Customs, Excise and Gold Tribunal - Mumbai
Arun Auto Spinning And Mfg. Co. vs Collector Of C. Ex. And Cus. on 14 December, 1989
Equivalent citations: 1990(25)ECC474, 1990ECR210(TRI.-MUMBAI), 1990(48)ELT543(TRI-MUMBAI)
ORDER R. Jayaraman, Member (T)
1. All the aforesaid appeals arise out of the order of the Collector of Customs (Appeals) considering the identical issue and hence they were heard together and disposed of by this common order.
2. The brief facts for purpose of disposal of these appeals can be stated as below:
The appellants are the manufacturers of spring of iron or steel. For manufacture of this final product, they received inputs viz. steel flats exceeding 5 mm in thickness from outside. They had applied for availment of modvat credit in respect of the inputs and the permission for availment of modvat credit was granted. The Government of India, Ministry of Finance under order F. No. B. 22/5/86-TRU dated 7-4-1986, issued in pursuance of the 2nd proviso to Rule 57G(2) of the Central Excise Rules, allowed deemed credit in respect of inputs purchased from outside and lying in stock on or after 1-3-1986 with the manufacturers of the final product. In their case the deemed credit in respect of the steel flats exceeding 5 mm thickness was taken at the rate of Rs. 365 per M.T. However, the department issued 4 show cause notices dated 2-9-1986; 30-3-1987; 23-7-1987 and 4-12-1987. The objection raised by the department in the aforesaid show cause notices is common viz. that the inputs - steel flats have been entirely purchased from M/s. G.D. Industrial Engineers, Faridabad, who are the manufacturers of the said flats and they have cleared the flats without payment of duty under Notification No. 208/83. It was, therefore, alleged in the show cause notices that the input was clearly recognisable as those cleared at 'Nil' rate of duty or exempted from central excise duty. Hence availment of deemed credit on such flats is irregular in terms of the Government of India's order referred to above. In the adjudication proceedings initiated by the Asstt. Collector, he confirmed the demands issued through the aforesaid 4 show cause notices and passed 4 orders demanding for a total amount of duty of Rs. 58,336.27. The appellants took the matter by way of appeals before the Collector (Appeals), who has rejected the appeals. The present appeals are against the orders of the Collector (Appeals).
3. Shri Sheth, the learned advocate, on behalf of the appellants, contended that as per the Government of India's order, deemed credit is to be denied only if such inputs are clearly recognisable as being non-duty paid or charged to 'nil' rate of duty. He took us through the relevant portion of the prder dated 7-4-1986, which reads as below:
"The inputs specified in column (2) of the Table hereto annexed and falling under the heading Nos. of the Scheudule to the Central Excise Tariff Act 1985 (5 of 1986) specified in the corresponding entry in column (3) of the said Table, purchased from outside and lying in stock on or after 1-3-1986 with the manufacturers manufacturing the final products specified in the Notification No. 177/86-C.E., dated the 1st March, 1986, may be deemed to have paid the specified duty at the rate specified in column (4) of the said Table and a credit of the specified duty in respect of such inputs used in the manufacture of the said final products in which the duty of excise is leviable either in whole or in part, may be allowed at the rate specified in column (4) of the said Table, without production of documents evidencing payment of duty. No such credit shall, however, be allowed -
(i) If in respect of any input, the credit of specified duty paid thereon has already been availed of under any rule or notification granting such credit;
(ii) if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty; or
(iii) if in respect of any inputs where the reduction of duty is provided under the proviso to Notification No. 55/86-C.E., dated the 10th February, 1986 is claimed on the ground that the inputs have been manufactured with the aid of electric furnace and documentary evidence exists to show that the reduced duty has been paid on such inputs. In such cases actual duty paid should be allowed."
4. In their case, it is not disputed by them that the inputs have been purchased from M/s. G.D. Industrial Engineers, Faridabad. But it was pleaded that as per their enquiry with the suppliers, the materials received by them were purchased from the market and they have maintained separate stores stock register for the steel flats purchased from the market and subsequently sold to various parties. In this context, the learned advocate produced a letter received from M/s. G.D. Industrial Engineers dated 21-5-1987. He also produced a photo copy of another letter received from the suppliers bearing the same date clarifying that they are not availing of modvat credit benefit and they are exempted from excise licence procedures under Notification No. 208/83 dated 1-8-1983 and they are not availing of any credit under Rule 56-A in respect of purchases of duty paid ingots for manufacture of steel flats. Shri Sheth argued that even taking that M/s. G.D. Industrial Engineers had supplied the flats out of their own production, it is clear from their letter aforesaid that they are not availing of modvat credit nor availing of any credit under Rule 56-A in respect of purchases of duty paid ingots for manufacture of steel flats. He also pointed out that the Asstt. Collr. in his findings referred to some enquiry done with the Superintendent, Central Excise, Faridabad by the Superintendent, Central Excise, Morvi, which indicated that M/s. G.D. Industrial Engineers, Faridabad purchased the goods from M/s. Bhupendra Steel Private Limited Faridabad, who were availing the facility under Notification No. 208/83-C.E. dated 1-8-1983 and hence the inputs held to be clearly recognisable as non-duty paid. This finding is totally at variance from the allegation of the show cause notices and the nature of enquiry by the Central Excise authorities, Faridabad was not revealed to them. The Collector's order confirming the orders of the Asstt. Collecto'r is not a speaking order. There is no application of , mind. He merely reiterates that the inputs are exempted and hence they are clearly recognisable as non-duty paid or cleared at nil rate of duty and hence modvat credit benefit is not eligible.
5. Shri Sheth further contended that the appeals involve consideration of three questions as below:
(i) Whether the goods exempted from duty under Notification No. 208/83 dated 1-8-1983 can be considered as non-duty paid goods or charged to nil rate of duty for purpose of interpretation of deemed credit order dated 7-41986;
(ii) On whom the onus lies to prove the non-duty paid character of inputs and whether the onus has been discharged;
(iii) In the facts and circumstances of the case whether the order passed in disallowing the deemed credit is legal and proper.
Thereafter he proceeded to elaborate his arguments with regard to the aforesaid 3 questions. He contended that in this case the base material used in the manufacture of flats has borne to duty incidence and this has not been taken as credit either under modvat scheme or under the Rule 56-A by the suppliers. Hence the duty borne on the inputs for the production of flats is stuck up to the flats received by them as inputs. Modvat credit to the extent of duty suffered on the inputs used in the manufacture of flats is eligible to them. The concept of deemed credit has been mis-interpreted by the authorities below because this is not a case where the inputs clearly recognisable as non-duty paid are lying in a factory or in warehouse without payment of duty. They have been legally cleared availing of exemption under Notification No. 208/83. The wording in the deemed credit order does not refer to inputs which are exempted from duty. It only talks of inputs which are clearly recognisable as being non-duty paid or charged to nil rate of duty. In their case, the inputs are exempted and cannot be construed to be inputs charged to Nil rate of duty. Even this exemption is not an unconditional exemption but is a conditional one available to the manufacturer only, if the flats are manufactured out of duty paid materials and that duty element has not been taken credit by way of modvat or Rule 56-A. In this context, he cited the decision of the North Regional Bench of the Tribunal reported in 1988 (37) ELT 323 (Tri.) - Collector of C. Ex., v. Capsons Electro. In this case, it has been clearly held by the Tribunal that since the Notification No. 208/83 is a conditional exemption notification the burden is on the department to establish that the inputs received satisfy the condition of the said notification. He also contended that the Supreme Court has held in the case of Ahura Chemical Products Pvt. Ltd. reported in 1981 ELT 613 (S.C.) that purchases made from another manufacturer is also to be taken as purchases from the open market and in this case merely because it has been purchased from a manufacturer availing exemption, it cannot be construed that it is not purchased from open market. He also cited the decision of the Tribunal reported in 1988 (35) ELT 142 (Tri.) in the case of I.E.L. Ltd. v. Collector of C. Ex., Bombay, wherein the Tribunal has held that even the exempted goods can be deemed to have paid the appropriate duty. This decision of the Tribunal is based on the decision of the Patna High Court in the case of Tata Yodogawa Ltd. and Anr. reported in 1987 (32) ELT 521 (Patna), wherein it has been held that the duty already paid can be taken to mean 'contracted to be paid' or 'ought to have been paid'. He also stated that the Supreme Court in the case of N.B. Sanjana, Asstt. Collector of C. Ex., Bombay and Ors. v. The Elphinstone Spinning & Weaving Mills Co. Ltd. held that in order to attract Rule 10, it is not necessary that some amount of duty should have been assessed and that the said amount should have also been'actually paid. Rule 10 will apply also to cases where there has been a 'nil' assessment.
6. Shri Sheth finally urged that the object of the deemed credit order is to obviate the need for producing the duty paid documents and once it is evident from the invoice that it is obtained from outside it is not necessary for the department to make a roving enquiry to find out the original manufacturer nor can the department ask the assessee to produce the proof with regard to the payment of duty in view of deemed credit order, which is a facility for dispensing with all these procedures. If the view taken by the department is held to be correct, it would virtually deny the modvat credit and defeat the object of the modvat scheme.
7. Heard Shri Arya. He contended that it is not disputed that the goods have been received from the manufacturer who is availing of exemption under Notification No. 208/83. Deemed credit can be taken in respect of purchases from outside, but it is not admissible, if the goods are clearly recognisable as non-duty paid or charged to 'nil' rate of duty. In this case, because the purchases have been from a manufacturer who is admittedly availing of exemption Notification No. 208/83, the inputs are clearly recognisable as non-duty paid. He also contended that the citations made by the learned advocate are not relevant for the present facts of the case where interpretation of deemed credit order dated 7-4-1986 is involved. He also contended that the modvat scheme intends to extend credit only in respect of duty actually paid, as is evident from the duty paid documents. Exception is made in the case of market purchases, where the Government chooses to issue an order in terms of Rule 57G extending the deemed credit. If the deemed credit is to be taken, the conditions prescribed in the order issued by the Government in pursuance of Rule 57G are to be complied with. In this case since the purchase is from a manufacturer, who is exempted under Exemption Notification No. 208/83 and this fact is not disputed, credit cannot be extended.
8. After hearing both sides, we find that the main issue to be decided in these appeals is the question whether the steel flats purchased by the appellants from a manufacturer availing of exemption Notification No. 208/83 would be eligible for the benefit of modvat credit at the rate specified in the Government of India's order F.No. B. 22/5/86-TRU dated 7-4-1986. The following facts are undisputed :-
In the case of appeal No. E/347/89, the credit is alleged to have been availed of during the period from 1-3-1987 to 30-6-1987. In the case of appeal No. E/123/89, the credit is alleged to have been availsd of during the period from 1-12-1986 to 28-2-1987. In the case of appeal No. E/618/89, the credit is alleged to have been taken under invoice dated 8-7-1987 and 28-7-1987. In the case of appeal No. 115/89, the credit is alleged to have been taken during the period from 1-3-1986 to 31-8-1986. Thus in all these cases, interpretation involves the question of eligibility of the deemed modvat credit as per the Government of India's order dated 7-4-1986. (Vide relevant part of the order reproduced at page 2 supra). The salient features of the order relevant for consideration of these appeals can be identified as below:
(i) Inputs are to be specified in that order;
(ii) They should have been purchased from outside;
(iii) Credit is to be given at the specified rate prescribed against each input without production of duty payment document;
(iv) No such credit can be allowed, if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty.
9. In this case, it is not disputed that the input is specified in the order and it has been brought from outside. The point of dispute arises only on account of the fact that the inputs are received from manufacturers, who were availing of exemption under Notification No. 208/83; because of this, it is alleged to have been hit by the bar contained in the aforesaid order, in as much as no deemed credit shall be allowed if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty. The argument of the learned advocate on behalf of the appellants is that the inputs viz. flats, though exempted under Notification No. 208/83 is not unconditionally exempted. It is exempted only if the inputs used for the manufacture of flats are duty paid and no credit of duty paid on inputs has been taken under Rule 56-A or 57A of the Central Excise Rules. In this case, they have produced evidence from the suppliers to show that they are not availing of the credit in respect of inputs used in the manufacture of flats either under Rule 56A or under Rule 57A of the Central Excise Rules. Since the flats are made out of duty paid inputs, they are exempted under Notification No. 208/83. Hence duty paid on input used in the manufacture of flats is entitled to modvat credit since it has been purchased from the market. He also cbntended that according to the decision of the Supreme Court in the case of Ahum Chemical Products, purchase from another manufacturer is also to be construed as purchase from the open market. Since the Government of India's order dated 7-4-1986 does not refer to apply the bar in respect of the exempted product whereas in the subsequent Government of India's order dated 20-5-1988 the bar has been made specifically applicable for inputs exempted from duty, the benefit of deemed credit under Government of India's order dated 7-4-1986 is available to them. Shri Arya on the other hand contended that since the goods received from the suppliers are totally exempted from duty, they should be construed as non-duty paid or charged to nil rate of duty and hence the Government of India's order permitting deemed credit is not available to them.
10. The aforesaid arguments further narrow down the area of interpretation with regard to the following provisions in the order :-
"if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty".
It is not the case of the department that the goods have been removed from Excise or Customs area without payment of duty and hence they are to be construed as non-duty paid. The department states that the goods have been supplied by a manufacturer, who is entitled to avail of the exemption legally extended under Notification No. 208/83. In view of this position, the goods cleared, availing of exemption legitimately available to the manufacturer, cannot be construed to be non-duty paid. They are to be considered as goods having been legally cleared availing of the exemption. Now the question is as to whether they could be construed as goods charged to 'nil' rate of duty. The department's contention is that since the goods are exempted, they are to be construed as goods charged to 'nil' rate of duty. We are unable to appreciate this stand for the following reason:
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 as per 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' rale 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. The relevant portion of the order of the Government of India No. 342/10/88-TRU dated 2-5-1988 is reproduced below:
"No such credit shall, however, be allowed -
(i) ...
(ii) if such inputs are clearly recognisable as being non-duty paid or wholly exempt from duty or charged to nil rate of duty."
11. 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. In view of the fact that the inputs in respect of which deemed credit is sought to be denied during the period 1986-87 in terms of Government of India's order dated 7-4-1986, it has to be construed that the said order does not bar the deemed credit in respect of inputs wholly exempted from duty. It is not proper to construe the provisions made in the subsequent order dated 20-5-1988, that too issued in super-session of the earlier orders as holding the ground during the period 1986-87, when the deemed credit is to be construed only in terms of order dated 7-4-1986. We are also unable to take a view that the subsequent order could be a clarification of the earlier order, since the earlier orders have been superseded. In this view of the matter, we hold that even if the goods have been received from a manufacturer availing of exemption under Notification No. 208/83, deemed credit in terms of the Government of India's order dated 7-4-1986 would be available. This order only contemplates purchases from outside, which can even be from the manufacturer as has been held by the Supreme Court in the case of Ahura Chemical Products cited by the learned advocate. The Supreme Court in that case has clearly held that purchases from another manufacturer can also be regarded as purchases from the open market. In view of this position, unless the Government of India specifically bars the extension of deemed credit in respect of goods wholly exempted from duty as has been done in order dated 20-5-1988 deemed modvat credit at the specified rate prescribed in the relevant order dated 7-4-1986 is required to be extended. We, therefore, allow all the four appeals with consequential relief.