Customs, Excise and Gold Tribunal - Tamil Nadu
Rapsri Engineering Industries Pvt. ... vs Collector Of C. Ex. on 13 March, 1989
Equivalent citations: 1989(22)ECC236, 1989(24)ECR488(TRI.-CHENNAI), 1989(43)ELT577(TRI-CHENNAI)
ORDER K.S. Venkataramani, Member (T)
1. This appeal is directed against the order dated 30-6-1987 passed by the Collector of Central Excise (Appeals), Madras, by which he had upheld the order dated 20-2-1987 passed by the Assistant Collector of Central Excise, Lal Bagh Division, Bangalore, denying the appellants deemed MODVAT credit on Copper Waste and Scrap of Aluminium and unwrought Copper which they had availed in terms of the direction of the Government of India dated 7-4-1986 issued under Rule 57G(2) of the Central Excise Rules, 1944. The amount of MODVAT credit which the appellants were asked to reverse on this ground was Rs. 1,62,321.52.
2. The appellants are engaged in the manufacture of machined and unmachined Copper-base Alloy castings and components falling under various sub-headings of the Central Excise Tariff Act, 1985. They used unwrought copper and waste and scrap of Copper and Scrap of Aluminium as inputs in the manufacture of the final products mentioned above. They opted for MODVAT with effect from 11-6-1986 after filing the requisite declaration under Rule 57G on 5-6-1986. In terms of Government of India, Ministry of Finance order dated 7-4-1986 issued under Rule 57G(2) of the Central Excise Rules, the appellants had taken deemed credit of duty on unwrought Copper and Waste and Scrap of Copper and Aluminium during the period from 11-6-1986 to 10-11-1986. However, the Department issued a Show Cause Notice on 22-8-1986 on the ground that deemed credit of duty in respect of Waste and Scrap of Copper falling under subheading 7402.00 cleared at 'Nil' rate of duty under Notification No. 172/84, dated 1-8-1984 and Aluminium Scrap falling under sub-heading No. 7602.00 cleared at 'Nil' rate of duty under Notification No. 182/84 dated 1-8-1984 is not permissible and that credit taken will have to be reversed. This is because the Government of India Order dated 7-4-1986 regarding deemed credit says that no such deemed credit can be taken where the inputs are clearly identifiable as non-duty paid and in this case the Department held that these inputs being exempt are so identifiable. The Assistant Collector on consideration of the appellants' reply to the charges ordere'd the reversal of the credit which was confirmed in appeal by the Collector (Appeals).
3. Shri G. Sampath, the learned Counsel for the appellants contended that denial of deemed credit by the Department was unjust. He referred to the Notification No. 172/84 in respect of Waste and Scrap of Copper and Notification No. 182/84 in respect of Wasteland Scrap of Aluminium as also Notification No. 149/86 in respect of unwrought Copper and pointed out that in these Notifications themselves there is an Explanation that for the purposes of the Notification all stocks of copper and products thereof and aluminium and products thereof shall be deemed to be duty paid. Therefore, it cannot be held, as has been done by the Department, that because of these exemption Notifications, the inputs utilised by the appellants are non-duty paid and therefore, ineligible for deemed credit. The learned Counsel pointed out that it is for the Department to show that as to how the goods are identifiable as non-duty paid because the appellants had purchased these materials from the open market. He also relied upon the decision of the North Regional Bench of the CEGAT in the case of Collector of Central Excise v. Kapsons Electro Stampings reported in 1988 (37) E.L.T. 323 (Tribunal) wherein under similar circumstances the Tribunal had held that it is for the Department to produce sufficient evidence that the inputs are clearly recognisable as non-duty paid. Similarly in a decision the Collector of Central Excise (Appeals), Delhi, in the case of NarankarAuto Engg. Works in Order-in-Appeal No. 441 dated 22-8-1988 had also held that merely relying on exemption Notification which exempts the inputs under the deemed credit scheme from the whole of duty cannot be the basis for treating the inputs as clearly recognisable as non-duty paid. Further, the learned Counsel pointed out that the same Assistant Collector had allowed deemed credit in their case on these materials vide his order dated 3-2-1988.
4. Shri K.K. Bhatia, the learned S.D.R. appearing for the Department, argued that on a perusal of the three exemption Notifications referred to above for the materials in question, it is seen that Waste and Scrap is totally exempted and for the purposes of the exemption the Notification itself has an Explanation that all stocks in the country should be deemed as duty paid. This is because the exemption is designed on the condition that the scrap is manufactured out of a duty paid material. When such scrap is used as the input which has enjoyed such exemption, the learned S.D.R. urged that it can then be said that the material was clearly non-duty paid.
5. We have given careful consideration to the submissions made by the learned Counsel and the learned S.D.R. The essential condition for taking credit of input duty under the MODVAT scheme is that the receipt of the inputs into the manufacturer's factory must be accompanied by documents evidencing payment of duty on the inputs. But under Rule 57G(2) the Government have the power in certain special circumstances to issue a direction to consider certain inputs as deemed to be duty paid unless inter alia they are shown to be clearly recognisable as non-duty paid and on such materials MODVAT credit can be taken without production of documents evidencing payment of duty. The order dated 5-7-1986 of the Government specifies unwrought copper and waste and scrap of copper as well as waste and scrap of Aluminium among other materials as eligible for such deemed credit. The Department in this case has found that these materials viz. Waste of Copper and Waste and Scrap of Aluminium and unwrought Copper are all totally exempt from duty by virtue of Notifications No. 172/84,182/84 and 149/86 and that, therefore, they are recognisable as non-duty paid and consequently no deemed credit can be availed by the manufacturer on these materials. The appellants have contended that when once the materials are covered by the direction of the Government under Rule 57G(2), they are entitled to take deemed credit and it is for the Department to show that these materials are clearly recognisable as non-duty paid. Examining this contention, we find that the Notification No. 172/84, relating to Waste of Copper and Notification No. 182/84 relating to Waste of Aluminium provide for exemption for these materials if they are made out of duty paid copper and products thereof with Explanation to the Notification laying down that for the purposes of these Notifications all stocks of copper and products thereof and all stocks of Aluminium and products thereof shall be deemed to be duty paid. Therefore, it can be said that it is an unconditional exemption for scrap of copper and scrap of Aluminium in these two Notifications with a suitable deeming provision. However, the same cannot be said of Notification No. 149/86 relating to unwrought copper because in this Notification, there are certain conditions for availing of exemption relating to unwrought copper whether proforma credit or MODVAT credit have been availed or not, and also laying down that it shall not apply to copper and articles thereof produced or manufactured by a primary producer. Therefore, in respect of waste of copper and waste of Aluminium, the exemption is total and unconditional, and in such a circumstance, the Department will be within its right to hold that these are clearly recognisable as non-duty paid and deny deemed credit thereon. On the other hand, the exemption on unwrought copper is conditional, and the Department cannot deny deemed credit unless it is able to establish by enquiries that the particular material comes from the non-duty paid stream. In fact the Single Member decision of the North Regional Bench cited by the learned Counsel is on similar lines when the Tribunal considered the Notification No. 208/83 which is a conditional Notification in respect of M.S. Sheets, as extracted below:
"This Notification obviously cannot help the department because the notification gives full exemption only if the conditions spelt therein are satisfied. As already mentioned, department has not produced evidence to the effect as well that the conditions of the Notification No. 208/83 have been satisfied in respect of the M.S. sheets purchased by the manufacturers from the open market proving thereby that such M.S. sheets are either clearly non-duty paid or charged to nil rate of duty."
We find that the same principle has been applied by the Collector (Appeals), New Delhi, in the order relied upon in respect of the same Notification No. 208/83. The Assistant Collector's order referred to and relied upon is earlier to the present order and does not contain any discussion on the lines stated above relating to the consideration of a conditional exemption Notification and the grant of deemed credit. In the result, we hold that the deemed credit on scrap of Copper and Scrap of Aluminium has rightly been denied as they are totally exempt unconditionally under Notification No. 172/84 and Notification No. 182/84, and as such can be rightly held to be clearly recognisable as non-duty paid or charged to nil rate of duty. As regards the deemed credit of unwroght copper, the appellants herein are clearly entitled to deemed credit as the exemption Notification No. 149/86 is a conditional one and the Department has not shown as to whether the conditions for the full exemption had been satisfied in respect of this material. The appeal is, therefore, disposed of in the above terms.