point here for our consideration is the question of claiming exemption under Notification No. 204/92 issued by the Department of Revenue. The transferee importer claims exemption under these notification which cannot be given because condition No. 6 contained in paragraph 6 is a specific departure. The finding of the Collector (Appeals) is that reversal of Modvat credit makes a Modvat claim a nullity in our view is wrong in law. The condition No. 6 denies the benefit of the notification because the benefit is subjected to the said conditions.
The para 6 of the Notification not only prohibits transferability of the licence but also the benefit of the notification. The transferability is contained in No. 8 that says that where the benefit is sought by the person other than the licensee the benefit shall be allowed. Licence bears the endorsement of transferability of the licensing authority. Once the transferability is given the import of it as stated by us earlier does not become prohibited. In other words, availment of transferability the import of which will not be hit by Section 111 (d) of the Customs Act. As far as the levy of duty is concerned it is the Customs authorities to look into it. In this connection department relies on the observations of the Orissa High Court in Raj Exports v. National Aluminium Co. Ltd. - 1996 (87) E.L.T.349. In paragraphs 44 and 45 of the said judgment it has been stated as follows : "44. We have further considered the lengthy arguments made on behalf of NALCO that if the benefits available under Modvat scheme and the benefits also available under VBALs scheme are appreciated, notice has to be taken to the salient facts of the present case regarding importing of the inputs for manufacturing of the products to be exported by NALCO. It is argued before this court that strictly speaking NALCO is not subject to pay any duty for the goods to be manufactured for export. Much emphasis has been laid upon the words "any of the inputs" expressed in the aforesaid scheme to appreciate whether in the present case NALCO had made double benefit or not.
The restriction of non-availment of Modvat credit in respect of any of the inputs is found not only condition, precedent for transferability, but more important it is a mandatory condition of the customs exemption Notification No. 203/92 as quoted above and the Customs authorities are to see whether notwithstanding the transferability, conditions of Notification No. 203/92 have been fulfilled or not? Factually, the dispute arose as to whether NALCO has availed Modvat credit in respect of "Caustic Soda Lye" and an attempt has been made by the Customs Authority to draw attention of the Court to peruse the Modvat credit Register (RG 23A Part I) showing clearly that NALCO had availed Modvat credit on "Caustic Soda Lye" during the relevant period. Two contradictory stands have been taken by the NALCO. First it is asserted as if whatever benefits obtained under Modvat scheme, have been reversed, so it must be construed to a clean scale to get benefit under the VBAL scheme. Secondly, by detailed analysis, an argument has been advanced that with regard to the inputs there is no availment of any benefit under Modvat scheme as spelt out, and there is no bar and/or impediment to receive the benefit under the VBAL Scheme in the manner as claimed and since the license is transferable, the transferee is equally entitled to get the benefit duty-free import in respect of those items.
45. On proper scrutiny, we find that in fact by a reversal the breach of conditions of the exemption notification cannot be restored. Besides, there is a factual dispute as to the actual amount of benefit consumed by NALCO and there is a dispute raised by the Customs that there is more amount than what is stated by NALCO as to the Modvat benefit enjoyed by NALCO. Within the scope of the writ petition, it is not possible to investigate this aspect without production of proper evidence by both sides. It is however clear to this Court that the second stand to interpret the expression used in Modvat and VBAL Schemes to bail out NALCO regarding the conditions as per Exemption notification relied upon by the Customs authorities, is fallacious. To us, the second attempt is no doubt ingenious, but as per facts of the case, the same is without merit.
Each and every word expressed in Modvat and VBAL scheme, has to be interpreted as per text and in the background of context. No pedantic grammatical understanding in isolation of the entire comprehensive meaning should be adhered." 6. No doubt the ld. Counsel Mr. S. Kantawala in a lucid way takes shelter under the judgment of Supreme Court in Chandrapur Magnet Wires P. Ltd. -1996 (81) E.L.T. 3 and he tries to derive the support from para 6 and 7 of the said judgment are extracted below : "6. It is true that the assessee has not maintained separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods, as should have been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration. There is no doubt that the assessee should have maintained separate accounts for duty free goods and the goods on which duty has to be paid. But our attention was drawn to a departmental circular letter on this problem; in which it has been clarified by the Ministry of Finance as under : "3. The credit account under Modvat rules may be maintained chapter-wise, Modvat credit is not available if the final products are exempted or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end use notification) and in respect of which it is not reasonably possible to segregate the inputs the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products." This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is of reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited the credit account before the removal of the exempted final products.
7. In view of the aforesaid clarification by the departments we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods." 7. We have considered the rival submissions made by Shri S. Kan-tawala.
In our view, the judgment of the Orissa High Court squarely applicable of the facts of this case. The judgment of Supreme Court will not be applicable to the facts of this case because that was not a case of advance licence. That was more of a case of Modvat claim in respect of exempted goods and the said case was decided by the Supreme Court more on the basis of clarification given as mentioned in para 6 of the said judgment which was extracted above. In fact reasoning of Supreme Court contained in paragraph 7 of the judgment would show that it was based on the clarification given by the department. Here in this case no such clarification has been given.
8. One more thing which needs the attention. By following the Orissa High Court Judgment original licensee will not be entitled to the benefit of the exemption granted under Notification 204/92. Can the transferee get the better benefits than the licensee? In our view, it cannot be so. Because it will be fallacious if the licensee is not entitled to the benefit of the notification and the transferee is entitled to the benefit since the transfer of licence has been granted by the licensing authority. In our view para 8 deals only about the trans-ferability and not about the benefit of exemption especially regarding Modvat. If the argument of the ld. Counsel for the respondent is to be accepted then it will amount to read the conditions 1 to 8 in a disjunctive way and not in a cumulative and conjunctive way. Where case warrants interpretation in a disjunctive manner we have to do it.
But in our view this is not a case where we have to read the conditions in a disjunctive manner. What is the job the Customs is doing? It only interprets the notification and does its part of duty. In respect of import of the goods viz. whether the notification is applicable to the imported goods or not. In this connection, the judgment of the Supreme Court in Sheshank Foods Ltd. squarely applicable to the facts of this case viz. Customs authorities is not divested to its authority to see whether the conditions are fulfilled in respective granting of benefit under the Customs notification granting exemption issued under Section 25 of the Customs Act.
9. We are therefore, of the view that the arguments of ld. Counsel of the respondent is to be rejected and appeals of the department has to be accepted. Hence they are allowed.