Sahab Singh
Sterlite Optical Technologies Ltd. (hereinafter referred to as - the appellants) are engaged in the manufacture of optic fibers and optic fiber cables falling under Chapter 90 and 85 respectively of the Central Excise Tariff Act, 1985. 2. The brief facts of the case are that the appellants are carrying out the manufacturing activity of optic fiber cables at plot No.E-1 and optic fibers at plot No.E-2 both located at MIDC, Waluj, Aurangabad. Optical fibers manufactured by them are captively used in the manufacture of optical fiber cables. Adjacent to plot No.E-1 and E-2. Plot No.E-3 MIDC, Waluj, Aurangabad was also in the name of the appellants where no activity was carried out by them. The said plot was vacant plot without any construction on it. The appellants had applied to the Board of Approval, Department of Industrial Policy and Promotion, Ministry of Industry, New Delhi for setting up an 100% Export Oriented Unit at plot located at E-3. The appellants, after getting the permission to form an 100% EOU started the operation at 100% EOU located at plot E-3 with effect from 14.3.2001. From 14.3.01 an 100% EOU of the appellants commenced its operation to manufacture optical fibers at plot E-3, MIDC, Waluj, Aurangabad.
3. The unit was visited by the officers of DGCEI, Pune on 23.7.2001. The officers physically verified the Cenvat credit availed on capital goods procured by the appellants with their records i.e. RG 23 Part I and II registers. During the verification, it was observed that certain capital goods were not available in the factory premises of the appellants i.e. at plot E-1 or E-2. During the enquiries, it was revealed that capital goods were removed and installed in the 100% EOU at plot E-3. As the appellants started the operation in 100% EOU with effect from 14.3.2001 at plot E-3, they procured certain capital goods on payment of duty in the name of their DTA unit prior to 14.3.2001 though those goods were actually required for operation of 100% EOU and the appellants have availed the Cenvat credit on those capital goods which were received in the DTA unit till the date of commencement and operation of 100% EOU on 14.3.2001. Subsequently, after 14.3.2001, these capital goods were transferred to 100% EOU without reversing the Cenvat credit availed on the same by the appellants in their DTA Unit.
4. Further, after 14.3.2001, the capital goods procured by the appellants for their 100% EOU were directly received in the 100% EOU and Cenvat credit of the same were also availed by the appellants in their D T A Unit. It was felt by the department that the appellants have availed inadmissible credit in the year 2000-2001, 2001-2002 in respect of the capital goods received by them before 14.3.2001 and after 14.3.2001. The total Cenvat credit accordingly availed by them was to the tune of Rs. 1,53,87,437/-. The appellants have voluntarily paid Central Excise duty amounting to Rs. 89,55,635/- on account of wrong availment of Cenvat credit in respect of the capital goods received after 14.3.2001 and also 50% of the Cenvat credit availed in the financial year 2001-02 in respect of the capital goods which were received in their factory before 14.3.2001 i.e. before formation of 100% EOU. A show-cause notice was issued to them demanding Cenvat credit amounting to Rs. 64, 31,802/- availed by them on the capital goods received before 14.3.2001 and demanding Cenvat credit of Rs. 89,55,635/- availed by them on formation of 100% EOU i.e. after 14.3.2001 and used in the DTA unit and proposing charging of interest and imposition of penalty on the appellants under Sec.11AC and individual penalty on the co-appellants. It was also proposed to appropriate the Central Excise duty of Rs. 89,55,635/- already paid by them against the appellants.
5. The Ld.Advocate, appearing for the appellants submitted that the capital goods on which the Cenvat credit has been disallowed were never removed from their factory and as such there was no occasion either for the payment of duty on such goods or for reversal of Cenvat credit. The liability to duty on the capital goods arises only if they are removed from their factory. In the present case, the capital goods on which the Cenvat credit was disallowed were installed in plot E-3 and after the receipt of the capital goods, the said plot E-3 was accorded the status of 100% EOU. He further contended that the demand of duty of Rs. 64,55,802/- is also unsustainable in view of the Board’s Circular No.77/99 dated 18.11.1999 which clearly stated that if a D.T.A. had availed of Modvat credit on capital goods and it also utilized credit for payment of duty on goods manufactured and cleared by it before conversion into the 100% EOU, Modvat credit so availed and utilized is not required to be demanded. He submitted that the appellants’ case is squarely covered under the Board’s Circular. In the appellants’ case, he submitted that this is an accepted position that capital goods in question were received in plot E-3 and those machines did not move out of the said plot and this is an admitted fact that with effect from 14.3.2001 it was clearly an 100% EOU and Board’s Circular is clearly applicable. He further contended that the demand of duty is also barred by limitation inasmuch as there was no intention on the part of the appellants to evade the duty so as to attract invocation of the proviso to Sec.11A of the Central Excise Act. He also argued that the entire demand of duty is revenue neutral inasmuch as whatever duty was paid on the capital goods would have become available to the appellants’ second unit and the credit can be utilized for payment of duty on the furnished goods cleared to D.T.A.
6. The Ld.Counsel further submitted that the appellants have produced a copy of letter dated 27.2.2001 issued by the Ministry of Commerce and Industry under which their unit has been converted into an 100% EOU. The Commissioner while passing the order though mentioned about the letter but has not given any finding why the letter issued by the Ministry of Commerce and Industry which is also the appropriate authority for giving permission for conversion of D.T.A. unit into 100% EOU is not acceptable. He stated that as a bona fide manufacturer they have voluntarily paid the duty amounting to Rs.89.55 lakhs in respect of the Cemvat credit availed on the capital goods which was not eligible to them. He, therefore, requested that the appeals may kindly be allowed.
7. The Addl.Commissioner (A.R.) on behalf of the Revenue reiterated the findings of the original adjudicating authority and submitted that these are two different units and having different licences and transfer of the capital goods have taken place by way of issue of Debit Notes between the two units. He further submitted that in their application to the Ministry of Commerce and Industry, they have submitted an application for setting up of a new unit at plot E-3. Therefore, it is not correct to say that their existing D.T.A. unit was converted into an 100% EOU. He, therefore, submitted that the appeals filed by the appellants are to be dismissed.
8. After hearing both sides and perusing the case records, we find that the appellants were having a D.T.A. manufacturing unit at Plot E-1 and E-2 and had availed modvat credit on the capital goods installed in the unit located at that site. On the day of search by the Officers of DGCEI no such capital goods were found therein and these capital goods were indeed found in the newly set up 100% E.O.U at plot E-3. On the capital goods which were procured prior to 14.3.2001, credit was taken by the D.T.A. unit and on the capital goods which were received after 14.3.2001 credit was also taken by the D.T.A. unit though the capital goods were received in the name of 100% EOU. The appellants have already paid the Central Excise duty amounting to Rs. 89,55,635/- in respect of those goods on which credit was availed after 14.3.2001. The only dispute is in respect of Cenvat credit of Rs. 64,31,802/-availed on the capital goods prior to 14.3.2001. The appellants relied on the Board’s Circular No.77/99 under which the Board has clarified as under:-
“2. The matter has been examined. It is clarified that if the D.T.A. unit has availed of the Modvat credit on plant, machinery and equipment and also utilized such credit for payment of duty on goods manufactured and cleared before its conversion into EOU/EHTP/STP, the same is not required to be demanded on its conversion into EOU/EHTP/STP. However, if the Modvat credit so availed of its lying in balance as unutilized on the date of conversion into EOU/EHTP/STP, it would lapse on conversion of D.T.A. unit into EOU/EHTP/STP unit and cannot be utilized after such conversion.”
9. The appellants’ submission is that since their D.T.A, unit had been converted into an 100% E.O.U. vide letter dated 27.2.2001 issued by the Ministry of Commerce and Industry, they are eligible for the benefit of Board’s Circular No.77/99 and as such no duty is required to be paid by them. On the other hand, the Revenue contends that their application to the Ministry of Commerce and industry was for setting up a new unit and not for conversion of the existing D.T.A. unit. We find that the Commissioner has given a finding that D.T.A. unit was not converted into an 100% EOU and therefore, the Board’s Circular No.77/99 is not applicable in the present case. He held that the permission was sought for and was given for unit at Plot E-3 where there was no activity of manufacture as a D.T.A. plant and he rejected the contention of the applicants about the conversion of D.T.A. unit into an 100% EOU . On going through the permission given by the Ministry of Commerce and industry vide letter dated 27.2.2001, it is found that the Ministry of Commerce and Industry has referred to the application of the appellants registered under SIA No.EDB/6/2001 dated 31.01.2001 and it states as under:-
“With reference to the above mentioned application, Govt. is pleased to extend to you all the facilities and privileges admissible and subject to the provisions of the Export Oriented Scheme as envisaged in Export Import Policy1997-2002 for conversion of your existing D.T.A. unit into a 100% EOU at E-3, MIDC INDL.Area, Waluj, Aurangabad.”
From this letter of approval, it is noticed that this has been issued in response to the appellants application dated 31.01.2001 and it permits the conversion of D.T.A. unit into an 100% EOU at E-3 MIDC, Waluj, Aurangabad. This letter clearly mentions the conversion of existing D.T.A. unit into an 100% EOU at plot E-3. It is not clear from the case records, whether there was any correspondence between the appellants and the Ministry of Commerce and Industry between the period 31.01.01 and 27.2.2001. It is also not clear whether the Department has taken up the matter with the Ministry of Commerce and industry for clarification and confirmation about the conversion of existing D.T.A. unit into an 100% E.O.U unit. The entire case depends on the fact whether the Ministry of Commerce and Industry has permitted the appellants to convert the existing D.T.A. unit into an 100% E.O.U.unit. In the interest of justice, the case is remanded back to the Commissioner for de novo adjudication after verifying the facts with the Ministry of Commerce and Industry about the conversion of D.T.A. unit into an 100% E.O.U, after affording an opportunity of being heard to the appellants.
10. The appeals are allowed by way of remand.
11. Cross-Objection is also disposed of accordingly.