Remsons Industries Ltd. Vs. Commissioner of C. Ex. - Court Judgment

Excerpt:
1. this appeal arises from the order-in-appeal, dated 5-10-1995, passed by the commissioner confirming the order of additional collector rejecting the grant of modvat credit in respect of few items like flanges, linner, adopter, silicone oil, solder, hipolene and cap-locks.the appellants have filed a modvat declaration on 3-7-1992 under a general description of the tariff item like 'other articles of iron and steel'. however, the entire sub-headings under which the respective items fall has been shown, so also, for example, 'copper and articles thereof wherein large number of sub-headings have been shown but without indicating the articles. likewise, they have mentioned 'nickle and articles thereof and in the sub-heading they have given the various sub-headings under which the articles would fall. this was again followed by another declaration, dated 16-10-1992, wherein they have specifically named all the articles which would fall under the respective sub-headings. this declaration of 16-10-1992 was not accepted by the lower authorities on the ground that the period in question referred to 12-8-1992 to 12-10-1992, as the declaration, dated 3-7-1992 did not make abundantly clear of the various items of the respective sub-headings mentioned therein and hence it has to be presumed that there is no declaration for it and that they are not entitled to the relief of modvat credit. the learned commissioner (appeals) has made following observations :- "the scheme of modvat, by its very nature, is vulnerable to intentional misuse or abuse as well as unintentional but incorrect availment of modvat benefit. in a scheme of this nature, certain prescribed procedures are basic requirements. unless such basic procedures are followed there can not be any accountability nor there can be by proper monitoring. one such requirement is the filing of declaration under rule 57g of the central excises and salt act. rule 57g requires the manufacturers to file a declaration "indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of said final product". it therefore, follows that each input is required to be separately. furthermore, description of these inputs should be in a manner so that the item is capable of being identified or recognised by the nomenclature by which it is known in the industry sector. in absence of a proper, complete and accurate description of the goods, the requirement of declaration having been fulfilled for such goods can not be said to have been met. i, therefore, hold that the order of the additional collector is correct and is maintainable in law. as regards the case law cited by the appellants, the additional collector has adequately dealt with it in her order.2. the learned advocate submits that as can be seen from the order-in-original itself they had relied on 14 judgments in their favour. however, the additional collector has not even taken pains to go through these judgments to distinguish the same for not applying. he has merely stated as follows :- "14. the party has quoted a number of judgments and trade notices etc. in support of their contention that modvat credit in respect of the disputed inputs was available to them on the strength of the modvat declaration filed by them. in respect of the judgments/trade notices quoted by the party as detailed at para 5(a) to 5(c) above, i observe that these cover a situation where the goods supplied by the party are the same as declared in the declaration of a manufacturer but are either described differently or are classified differently in the accompanying gate pass. this is obviously not the case of the party in the present proceedings.3. the learned advocate submits that the above observation does not satisfy the distinguishing nature of the judgment. the additional collector ought to have seen as to how the judgments were not applicable. the non-following of the tribunal's judgments is a serious breach of discipline. the learned advocate submits that again the tribunal in the case of eicher motors ltd. v. collector of customs as reported in 1997 (23) rlt 412 has held in para 9 of the order that merely because there are insufficient details that by itself will not disentitle for the grant of modvat credit. such observations made in para 9 are reproduced herein below :- "9. we have considered the arguments advanced on both sides. on the question of insufficient details of inputs given in the modvat declaration, we are inclined to agree with the submission made on behalf of the appellants. the cases cited by the consultant have clearly held that it is not necessary in all cases that detailed description of every input should have been given in the declaration. it has been held that where a generic description of the inputs is given which are clearly identifiable as coming under a specific chapter heading or sub-heading, the requirement of rule 57g would be satisfied. we have perused the copies of the documents, annexed to the memorandum of appeal showing the various declarations filed by the appellants. it cannot be denied that the declarations have given the correct classification and description of the inputs. this has not been denied by the asstt. collector though he has observed that some of the items like harness oil and front spring could not be covered by 'cargo body and parts'. we, therefore, hold that the disallowance of rs. 1,88,252.04 (1,36,093.01 plus 52,159.03) as modvat credit on the ground that no prior declaration was filed cannot be sustained." 4. the learned dr vehemently argued and defended the order and submitted that the observations made by both the commissioner and the additional commissioner are very pertinent. there is a large scale misuse or abuse of modvat credit and in order to avoid the same there is a substantive direction under rule 57g directing the manufacturers, who intended to use the inputs for the final manufacture to disclose all the details thereof. if they did not do so in terms of the said substantive direction of rule 57g, then they are not entitled for the benefit even if they have given a general description and a specific description of the sub-heading, the mere description of sub-heading does not meet the substantive nature of the law.5. on a careful consideration of the submissions i am of the considered opinion that most of the submissions raised by the learned advocate are required to be upheld, on the ground that the judgments have not been looked into by the lower authorities. when before a quasi-judicial authority, the law of the land comprising of the tribunal, high court and supreme court is quoted it is incumbent on the adjudicating authority at the first instance to look into the precedence. the precedence lay down the manner in which the substantive provisions of law is required to be interpreted. the judgments of the higher forums are precedence which are required to be followed and applied by all lower authorities. the non-following or non-analysing the judgments is a breach of discipline and it is considered by the hon'ble supreme court, as an act of indiscipline as held in the case of union of india v. kamlakshi finance corporation ltd. 6. be it as it may be, in this particular case a declaration, dated 3-7-1992 has been filed. they have given the tariff description like 'other articles of iron and steel'; 'copper and articles thereof; 'nickel and articles'; 'misc. articles of base metals'; 'aluminium and articles thereof etc.'; 'lead ingots and articles thereof; 'zinc ingots and articles thereof. likewise they have given the 14 such descriptions.7. as regards the s. no. 4 of the table of the declaration pertaining to sub-headings. they have given various sub-headings. this declaration had been received by the assistant commissioner. the learned assistant commissioner, on scrutiny of the declaration can call for any further explanation and clarification if necessary in terms of the specific inputs falling in the said sub-headings. the assistant commissioner has, therefore, not complied with the mandatory provisions of the rules, which direct the assistant commissioner to scrutinise the declaration and to pass a considered order in terms of rule 57g. the rule 57g states that every manufacturer intending to take credit of the duty paid on inputs under rule 57a shall file a declaration with the assistant commissioner of central excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products and such other information as the said assistant commissioner may require, and obtain a dated acknowledgement of the said declaration. therefore, on a reading of this rule 57g when the details are not forthcoming the rule itself directs the assistant commissioner to call for other information. in a similar circumstance, the tribunal in the case of collector of central excise v.muzzaffarnagar steels as reported in 1989 (44) e.l.t. 552 while dealing with the rule 173b pertaining to the duties and responsibilities of the assistant commissioner before granting approval of the classification, has observed that the approval of classification, list is an important part of the process of assessment and, therefore, the assistant commissioner is required to be very careful and is expected to apply his mind before according approval. the judgment further states that he is entitled to and indeed required to make such enquiries and call for such information in order to arrive at the correct decision. the tribunal further observed that, 'in other words the act of approval was not merely a passive act of occurrence but involves an active decision making and the assistant commissioner was required to fully satisfy himself about the particulars of the goods being manufactured and the process of manufacture whichever necessary and the relevant facts and then only determine the classification and pass appropriate orders'.the tribunal further held that 'in fact, it was open to the assistant commissioner to make suitable addition, subtraction or modification in the classification list and indicate whatever was deemed proper for him and allow benefit, if any due. once the assistant commissioner has approved the classification, the department has to bear the consequence thereof. this observation made by the tribunal has since been confirmed by the hon'ble supreme court. this observation was made with regard to the approval of classification list under rule 173b is equally applicable with regard to the grant of modvat, in terms of accepting the declaration under rule 57g of the c.e. rules. the function for grant of modvat in terms of declaration is not a mechanical act. the responsibilities of the assistant commissioner is more when he is scrutinising the declaration under rule 57g, as it is incumbent upon him to examine the inputs, as to whether the same is going into the manufacture of final product. it is not for him to merely accept the fact that they are utilised in or in relation to the manufacture of the final product. if the declaration is merely accepted or declaration is rejected without scrutiny, it leads to multiplicity of litigations and the idea is to avoid the same. therefore, when the appellants have clarified the details of the inputs in terms of the sub-heading already furnished, the same ought to have been taken into consideration.however, it is unfortunate that a serious doubt has been cast on the appellants. in this particular case, the department has not made out any case of intended misuse or likelihood of misuse. therefore, an order merely expressing such a fear is liable to be set aside. the tribunal, as can be seen from the cited judgments have held that for mere procedural irregularities the modvat benefit cannot be denied, as can be seen from the observations extracted from eicher motors ltd. the appellants are entitled to the benefit of modvat credit in respect of inputs for which details of sub-headings had been furnished, which tallied with the inputs utilised. merely because the details of which were not furnished, modvat cannot be denied. furthermore, the details had been furnished subsequently and the same had been accepted for subsequent period. there was enough scope for the authorities to have made enquiries on the application dated 3-7-1992, which has not been done and hence for their failure to perform their own function, the appellants cannot be denied the substantive benefit, which is available to them in law. in that view of the matter, the impugned orders are set aside and the appeal is allowed.

Judgment:
1. This appeal arises from the Order-in-Appeal, dated 5-10-1995, passed by the Commissioner confirming the order of Additional Collector rejecting the grant of Modvat credit in respect of few items like flanges, linner, adopter, silicone oil, solder, hipolene and cap-locks.

The appellants have filed a Modvat declaration on 3-7-1992 under a General description of the Tariff Item like 'other articles of iron and steel'. However, the entire sub-headings under which the respective items fall has been shown, so also, for example, 'copper and articles thereof wherein large number of sub-headings have been shown but without indicating the articles. Likewise, they have mentioned 'nickle and articles thereof and in the sub-heading they have given the various sub-headings under which the articles would fall. This was again followed by another declaration, dated 16-10-1992, wherein they have specifically named all the articles which would fall under the respective sub-headings. This declaration of 16-10-1992 was not accepted by the lower authorities on the ground that the period in question referred to 12-8-1992 to 12-10-1992, as the declaration, dated 3-7-1992 did not make abundantly clear of the various items of the respective sub-headings mentioned therein and hence it has to be presumed that there is no declaration for it and that they are not entitled to the relief of Modvat credit. The learned Commissioner (Appeals) has made following observations :- "The scheme of Modvat, by its very nature, is vulnerable to intentional misuse or abuse as well as unintentional but incorrect availment of Modvat benefit. In a scheme of this nature, certain prescribed procedures are basic requirements. Unless such basic procedures are followed there can not be any accountability nor there can be by proper monitoring. One such requirement is the filing of declaration under Rule 57G of the Central Excises and Salt Act. Rule 57G requires the manufacturers to file a declaration "indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of said final product". It therefore, follows that each input is required to be separately. Furthermore, description of these inputs should be in a manner so that the item is capable of being identified or recognised by the nomenclature by which it is known in the industry sector. In absence of a proper, complete and accurate description of the goods, the requirement of declaration having been fulfilled for such goods can not be said to have been met. I, therefore, hold that the order of the Additional Collector is correct and is maintainable in law.

As regards the case law cited by the appellants, the Additional Collector has adequately dealt with it in her order.

2. The learned Advocate submits that as can be seen from the Order-in-Original itself they had relied on 14 judgments in their favour. However, the Additional Collector has not even taken pains to go through these judgments to distinguish the same for not applying. He has merely stated as follows :- "14. The party has quoted a number of judgments and trade notices etc. in support of their contention that Modvat credit in respect of the disputed inputs was available to them on the strength of the Modvat declaration filed by them. In respect of the judgments/Trade notices quoted by the party as detailed at para 5(a) to 5(c) above, I observe that these cover a situation where the goods supplied by the party are the same as declared in the declaration of a manufacturer but are either described differently or are classified differently in the accompanying gate pass. This is obviously not the case of the party in the present proceedings.

3. The learned Advocate submits that the above observation does not satisfy the distinguishing nature of the judgment. The Additional Collector ought to have seen as to how the judgments were not applicable. The non-following of the Tribunal's judgments is a serious breach of discipline. The learned Advocate submits that again the Tribunal in the case of Eicher Motors Ltd. v. Collector of Customs as reported in 1997 (23) RLT 412 has held in para 9 of the order that merely because there are insufficient details that by itself will not disentitle for the grant of Modvat credit. Such observations made in para 9 are reproduced herein below :- "9. We have considered the arguments advanced on both sides. On the question of insufficient details of inputs given in the Modvat declaration, we are inclined to agree with the submission made on behalf of the Appellants. The cases cited by the Consultant have clearly held that it is not necessary in all cases that detailed description of every input should have been given in the declaration. It has been held that where a generic description of the inputs is given which are clearly identifiable as coming under a specific Chapter heading or sub-heading, the requirement of Rule 57G would be satisfied. We have perused the copies of the documents, annexed to the Memorandum of Appeal showing the various declarations filed by the Appellants. It cannot be denied that the declarations have given the correct classification and description of the inputs.

This has not been denied by the Asstt. Collector though he has observed that some of the items like Harness Oil and Front spring could not be covered by 'Cargo Body and Parts'. We, therefore, hold that the disallowance of Rs. 1,88,252.04 (1,36,093.01 plus 52,159.03) as Modvat credit on the ground that no prior declaration was filed cannot be sustained." 4. The learned DR vehemently argued and defended the order and submitted that the observations made by both the Commissioner and the Additional Commissioner are very pertinent. There is a large scale misuse or abuse of Modvat credit and in order to avoid the same there is a substantive direction under Rule 57G directing the manufacturers, who intended to use the inputs for the final manufacture to disclose all the details thereof. If they did not do so in terms of the said substantive direction of Rule 57G, then they are not entitled for the benefit even if they have given a general description and a specific description of the sub-heading, the mere description of sub-heading does not meet the substantive nature of the law.

5. On a careful consideration of the submissions I am of the considered opinion that most of the submissions raised by the learned Advocate are required to be upheld, on the ground that the judgments have not been looked into by the lower authorities. When before a quasi-judicial authority, the law of the land comprising of the Tribunal, High Court and Supreme Court is quoted it is incumbent on the adjudicating authority at the first instance to look into the precedence. The precedence lay down the manner in which the substantive provisions of law is required to be interpreted. The judgments of the Higher Forums are precedence which are required to be followed and applied by all lower authorities. The non-following or non-analysing the judgments is a breach of discipline and it is considered by the Hon'ble Supreme Court, as an act of indiscipline as held in the case of Union of India v. Kamlakshi Finance Corporation Ltd. 6. Be it as it may be, in this particular case a declaration, dated 3-7-1992 has been filed. They have given the Tariff description like 'other articles of iron and steel'; 'copper and articles thereof; 'nickel and articles'; 'Misc. articles of base metals'; 'aluminium and articles thereof etc.'; 'lead ingots and articles thereof; 'zinc ingots and articles thereof. Likewise they have given the 14 such descriptions.

7. As regards the S. No. 4 of the table of the declaration pertaining to sub-headings. They have given various sub-headings. This declaration had been received by the Assistant Commissioner. The learned Assistant Commissioner, on scrutiny of the declaration can call for any further explanation and clarification if necessary in terms of the specific inputs falling in the said sub-headings. The Assistant Commissioner has, therefore, not complied with the mandatory provisions of the rules, which direct the Assistant Commissioner to scrutinise the declaration and to pass a considered order in terms of Rule 57G. The Rule 57G states that every manufacturer intending to take credit of the duty paid on inputs under Rule 57A shall file a declaration with the Assistant Commissioner of Central Excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products and such other information as the said Assistant Commissioner may require, and obtain a dated acknowledgement of the said declaration. Therefore, on a reading of this Rule 57G when the details are not forthcoming the rule itself directs the Assistant Commissioner to call for other information. In a similar circumstance, the Tribunal in the case of Collector of Central Excise v.Muzzaffarnagar Steels as reported in 1989 (44) E.L.T. 552 while dealing with the Rule 173B pertaining to the duties and responsibilities of the Assistant Commissioner before granting approval of the classification, has observed that the approval of classification, list is an important part of the process of assessment and, therefore, the Assistant Commissioner is required to be very careful and is expected to apply his mind before according approval. The judgment further states that he is entitled to and indeed required to make such enquiries and call for such information in order to arrive at the correct decision. The Tribunal further observed that, 'in other words the act of approval was not merely a passive act of occurrence but involves an active decision making and the Assistant Commissioner was required to fully satisfy himself about the particulars of the goods being manufactured and the process of manufacture whichever necessary and the relevant facts and then only determine the classification and pass appropriate orders'.

The Tribunal further held that 'in fact, it was open to the Assistant Commissioner to make suitable addition, subtraction or modification in the classification list and indicate whatever was deemed proper for him and allow benefit, if any due. Once the Assistant Commissioner has approved the classification, the department has to bear the consequence thereof. This observation made by the Tribunal has since been confirmed by the Hon'ble Supreme Court. This observation was made with regard to the approval of classification list under Rule 173B is equally applicable with regard to the grant of Modvat, in terms of accepting the declaration under Rule 57G of the C.E. Rules. The function for grant of Modvat in terms of declaration is not a mechanical act. The responsibilities of the Assistant Commissioner is more when he is scrutinising the declaration under Rule 57G, as it is incumbent upon him to examine the inputs, as to whether the same is going into the manufacture of final product. It is not for him to merely accept the fact that they are utilised in or in relation to the manufacture of the final product. If the declaration is merely accepted or declaration is rejected without scrutiny, it leads to multiplicity of litigations and the idea is to avoid the same. Therefore, when the appellants have clarified the details of the inputs in terms of the sub-heading already furnished, the same ought to have been taken into consideration.

However, it is unfortunate that a serious doubt has been cast on the appellants. In this particular case, the department has not made out any case of intended misuse or likelihood of misuse. Therefore, an order merely expressing such a fear is liable to be set aside. The Tribunal, as can be seen from the cited judgments have held that for mere procedural irregularities the Modvat benefit cannot be denied, as can be seen from the observations extracted from Eicher Motors Ltd. The appellants are entitled to the benefit of Modvat credit in respect of inputs for which details of sub-headings had been furnished, which tallied with the inputs utilised. Merely because the details of which were not furnished, Modvat cannot be denied. Furthermore, the details had been furnished subsequently and the same had been accepted for subsequent period. There was enough scope for the authorities to have made enquiries on the application dated 3-7-1992, which has not been done and hence for their failure to perform their own function, the appellants cannot be denied the substantive benefit, which is available to them in law. In that view of the matter, the impugned orders are set aside and the appeal is allowed.