Judgment:
1. The appellants challenge the disallowance of deemed Modvat credit on steel scrap, ferro-alloys, etc. taken during the period March/April 1986 to December 1986 in terms of para 2(ii) of the Government of India Order No. B-22/5/86/TRU, dated 7-4-1986 as amended by order No.22/30/86/TRU, dated 29-8-1986.
2. We have heard Shri J.S. Agarwal, learned Advocate for the appellants and Shri S.K. Sharma, DR for the Collector.
The appellants who are engaged in the manufacture of steel castings/ingots falling under Heading 73.07/72.06 of Central Excise Tariff Act, 1985 on 11-4-1986 filed a declaration as required under Rule 57G of Central Excise Rules, 1944 in which they declared inputs namely cast iron duplex, ferro manganese, ferro silicon, M.S. Scrap and Iron scrap to be used in the manufacture of their said final products for availing the benefit of modvat credit. Alongwith the said declaration they also furnished a statement of balance stock of the inputs lying with them as on 28-2-1986 and inputs received thereafter till 10-4-1986 and requested the Assistant Collector to allow the credit of excise duty already suffered on such inputs in terms of Rule 57H. The Superintendent (Tech.), Central Excise by his letter dated 2-6-1986 required the appellants to submit copies of bills etc. relating to the stock in question and on which Modvat credit was desired to be taken. The appellants vide their letter dated 22-7-1986 informed the Superintendent that M.S. scrap used as inputs was purchased by them from dealers in open market and enclosed the copies of the relevant purchase invoices. The Range Inspector in his letter dated 18-9-1986 required the appellants to submit the relevant original documents with copies of bills/GP 1s for the month of April and May 1986. He, however, pointed out that Modvat credit would be allowed only on the basis of such documents as evidencing the payment of excise duty on the inputs involved. The Jurisdictional Superintendent of Central Excise by his letter dated 1-10-1986 further asked the appellants to intimate whether the materials purchased from Vehicle Factory, Jabalpur were duty-paid and if so, duty paying-documents should be furnished. The appellants vide their letter dated 20-12-1986 informed the Superintendent that they had purchased raw materials from M/s. Bharat Heavy Electricals Ltd., Bhopal vide their bill dated 14-5-1986. In this bill central excise duty @ Rs. 365/- per M.T. on a quantity of 51.440 MT supplied from 11-4-1986 to 30-4-1986 and amounting to Rs. 18,775.50 was charged. By his letter dated 19-12-1986 the Superintendent of Central Excise stated inter alia that credit of Rs. 11,11,540.67 taken on inputs during the period from 11-4-1986 to 30-11-1986 was not admissible inasmuch as these inputs were not accompanied by duty paying documents and the same were clearly recognisable as being non-duty paid or charged to nil rate of duty. In notice to show cause dated 6-2-1987 it was stated that the appellants had wrongly availed Modvat credit amounting to Rs. 12,43,853.52 during the period from April 1986 to December 1986, inasmuch as the receipts of inputs were not accompanied by duty paying documents, the inputs were clearly recognisable as non-duty paid, and credit taken for the transitional period was without obtaining the prior sanction of the competent authority under Rule 57H. It was further stated that the amount of Modvat credit had been disallowed by the Range Superintendent vide his letters dated 19-12-1986 and 15-1-1987, also at the time of assessment of their RT 12s. Accordingly by this show cause notice the appellants were called upon to explain as to why the credit should not be recovered under Rule 57-1 and penalty imposed upon them under Rule 173Q read with Rule 209 of the Central Excise Rules, 1944.
4. The appellants denied the allegation in their reply dated 13-2-1987 and stated that the credit on steel scrap during the period 11-4-1986 to 29-8-1986 was mainly taken on deemed basis as per the Government of India order dated 7-4-1986 and that such credit was available before the facility was withdrawn on 29-8-1986 and after 29-8-1986 the inputs were received under the cover of gate passes evidencing payment of duty. The plea of time bar was also taken by the appellants. The Assistant Collector by order dated 22-8-1988 disallowed the entire Modvat credit. The Collector (Appeals) rejected the appeal solely on the ground that prior permission of the Assistant Collector was not obtained. Hence this appeal.
5. Steel scrap lying with the appellants as on 1-3-1986 and thereafter purchased from the market has been treated as charged to nil rate of duty as it is exempt from payment of duty in terms of provisions of Notification No. 55/86 dated 10-2-1986 and Notification No. 69/87 dated 1-3-1987. Therefore, the adjudicating authority has disallowed the benefit of deemed Modvat credit on steel scrap in terms of proviso 2(ii) of the Government of India Order dated 7-4-1986. The Tribunal had occasion to consider whether goods exempt from payment of duty under an exemption Notification can be considered as nonduty paid or charged to nil rate of duty, in the case of Arun Auto Spring & Manufacturing Co.
v. C.C.E. - 1990 (49) E.L.T. 284. The goods in that case were exempt under Notification 208/83. The Tribunal held that the goods exempt from payment of duty under an exemption notification cannot be construed as non-duty paid or charged to nil rate of duty. In the case of C.C.E. v.Mittal Metal Industries - 1990 (54) E.L.T. 290, it was held that goods exempt under a conditional exemption were not presumed to be non-duty paid for the purpose of extension of deemed credit. In view of the legal position as settled by the Tribunal the steel scrap cannot be considered as charged to nil rate of duty. It is, therefore, entitled to the benefit of deemed credit in terms of Government of India order dated 7-4-1986.
6. The appellants' next contention is that the show cause notice in so far as it relates to recovery of deemed credit beyond 9-8-1986 is barred by limitation under Section 11A of the Central Excises & Salt Act. The adjudicating authority has rejected the plea of time bar on the ground that a show cause notice has been issued not under Section 11A but under Rule 57-1 of Central Excise Rules where no time limit has been prescribed for reversal/recovery of wrongly taken credit. The Tribunal has held that the time limit prescribed under Section 11A applies to recovery of wrong credit taken in terms of Rule 57-1. In the case of C.C.E. v. TELCO -1990 (47) E.L.T. 132, the Tribunal held that when any credit taken under Modvat Scheme in RG 23A Part II account is held to be inadmissible and this is sought to be expunged the same is regulated in terms of Rule 57-1 itself, but the effect of that expunction would be if duty has already been recovered by debit to that account, duty has to be recovered afresh and that will come squarely within the scope of Section 11A. In the case of C.C.E. v. Memory Steels (P) Ltd. -1990 (47) E.L.T. 704, it has been held by the Tribunal that provisions of Section 11A apply to demand of reversal of credit already taken under Rule 57-1. The Hon'ble Karnataka High Court in the case of Tungabhadra Steel Products Ltd. v. Superintendent Central Excise -1991 (33) ECC 140 has taken the view that Rule 57-1 as it stood before the amendment on 6-10-1988 (when the limitation of six months was prescribed for recovery if the error was on the part of the officer and 5 years if due to wilful mis-statement, suppression etc.) should receive the same interpretation as after the amendment. The appellants contend that in this case the show cause notice for recovery beyond 9-8-1986 is time barred as the show cause notice does not allege any mis-statement or suppression justifying the extended period of limitation being invoked. However, the assessee has admitted in reply to the show cause notice that assessment of monthly RT 12 returns has been done provisionally. As the RT 12 returns are not before us, we are not able to come to any conclusion as to how the Modvat credit was disallowed, whether on RT 12 returns by the Superintendent or by separate order.
7. The appellants contend that, even assuming that the assessment is provisional, still that would not make any difference to the case as the Superintendent is not the appropriate authority to disallow Modvat credit. In the case of Indian Textile Engineers v. C.C.E. -1989 (43) E.L.T. 130, the Tribunal has held that it is the Assistant Collector who is the appropriate authority in the matter of disallowance of Modvat and not the Range Superintendent. Hence the endorsement on assessment memorandum i.e. RT 12s without the support of an order by the Assistant Collector after compliance of procedural aspects is prima facie bad in law.
8. The learned SDR contends that two of the inputs i.e. Ferro Man- ganese and Ferro Silicon fall under Heading No. 72.02 which is not covered by the deemed credit order and therefore, even assuming without admitting that Modvat credit could be extended to the other inputs, no such credit could be extended to these items. 9. In view of our finding on merits we hold that the benefit of Modvat credit is available to steel scrap manufactured out of the inputs covered by the Government of India order dated 7-4-1986. In the result the appeal is allowed with consequential relief if any to the appellants. The cross-objection abates.
10. [Dissent per : S.K. Bhatnagar, Vice President]. - With due respects to Hon'ble Member (Judicial) my views and orders are as follows : 11. I observe that in this case a number of aspects and items are involved namely (1) admissibility or otherwise of Modvat on the following five items : (2) the question of Assistant Collector's permission in terms of Rule 57H, (3) availability or otherwise of deemed credit facility and proof of payment of excise duty, (4) the time bar, and (5) determination of correct amount/demand.
12. The Assistant Collector has not however recorded any findings with reference to the question of permission as envisaged under Rule 57H.Whereas the learned Collector (Appeals) has picked up only this question with reference to Rule 57H and not touched on other points. I, therefore, consider that the appellants' grievance on this score is justified.
13. Apparently, the appellants had furnished the position of the inputs as lying in stock on 28-2-1986 and received during March 1986 and also made a request for allowing the Modvat credit. Therefore, it was upto the Assistant Collector to make such enquiry as may be necessary and to grant required permission and if no action was taken by him for a long period, the appellants could not have been blamed, and they were indeed entitled to presume, in the absence of any communication disallowing the credit, that they were entitled to avail of the facility. Since the emphasis under Rule 57H appears to be on intimation which may enable the Assistant Collector to. and allow (and by necessary implication to disallow, if so required), the credit claimed. In any eventuality, if the conditions subject to which the Modvat credit was available were otherwise duly fulfilled, the Assistant Collector was expected to allow it for a substantive benefit should not be disallowed for minor procedural infractions, if any.
14. The learned Collector (Appeals) has therefore, erred in rejecting the appeal merely on this score.
15. In so far as items other than the steel scrap is concerned, I find no specific finding has been recorded one way or the other by the Collector (Appeals), who has erred in presuming that the case relates only to the question of Modvat on steel scrap lying in stock on 28-2-1986.
16. So far as the question of items themselves is concerned, in this respect, I find that (again) there are two types of situations which emerge from the submissions before us - (1) in respect of goods said to be purchased from open market and regarding which deemed credit facility is said to have been claimed and (2) goods received on payment of central excise duty from Bharat Heavy Electricals.
17. In respect of the deemed credit issue, it has already been held by the Tribunal in a series of cases that goods purchased from open market are deemed to be duty paid unless proved otherwise. Furthermore, in respect of goods cleared under conditional notification also, the burden of proving that no duty had been paid and the goods were clearly recognizable as non-duty paid rests with the Department.
18. In respect of the goods on which the duty is claimed to have already paid is, the only question appears to be the form or type of document required to satisfy the officers. In this respect, it has already been held by the Tribunal in a number of cases that certificates issued by Public Sector Undertakings could be considered in lieu of GP-1. Therefore, once the appellants had provided the particulars, it was open to the Department to verify the facts, if necessary.
19. As regards the time bar, since the Department has claimed that the assessments were only provisional and the benefit of Modvat credit could only be treated as having been availed of provisionally, the facts were required to be verified with reference to the goods, the period and the documents but no material has been placed before us in this respect. Therefore, only a general observation can be made that if the assessment or the sanction of Modvat was only provisional, then the question of time bar does not arise.
20. Similarly, in respect of the correctness or otherwise of the calculations and the quantum actually involved, is concerned no material has been placed before us for arriving at any conclusion one way or the other.
20A. Since all the relevant aspects have not been considered by the authorities below and the learned Collector (Appeals) has erred in dealing with only one aspect and that too incorrectly, the impugned order is set aside and the matter is remanded back to the Collector (Appeals) for de novo considerations in accordance with law with the direction that it should be ensured that all the relevant aspects of the matter are duly considered and positive findings are recorded with reference thereto before the matter is disposed of. Cross-objection also stands disposed of accordingly.
21. In view of the difference of opinion between Hon'ble Member (Judicial) and the Vice President, the matter is submitted to the Hon'ble President for reference to a third Member on the following point: "Whether in the facts and circumstances of the case, the appeal was required to be accepted as held by the learned Member (Judicial) or the matter was required to be remanded in view of the observations of the Vice President" The point of difference is referred to Shri K.S. Venkataramani, member (Technical).
The point of difference is referred to Shri K.S. Venkataramani, Member (Technical).
22. [Order per : K.S. Venkataramani, Member (T), Third Member on Reference, agreeing with Member (J)]. - Learned Counsel Shri J.S.Agarwal addressed arguments on the point of difference of opinion between the Honourable Member (Judicial) and the Vice President. It was submitted that there is no dispute about the fact that the materials in question are in fact inputs for the final product manufactured by the appellants. It was urged that Para-IV of the Vice-President's order gives a clear finding that the Department had no justification for denying the transitional facility under Rule 57H of the Central Excise Rules in the facts of this case. This finding effectively overrules that of the Collector (Appeals) on this issue in the impugned order.
The learned Counsel further submitted that in the order of the Member (J), the aspect of limitation is covered in their favour and it also gives a finding that MODVAT credit cannot be disallowed by Superintendent of Central Excise but only by an Assistant Collector. In this connection, the learned Counsel also urged that mere endorsement on the RT 12 Returns is not sufficient for demanding duty relying upon the Supreme Court decision in the case reported in 1988 (38) E.L.T. 73.
Para-VIII of the Vice-President's order also holds in their favour that goods purchased from open market are deemed to be duty paid and the learned Counsel also submitted that in respect of input materials purchased after the deemed credit order was withdrawn in August, 1986, the appellants had produced the Gate Passes for the receipt of these inputs. The learned Counsel contended that the order of the Assistant Collector has merged with the appellate order of the Collector (Appeals) and in such a situation, only the Collector's order is enforceable, see 1989 (43) E.L.T. 790 (S.C.) Rathore v. State of Madhya Pradesh. Another submission was that if the Collector (Appeals) in the order has omitted to give specific finding on any issues, these should be deemed to have been decided for which the learned Counsel relied upon AIR 1961 (S.C.) 1643 C.I.T. v. Scindia Steam Navigation Company.
It was, therefore, pleaded that there was no need to remand the matter.
Learned Senior Departmental Representative Shri K.N. Gupta supported the order proposed by Vice-President and urged that the Collector (Appeals) has disposed of the matter by dealing with only one aspect of the case relating to prior permission under Rule 57H. There are other aspects to be gone into and pronounced upon as pointed out by Vice-President. Therefore, it will be proper to remand the case to the Collector (Appeals) for that authority to pass orders afresh covering all the aspects in the light of the observations contained in the orders of the Member (Judicial) and Vice-President.
23. The submissions made by both the parties have been carefully considered. The show cause notice dated 6-2-1987 which is the starting point of the adjudication proceedings herein, sets out two charges, namely, that they had availed of MODVAT Credit on inputs the receipt of which was without documents evidencing payment of duty as well as that they had availed of deemed credit on inputs which were clearly recognisable as non-duty paid; the show cause notice further alleged that the appellants had availed of the transitional facility of taking MODVAT credit lying in stock immediately prior to filing of MODVAT declaration as provided under Rule 57H Central Excise Rules without obtaining prior permission from the competent authority. A perusal of the orders proposed by the Hon'ble Member 0udicial) and Hon'ble Vice-President shows that both of them have found that for the purposes of availing deemed credit under Government of India order dated 7-4-1986 issued under Rule 57G Central Excise Rules the inputs purchased from the market should be considered duty paid, and both of them have further found that goods exempt from duty cannot be held to be non-duty paid or as being charged to Nil rate of duty. The observations of the Tribunal in this context in the case of Arun Auto Spinning & Manufacturing Co. v. Collector of Central Excise & Customs -1990 (48) E.L.T. 543 are as follows : "The words 'charged to nil rate of duty' appear to have a special significance. Section 3 of the Central Excises & Salt Act is the charging section. Thereunder, it is laid down that duty of such excise on all excisable goods shall be levied and collected at the rates set forth in the First Schedule. Hence, levy and collection on excisable goods is to be done at the rates set-forth in the First Schedule. Where duty on any goods is leviable at nil rate as per the Schedule, such goods may be construed to be the goods charged to 'nil' rate of duty. Where goods are charged to rates specified as set out in the Schedule and they are exempted by way of an exemption notification under Rule 8(1) of the Central Excise Rules, they could be construed as goods subject to the rates specified in the First Schedule but are exempted, and they cannot be construed as goods 'charged to nil rate of duty'. Hence, in our view, the words 'charged to nil rate of duty' referred to in the order of the Government of India dated 7-4-1986, have a special connotation and meaning and used in the context of the 'rate' of duty as specified in the First Schedule. This view of ours is also strengthened by the fact that the Government of India in its later order dated 20-5-1988 specifically referred to goods wholly exempted from duty as not eligible for deemed MODVAT credit. This later order of the Government of India itself brings out the distinction between the goods wholly exempted from duty vis-a-vis those goods charged to nil rate of duty." Therefore, the charge against the appellants on this aspect in the face of such findings does not survive and in such a situation, the fact that Collector (Appeals) has omitted to deal with it in her impugned order is not material. So also in respect of the allegation that the appellants had failed to obtain prior permission under Rule 57H, the Hon'ble Vice-President has clearly found that having filed the necessary documents for availing of the facility and after a reasonable lapse of time, therefrom, the appellants were entitled to presume the permission as given provided they fulfil the other requirements under the Rule. From the records, it is seen that the declaration filed by the appellants had been duly received in the Assistant Collector office as per date stamp of that office on the declaration. The letter dated 2-6-1986 from the Superintendent Central Excise to the appellants shows that the Department had made enquiries regarding the conditions other than duty-paying evidence with the query, "Also mention whether you were availing credit facilities under any rule or notification earlier". The appellants had furnished the information asked for by their reply dated 22-7-1986. It is not the Department's case that any such other conditions under the Rule are not satisfied, nor has the Department denied that the materials declared are not inputs for the final product manufactured by the appellants. Therefore, it has to be held, on the facts and in the circumstances of this case, that there has been substantial compliance by the appellants with the provision of that Rule and it will be unreasonable to deny the facility envisaged under that Rule to them. In the view taken as above in respect of the charges against the appellants, it will be more appropriate to conclude that the appellants would be entitled to MODVAT credit on the inputs covered by the deemed credit order of Government of India dated 7-4-1986. In the result, the order proposed by the Hon'ble Member (Judicial) is concurred with.
In view of the majority opinion, Appeal No. E/1692/89-NRB and E/Co/420/89-NRB, the appeal is allowed with consequential relief if any due.