Full Judgment
2. The facts in brief are that the appellants received 39178 Electron guns between 28-2-1990 to 5-3-1990. Out of which 16378 electron guns were found unfit for use in the factory and these were cleared as such on reversal of Modvat credit vide GP I No. 0016 dated 17-4-1990 and GP I No. 0018 dated 23-4-1990. Out of these 16378 electron guns returned to the supplier, the appellants received 7600 electron guns after reprocessing on gate pass which did not show payment of duty but contained reference to the original duty paid gate pass. The appellants took Modvat credit on the basis of this endorsement. Proceedings were initiated against the appellants for disallowance of this Modvat. The Additional Collector confirmed the demand of Rs. 66,900/- as BED + Rs. 3345/- as SED on such electron guns andimposed penalty of Rs. 15000/- on the ground that no permission had been taken by them for clearance of the inputs under Rule 57-F(2) nor is there any co-relation.
3. Learned advocate for the appellants submitted that proof of corela-rion was submitted to the Additional Collector as all the electron guns were cleared with gate pass under which duty was originally paid. Learned Advocate also drew my attention to the certificates from Supdt., Central Excise, Ghaziabad certifying that the original suppliers have not taken credit of duty against gate pass 0016 dt. 17-4-1990 and that 2000 pieces of electron guns and 7117 pieces of electron guns have been returned to M/s Milliard Tubes Ltd. 4. He also drew my attention to the Chandigarh Collectorate Trade Notice No. 85-CE/89 relating to supply of defective goods to original suppliers.
5. Learned DR reiterated the Department's arguments and submitted that there has to be co-relation.
6. I have given careful consideration to the submissions made by both the sides. Gate passes issued by the original suppliers of electron guns while returning 7000 pieces after repairs clearly indicate reference to original duty payment and their removal under Rule 173H.Similarly, the gate pass issued to the appellants bears distinct remark that the goods were returned to the party after reprocessing and this certificate issued by the Officer In-charge of the original manufacturer of electron guns would clearly establish co-relation.
Electron guns after repair and reconditioning have been supplied to the appellants under Rule 173H without payment of duty. This would not have been possible if there had been no co-relation. The Additional Collector in fact has not examined these aspects and proceeded mainly on the ground that prior permission was necessary under Rule 57F(2).
The learned advocate for the appellants contended that they removed the goods under Rule 57F(1). Since I find that there is enough evidence to co-relate the goods and, since such movements are allowed, I am of the view that denial of Modvat credit mainly on the ground that the permission was not taken is not justified. I therefore set aside the impugned order and allow the appeal.