Judgment:
1. Vide impugned order, the authorities below have denied the benefit of modvat credit availed by the appellant in respect of the capital goods under the provisions of Rule 57R(1) on the ground that the said capital goods were used by them in the manufacture of goods on job-work basis which were cleared without payment of duty.
2. As per facts on record the appellants are doing job-work of motor vehicle parts for M/s. Endurance Systems in terms of Provisions of Rule 57F(4). The appellant procured certain capital goods in the year 1999 and availed benefit of Modvat credit on the same. During July 1999 to July 2000 the appellant had used the said machine only for manufacture of goods on job-work basis which were cleared without payment of duty and as such the same were exempted and the appellant is not entitled to avail the benefit of modvat credit. On the other hand the appellants have contended that they had manufactured the goods themselves also, though the value of such manufactured goods is much less and the same is only one time manufacture. In support they have referred to and relied upon the procurement of raw material, sending the same to other job-work manufacturers and clearance of the same on duty payment. The Revenue has contended that such one time manufacture was with an intention to avail the benefit of Modvat credit and to overcome the bar of Rule 57 R. They have also doubted the correctness of the above transactions by the appellant. By holding so the lower authorities have confirmed the demand.
3. It is seen that the Commissioner (Appeals) while disposing of the appeal, called for a report from the Jurisdictional Central Excise authorities which is to the following effect: They have produced copy of 57F(4) Challan No. 1 dated 21.10.99 under which 10 Kgs. Of Aluminium Alloy Ingots have been sent to the Job Worker namely M/s. Swit Engineering Pvt. Ltd., B-25, MIDC, Waluj, Aurangabad which is received back after doing the job work on the same day (21.10.99 from the Job Worker). The assessee has produced a copy of Ledger of Cash Book for payment of Labour charges to M/s.
Swit Engineering Pvt. Ltd., on 30.10.99. However, they could not produce the document evidence for payment of freight charges on account of transport of material from assessee premises to M/s. Swit Engineering Pvt. Ltd., as they have stated that being small quantity, it was not transported through the Transporter and same was removed on the own vehicle.
As is clear from the above report, the Revenue is not doubting the procurement of raw material by the appellant, sending the goods to the job-workers under Section 57 F(4) and clearance of the final product on payment of duty. Merely because transport documents could not be produced cannot lead to any conclusion that the goods were not manufactured by the appellant.
4. Apart from the above it is seen that the Commissioner has denied the benefit on the ground that the appellant had undertaken the manufacturing activities only with an intention to avail credit in respect of capital goods, which were otherwise being used for the manufacture of the goods on job-work basis. For better appreciation, I reproduce para 8 of the Commissioner (Appeals) Order: 8. Even assuming that the single minor/insignificant transaction during the Financial Year 1999-2000 was genuine, let us look into whether the legal provision existing at the material time would provide taking Cenvat credit on the aforesaid capital goods. Rule 57R(1) read as: No credit of the specified duty shall be allowed on capital goods which are used exclusively in the manufacture of final products....
It seems that the word "exclusively" used above has prompted the Appellant to believe that even a minor / insignificant production of 10 Kgs., of material on their own account would make the use of the Lathe Machine out of the purview of "exclusively in the manufacture of final products which are exempt or chargeable to nil rate of duty". I think that this believe / interpretation is not correct if one takes into account the basic premises / principles of Modvat credit scheme and the entire law relating to the scheme is read as a whole. Modvat credit is available both on input and on capital goods for payment of duty on dutiable final products. Though there is no requirement of one-to-one co-relation, it is but expected that the input or capital goods on which credit has been taken should correspond to the dutiable final product. It can not be interpreted to mean mat even a stray transaction, obviously made to avail undue gain, on the appellant's own account can enable him to have the credit, which is not otherwise admissible to him, given the intent and purpose of the very scheme. The word "exclusively" occurring in Rule 57R(1) should be construed to mean "mainly or substantially" considering the context in which it has been used, as discussed above. I, therefore, hold that Modvat credit was not admissible to the appellant under the facts and the circumstances of the case on the point of law also.
5. I do not agree with the above reasoning of the appellate Commissioner. The expression "exclusively" used in Rule 57 R does not mean "mainly or substantially" in common English language. The use of the said expression means "solely and only". As such, the credit on the capital goods can be denied only in a situation were the same have not been at all used in the manufacture of duty paid goods. As such, I do not agree with the view of the authorities below. The Tribunal in the case of Supreme Industries Ltd. v. CCE, Mumbai reported in 2001 (47) RLT 361 (CEGAT-Mum) has held that capital goods used predominantly in manufacture of exempted final products as well as of small quantity of dutiable final product are entitled of the benefit of Modvat credit inasmuch as the same cannot be held to be used exclusively in the manufacture of exercisable goods. This is to be kept in mind that the expression used in Rule 57R is not "predominantly or substantially" but exclusively which means that the said capital should have not been used at all in the manufacture of dutiable goods.
6. The ld. Advocate reliance on the decision of the Larger Bench in the case of Sterlite Industries (I) Ltd v. CCE, Pune reported in 2005 (68) RLT 25 (Tri.), though in the case of inputs is also appropriate. In that case job-worker was allowed to take credit of duty in respect of other inputs received directly and used by him in the manufacture of said goods on job work basis and cleared without payment of duty to the principal manufacturer on the ground that the goods at the hands of principal manufacturer attract duty. In the instant case also the goods after being manufactured by the appellant on job-work basis are sent back to the principal manufacturer, who however use the same in the manufacture of the final product which is cleared on payment of duty.
7. It is also the appellant's contention that the said capital goods have been used by them in the subsequent years for manufacture of their own goods which are cleared on payment of duty. As there is no time limit for utilization of the credit, the credit cannot be denied to them on the ground that initially the capital goods were used for manufacture of goods on job-work basis. For the said purpose, reliance is placed on the decision of the Tribunal in the case of Arvind Mills Ltd. v. CCE, Ahmedabad reported in 2005 (68) RLT 212 (CESTAT-Mum). The Tribunal in the said decision has held that capital goods initially used in the manufacture of cotton knitted fabrics chargeable to nil rate of duty but subsequently used in the manufacture of fabrics chargeable to duty would be eligible capital goods for the purpose of modvat credits.
8. Apart from the above finding on merits, I also find that demand is hit by the bar of limitation. The credit was availed by the appellant during the period 26.11.99 to 4.7.2000. The appellants manufactured the goods on their own and intimated the Revenue accordingly. Statement of the appellants representative was also recorded on 28.3.2001. A show cause notice was issued on 15.10.2004. The allegations made in the notice are on the basis of the records maintained by the appellant and intimated to the Revenue. In such a scenario, it cannot be said that there was any suppression on the part of the appellant so as to invoke the longer period of limitation. As such, I hold that the demand is also barred by limitation.
9. In view of the fore-going, I set aside the impugned order and allow the appeal on merits as well as on limitation.