Full Judgment
2. After hearing both the sides, we find the following position, which is not disputed by both the sides. The appellants holding a Central Excise Licence for the manufacture of parts of Transmission Towers, Welding Masts, Poles etc. They are also a Small Scale Unit availing the exemption under Notification No. 175/86. They received input materials from M/s. Jyoti Structures under delivery challans, on the basis of which they took deemed Modvat Credit in respect of the steel materials, as available to them in terms of the Boards' Order dated 7-4-1986. The appellants obviously were doing job work on behalf of M/s. Jyoti Structures Ltd. and the final products turned out on job work basis were returned to M/s. Jyoti Structures after payment of duty at the concessional rate. The final products cleared on payment of duty by the appellants were received by M/s. Jyoti Structures as inputs. M/s. Jyoti Structures are reported to have taken higher notional credit on these items cleared at concessional rate by the applicants in terms of Rule 57B of the Central Excise Rules. The department sought to deny the deemed Modvat Credit to the appellant on the ground that the steel materials received under the delivery challans from M/s. Jyoti Structures are not eligible for Modvat Credit, because they have not been purchased by the appellants and hence deemed credit is not available to them in terms of the Board's Order. However, the appellants pleaded that in terms of the Board's subsequent clarification contained in Trade Notice No. 40(MP)/Iron & Steel (1)/1989, dated 20-4-1989, deemed Modvat Credit can be , availed in respect of all the inputs, whether purchased or otherwise received by the manufacturers, unless such inputs are clearly recognisable as non-duty paid or chargeable to Nil rate of duty. It was therefore, pleaded that even in respect of the materials received under delivery challans from M/s. Jyoti Structures, deemed credit can be taken by the appellants. However, this contention was not accepted by the authorities below. The Collector (Appeals) has observed vat a fraud is being committed in the process, by avoiding procedure Prescribed under Rule 57F(2) in this ingenious manner. Jyoti Structures, who re receiving Various materials ought to have sent these materials under Rule 57F(2) by taking credit, instead they resorted to sending them directly to the appellants and the appellants are being utilised because of their status as Small scale Unit, for payment of duty at the lower concessional rate so that Jyoti Structures could take higher notional credit and get the benefit both ways. The mist of the observation no doubt appeals to us, but here the case before us is the eligibility for deemed Modvat Credit for the appellant who is admittedly a Licenced Small Scale Unit eligible to avail of exemption under Notification No. 75/86 and clear the final products on payment of duty at the rates prescribed under Notification No. 175/86. In such a case, even if the matters discussed by the Collector (Appeals) appeal to us, they seem to be extraneous for considering the case of the appellants with regard to their eligibility for deemed credit. "When the appellant is a licenced manufacturer and has received the input material under delivery challans (otherwise by way of purchase), in terms of the Boards' Circular contained in Trade Notice referred to above, they are eligible for deemed credit. Shri Jain, the Ld. JDR, however, points out that even Jyoti Structures have not received the input materials by way of purchase. They themselves have brought it either from Railways or from TISCO and hence the department is not sure as to whether the persons who have supplied the input materials have availed of actual credit as per GP1 or deemed credit in respect of the same inputs. In view of this plea, we give the department the liberty to verify on this aspect and it is incumbent upon the appellants to produce all the evidences regarding the market purchase of these materials, by suppliers, from whom these materials have originated and also to establish that no Modvat credit has been availed of by any of the persons, through whom the materials have passed. With these observations, we allow the appeal, in view of the fact that deemed Modvat credit can be taken by a Small Scale Manufacturer in aspect of the materials received otherwise than by way of purchase and this is available even in respect of the materials received on job work basis by a manufacturer holding Central Excise licence as per the Board's subsequent order. Moreover, there is no stipulation in Notification 175/86 that a Small Scale Unit paying duty at the concessional rate cannot receive inputs under Modvat scheme, if they are received on transfer basis for job work on behalf of another manufacturer.
3. Before parting, there appears to be a loophole, in the scheme of higher notional credit and M/s. Jyoti Structures appear to have taken advantage of the same. On that ground, the appellant who is an independent manufacturer cannot be denied Modvat Credit without any legal basis, particularly when the Board have clarified that even acquisition of inputs otherwise than by way of purchase by a manufacturer can be extended Modvat Credit.