Judgment:
1. This appeal is directed against the order dated 28-1-1988 passed by the Collector of Central Excise, Hyderabad, by which he had, under Rule 571 of the Central Excise Rules, 1944, ordered reversal of MODVAT credit of Rs. 9,39,540.66 availed of by the appellants on the ground that this was irregular availment of deemed MODVAT credit on steel scrap utilised by them in the manufacture of their final product. He also imposed on the appellants under Rule 173Q a personal penalty of Rs. 5,000/-.
2. The appellants are mini steel plant manufacturing iron and steel products falling under Chapter 72 of the Central Excise Tariff Act, for which one of the raw materials is steel scrap, which is purchased by them from outside. They filed a declaration under Rule 57G of the Central Excise Rules for the purposes of availing MODVAT credit of inputs on 18-6-1986 and obtained a dated acknowledgement from the jurisdic-tional Assistant Collector on 19-6-1986. On 30-12-1986 officers of Anti-Evasion Headquarters, Central Excise Collectorate, Hyderabad, visited the appellants factory. It was noticed by them that the appellants had availed of MODVAT credit amounting to Rs. 17,56,307.95 on a quantity of 4811.783 M.T. of scrap received by them prior to the date of filing the declaration. Therefore, a Show Cause Notice was issued and proceedings initiated against the appellants on a charge that they were not entitled to avail deemed duty credit in respect of the scrap received and utilised by them prior to the date of their filing the declaration under Rule 57G of the Central Excise Rules for the purposes of availing the MODVAT credit facility. On consideration of their reply to the Show Cause Notice and the oral submissions, the Collector found that they were eligible for the credit of deemed MODVAT credit during the month of March 1986, but that no deemed MODVAT credit of duty was permissible to them apart from this on the inputs received before the date of declaration on 19-6-1986.
Accordingly, the Collector ordered the reversal of the excess amount of MODVAT deemed credit and imposed a personal penalty as stated above.
3. Shri Vaidyanathan, the learned Consultant appearing for the appellants, submitted that the Government of India by its direction issued under Rule 57G(2) dated 7-4-1986 had allowed deemed credit on steel scrap. The appellants herein came to know of it rather belatedly, and as soon as they became aware of such facility, they filed their declaration in respect of the steel scrap to avail of the same. The learned Consultant further urged that in terms of Rule 57H, relating to transitional provisions, credit can also be availed on such inputs used in the manufacture of final products which are cleared from the factory on or after 1-3-1986. In any case, the learned Consultant pointed out that the credit of duty availed was on 30-6-1986 in their R.G. 23-A Pt.II, and on this a Show Cause Notice has been issued only on 30-12-1986, beyond six months period, and as such, it was time-barred since the Department, being in the know of their availing of the credit, cannot seek to recover duty which is beyond six months. The learned Consultant further pleaded that there was no justification at all for the imposition of a personal penalty on the appellants herein for the offence, as there was no mala fides on their part.
4. Shri K.K. Bhatia, the learned S.D.R. appearing for the Department, contained that deemed credit is a facility that can be availed of by the manufacturer only after he had been granted the permission to operate under MODVAT credit scheme by the jurisdictional Assistant Collector on accepting his declaration for the purpose under Rule 57G and acknowledgement thereof. Therefore, there is no question of the manufacturer availing of such deemed credit during a period prior to the date of declaration. The Show Cause Notice also is not time barred, according to the learned S.D.R., because it has been sent by Registered Post to the appellants within six months and, in any case, the Department had also found that there was suppression of facts in the availing of MODVAT credit by the appellants which would justify invoking the longer period for the recovery of the irregularly availed MODVAT credit of duty.
5. We have given careful consideration to the submissions made by the learned Consultant and the learned S.D.R. The question here is whether the appellants would be entitled to deemed MODVAT credit even for the period prior to their declaration under Rule 57G. Rule 57G requires that every manufacturer intending to take credit of duty paid on inputs under Rule 57A shall file a declaration with the jurisdictional Assistant Collector indicating the description of the final products manufactured and the inputs intended to be used therein. The Rule also lays down that a manufacturer who has filed a declaration may, after obtaining a dated acknowledgement from the"Assistant Collector, take credit of duty paid on the inputs received by him. The First Proviso to this Rule lays down that in certain circumstances the Central Government may direct that with effect from a specified date all stocks of certain inputs in the country with specified exceptions may be deemed to be duty-paid and credit of duty in respect of the said inputs may be allowed at a rate to be specified by the Government in a direction to be issued by the Government for the purposes under this Rule. There was one such direction issued by the Central Government in respect of steel scrap, fixing the credit of duty at the rate of Rs. 365/- per M.T. as deemed credit of duty which can be availed of by the manufacturers operating under MODVAT credit scheme, without the production of duty paying documents. The production of duty paying documents along with receipt of inputs is otherwise a very necessary and essential condition for availing of MODVAT credit by a manufacturer under the Scheme. The appellants herein filed a declaration in respect of steel scrap as an input for their finished product and obtained a dated acknowledgement with effect from 19-6-1986, but the Department found that they had been availing of deemed credit even prior to that date. The appellants justification for this is the direction dated 7-4-1986 of the Government of India and according to them, this was valid enough for them to avail of deemed credit for the whole of the period prior to 19-6-1986, the date of their filing the declaration under Rule 57G. However, a perusal of Rule 57G shows that the declaration envisaged under that rule describing the input to be used in the manufacture of final product is the primary requirement for a manufacturer to be permitted to operate under the MODVAT credit scheme which is a special facility. Sub-rule (2) of Rule 57G very specifically states that a manufacturer who has filed a declaration may after obtaining a dated acknowledgement from the jurisdictional Assistant Collector take credit of duty paid on the inputs. Therefore, the question of taking credit of inputs received does not arise at all prior to the permission granted under Rule 57G(2). In this case, the appellants filed the declaration for including steel scrap as an input only on 18-6-1986 and obtained a dated acknowledgement from the Assistant Collector on 19-6-1986. Therefore, the facility of availing of MODVAT credit on steel scrap as inputs became available to them on and from that date in terms of Rule 57G(2) after filing of the declaration as per Rule 57G(1). It then follows that even the deemed credit will be permissible to a manufacturer only after he has filed the declaration under Rule 57G(1). This is so because what is exempted by the direction of the Central Government dated 7-4-1986 specifying inter alia deemed credit in respect of steel scrap, is the production of duty paying documents based on which credit can be taken under Rule 57G(2). Therefore, the appellants who had filed a declaration for steel scrap under MODVAT scheme can take credit in terms of the order dated 7-4-1986 only in respect of the steel scrap received on or after the date of declaration filed by them. In this context, the appellants have also relied upon the transitional provisions under Rule 57H to claim the deemed credit from 1-3-1986 onwards till 18-3-1986. This interpretation of theirs is also misconceived. Rule 57H is a special facility given at the inception of the MODVAT scheme with effect from 1-3-1986 in order to make eligible the inputs received on or after 1-3-1986 and during the course of that month and Rule 57H is very clear that such transitional facility is not available for the inputs received after 31-3-1986. The order of the Collector shows that he has found that the appellants were eligible for such transitional provisions for deemed credit on the inputs received during the month of March 1986 and this has not been granted to them. The transitional provisions under Rule 57H clearly debar any such extension of such facility beyond 31-3-1986 as the Rule stood then which is relevant to the appellants case, and by the same token, no deemed credit can be taken on the stocks available as on the date of declaration filed in view of the provisions of Rule 57H. The further contention of the appellants that the demand is time-barred is not borne out by the material on record as the Show Cause Notice is seen to have been sent by Registered Post to the appellants within six months, and the demand for duty is being made under Rule 9(2) read with Section 11-A invoking the longer period on the ground of suppression, and the fact remains that the appellants had availed of deemed credit for the period prior to the date of declaration, on their own, which was only found out by the officers of the Department on the visit and scrutiny of the records. We are, however, in agreement with the appellants in their plea that, in any case, the penalty on the appellants on this score is not warranted, as the records do not reveal any mala fides on their part. The personal penalty on the appellants is, therefore, set aside.
The order of the Collector is modified only to the extent indicated above, and, it is, otherwise, upheld