Custom, Excise & Service Tax Tribunal
M/S Jindal Vijaynagar Steel Ltd vs Commissioner Of Central Excise on 21 October, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: E/229/2003 [Arising out of Order-in-Original No. 17/2002 Commr. Dated 16.12.2002, passed by the Commissioner of Central Excise, Belgaum] M/s Jindal Vijaynagar Steel Ltd., (Presently JSW Steel Ltd.) Torangallu -583 275. Appellant(s) Versus Commissioner of Central Excise Belgaum. Respondent
Appearance:
Ms. Sandhya, Advocate For the Appellant(s) Mr. J. Harish, A.R. For the Respondent(s) Date of Hearing: 03/10/2016 Date of Decision: CORAM :
HON'BLE SHRI S. S. GARG, JUDICIAL MEMBER HONBLE SHRI ASHOK K. ARYA, TECHNICAL MEMEBR Final Order No. /2016 PER ASHOK K. ARYA
1. The appellants, M/s Jindal Vijayanagar Steel Ltd. (presently JSW Steel Ltd.) are in appeal against the Order-in-Original No. 17/2002 (Commr.) dated 16.12.2002 passed by the Commissioner of Central Excise, Belgaum, where-under in the respective demand of Modvat/Cenvat credit has been confirmed along with interest and imposition of penalties. The matter mainly pertains to denial of Cenvat credit to the appellant on the ground that the subject goods were damaged in transit, storage, erection, fire, lost, stolen etc. before their use or were short received / not received by the appellants.
2. The appellants have been represented by the learned Advocate, Shri M.S. Nagaraja and the Revenue has been represented by the learned A.R., Shri J. Harish.
3. Based on the Appeal Memorandum and written submissions, the learned advocate for the appellants inter alia submits as under :
(i) The Department issued Show-Cause Notice C. No. V/72/15/71/2001 Adjn. dated 19.12.2001 (SCN No. 297/2001-BLY). The show-cause notice alleges that M/S Jindal Vijayanagar Steel Ltd., during the period from 1/97 to 11/2000 contravened the provisions of Rules 57A, 57Q & 57AB of the Central Excise Rules, 1944 as they irregularly availed Modvat/Cenvat Credit to the extent of Rs. 50,04,479/- on the goods not used in their factory as required under the said rules inasmuch as the said goods were damaged in transit, storage, erection, fire or lost, stolen before their use. The Show-Cause Notice accordingly proposed to disallow the credit of Rs. 50,04,479/- under Rule 57AH(1) of the Central Excise Rules, 1944 read with proviso to Section 11A (1) of the Central Excise Act, 1944.
(ii) The Commissioner vide Order-in-Original No. 17/2002 (Commr.) dated 16.12.2002 dropped the proceedings for recovery of Cenvat Credit of Rs. 3,47,936/- in respect of the goods damaged, but confirmed demand of CENVAT credit of Rs. 46,53,143/- taken during the period from 1/1997 to 11/2000 and appropriated an amount of Rs. 38,12,634/- deposited during the investigations.
(iii) The Commissioner demanded interest and imposed a penalty of Rs. 8,43,509 under Section 11AC of the Central Excise Act, 1944 read with Rule 57AH(2) of the Central Excise Rules, 1944 and a further penalty of Rs.50,000/- under Rule 173Q of the Central Excise Rules, 1944.
(iv) The appellants challenged the above order in the Appeal No. E/229/2003 before the CESTAT, Bangalore. The Tribunal vide Final Order No 2058/2005 dated 02.12.2005 set aside the impugned order and allowed the appeal with consequential relief.
(v) The Revenue challenged the above order in Appeal CEA No. 81/2006 before the Honble High Court of Karnataka. The Honble High Court observed that the Tribunal was required to examine whether the Respondent used the inputs for the manufacture of final products and duty has been paid to the Revenue. The High Court has directed the Tribunal to reconsider the matter afresh.
(vi) There is an excess amount of Rs. 8,619/- in computation of credit. After correcting the excess amount of Rs. 8,619/- demanded in Show-Cause Notice, the actual disallowance of Modvat Credit is given below :
(Amount in Rs.) Sl No. Computation of Modvat credit Goods damaged/deteriorated during Total Transit Erection Storage Misc 1 Annexure IA to Show Cause Notice (Computation From SI. No.62 onwards) 13,57,958 3,47,986 18,02,964 6,07,809 41,16,717 2 Annexure II 1,05,979
- - 7,72,764 8,78,743 TOTAL 49,95,460
(vii) The Commissioner allowed Modvat Credit of Rs. 3,47,936/- on goods damaged during the process of erection as recorded in paragraph 40 of the impugned order.
(viii) The appellants reversed Modvat Credit of Rs. 7,54,753/- on 8.2.2001 and 12.3.2001 during investigation prior to issue of Show-cause notice dated 19.12.2001. The payment of this amount during investigation was relatable to the amount demanded in the show-cause notice and could not have been treated as outside the SCN. Therefore, the deposit of an amount of Rs. 7,54,753/- is also subject to adjudication in respect of show-cause notice issued on 19.12.2001. The fact that the said credit was on goods listed in Sl. No 1 to 60 of Annexure 1A and the demand would have been beyond even the extended period of 5 years would not entitle the Revenue not to treat the deposit of Rs. 7,54,753/- made during investigation as not covered by the SCN issued on 19.12.2001.
(ix) The receipt of the capital goods in the factory during the relevant period was not in doubt or dispute because the assessee could take Modvat Credit on Capital Goods received in the factory only after filing of Declaration in terms of Rule 57 T(1) of the Central Excise Rules, 1994 which reads as under :
Rule 57 T Procedure to be observed by the manufacturer (1) Every manufacturer intending to take credit of the duty paid on the capital goods under Rule 57Q shall, before receipt of the capital goods, file a declaration with the Assistant Commissioner of Central Excise having jurisdiction over his factory, indicating therein the particulars of the capital goods, description of the final products manufactured in his factory and such further rinformation as the Assistant Commissioner may require, and shall obtain a dated acknowledgement of the said declaration.
(x) There is therefore, no dispute about the receipt of the capital goods in the factory and their duty paid nature and their intended use in the factory.
3.1. The learned advocate further submits as follows :
(i) The appellants submit that the disallowance and demand of Modvat credit on capital goods and/or inputs is on the ground that they were damaged in transit, or during erection/use at site, or in storage or in fire etc. The appellants have claimed insurance for the value of the goods or cost of repairs of the goods received in damaged condition. The goods were available in the factory during the relevant period and the Modvat Credit availed would have been paid / reversed when the credit availed goods were cleared as such or as scrap.
(ii) The show-cause notice has not alleged that the capital goods on which CENVAT credit was taken and not used in the factory were removed as such or as scrap without payment/reversal of Modvat credit in contravention of Rule 57 S (1) to (3) of the Central Excise Rules, 1944.
(iii) The show-cause notice has not alleged that the inputs onn which Modvat credit was taken and not used in the factory were removed without payment/reversal of Modvat credit in contravention of Rule 57F (2) & (3) of the Central Excsie Rules, 1944.
(iv) The disallowance and demand of Modvat Credit on capital goods and inputs on which credit was taken on the grounds that they were not used in the factory is not substantiated by any evidence that the said goods were removed in contravention of Rule 57 F(2) & (3) and Rule 57 S(1) of the CER, 1944.
(v) The appellants submit that there is no time limit for use of capital goods or inputs. The appellants submit that the capital goods and inputs on which credit was taken and not used in the factory would have been cleared as such on payment/reversal of Modvat Credit in accordance with law.
(vi) Since the capital goods and inputs have not been removed as such in contravention of Rule 57F (2) & (3) and Rule 57 S of the Central Excise Rules, 1944 there is no liability to pay Modvat.
(vii) There is also no liability when inputs or capital goods are damaged, but are repaired and used subsequently. The Commissioner has also accepted that damage to goods during the process of erection of goods in the factory amounts to use of the goods and the credit cannot be denied.
3.2. The learned advocate additionally submits as follows :
(i) In case of short receipt of the goods than the quantity shown in the invoices, there is no variation in the duty paid by the manufacturer-supplier in terms of Rule 57E. The Appellants are eligible to take Modvat Credit of the duty paid by the supplier manufacturer and not the amount of duty payable so long as there is no variation in the amount of duty already paid by the supplier manufacturer. It is not the case of the Department that in case of short receipt of goods, the excess duty paid by the supplier was refunded and therefore, Modvat credit is not admissible to the receiver of the goods.
(ii) It is settled law in the following cases that the Modvat credit cannot be denied proportionate to the quantity of goods short received so long as there is no variation in the duty paid by the supplier of inputs/capital goods :
CCE, Surat Vs Savla Chemicals Ltd Vs CCE [2014 (299) ELT 65 (T)] Hindustan Orgnic Chemicals Ltd Vs CCE, Belapur [2005 (191) ELT 959 (T)] Hipolin Ltd Vs CCE2012 (26) STR 191 (T)
(iii) In support, the learned advocate relies on the following case laws :
Bakelite Hylam Ltd Vs CCE 2005 (192) ELT 609 (T) Philips Electronics India Ltd Vs CCE, Pune 2011 (274) ELT 311 (T Mum) Audco India Ltd Vs CCE, Chennai 2005 (184) ELT 77 (T) Amara Raja Batteries Ltd Vs CCE, Tirupati 2016-TIOL-1032-CESTAT-Hyd.
CCE, Ahmadabad Vs Ingersoll Rand (India) Ltd 2009 (235) ELT 142 (T) CCE, Chennai-III Vs. Indchem Electronics [2003 (151) ELT 393 (CEGAT-Che)] [Approved by Hon Supreme Court - 2003 (157) ELT A206 (SC)] CCE, Indore Vs. Kinetic Motors Co. Ltd. [2005 (183) ELT 300 (T-Del)] Bombay Dyeing & Manufacturing Co Ltd Vs CCE [2008 (223) ELT 514 (T)] CCE Vs Hindalco Industries [2011 (272) ELT 161 (Bom)] Zeneca ICI Agro Chemicals Ltd Vs CCE, Chennai [2009 (238) ELT 770 (T-Bang)] 3.3. The learned advocate, in addition, further submits as under :
(i) Refund of Rs. 7,54,753/- deposited during investigation :
(a) The appellants further submit that they had deposited an amount of Rs.7,54,753/- in Modvat on 8.2.2001 and 12.3.2001 at the insistence of the officers from the Department during investigation. The show-cause notice has been issued on 22.12.2001. The Commissioner has recorded in Para 34 of the Impugned order that the assessee has deposited Rs.7,54,753/-. The demand in the show-cause notice is for an amount of Rs.50,04,079/- even though the amount of duty paid as per Annexure 1A and Annexure II was for Rs.57,58,832/-. The Computation of duty of Rs.7,54,753/- listed from Sl. No. 1 to 61 of Annexure 1A of the show cause notice was neither demanded nor confirmed nor the amount deposited been appropriated in the impugned order. The amount of Rs. 7,54,753/-deposited during investigation continues to be retained by the Department as a deposit.
(b) The Respondent be directed to return the deposit of Rs.7,54,753/- since the same has neither been demanded nor appropriated in the impugned order. The refund be permitted in CENVAT Account.
(ii) Limitation :
(a) The show-cause notice issued on 22.12.2001 proposed disallow and demand Modvat Credit on capital goods and inputs taken during the period from 1/1997 to 11/2000.
(b) The Commissioner has not recorded any finding justifying invocation of the larger period of limitation.
(c) The burden of proof that the assessee had indulged in willful mis-statement or suppression of facts or contravened the Central Excise Act, 1944 or the Rules made there under with intention to evade payment of duty is on the Department. In the absence of any finding by the Commissioner the entire demand of Modvat as confirmed is barred by limitation.
(d) The issue involves interpretation of the Central Excise Rules, 1944 with respect to not only eligibility for credit, but also reversal of the credit on grounds taken in the SCN. The fact that the Appellants have succeeded before the Hon Tribunal earlier shows the bonafide nature of dispute. There is therefore, no justification for invoking the larger period of limitation. The entire demand of Modvat is based by limitation.
(e) The appellants have admittedly submitted Declarations under Rule 57 G and Rule 57 T before taking the Modvat Credit on inputs and capital goods and submitted monthly RT 12 Returns showing the credit taken. There was no suppression of facts with regard to taking credit. It was open to the authorities to verify the nature of goods based on the declarations filed. There was therefore no willful mis-statement or suppression o facts and contravention of the Central Excise Rules, 1944 with intention to evade payment of duty
4. The Revenue is represented by the learned A.R., Shri j. Harish, who reiterates the findings given by the Commissioner in the impugned order. The learned A.R. inter alia submits the following :
(i) Unless the goods are used in manufacturing by the appellants, Cenvat credit cannot be allowed.
(ii) The damaged goods are not usable goods and after damage there cannot be any question of their use. Therefore, the appellants are not entitled to the Cenvat credit on the subject goods.
(iii) The appellants have not provided the records of the dates etc., when they took the Cenvat credit. When the relevant records have not been made available to the Department, it indicates that there is willful suppression on the part of the appellants and demand for the period beyond one year needs to be confirmed.
4.1. The learned A.R. relies on the following case laws in support of his submissions :
Bhor Industries Ltd. vs. Union of India [2014 (299) E.L.T. 281 (Bom.)] Hindustan Zinc Ltd. Vs. Commissioner of Central Excise, Jaipur [2003 (162) E.L.T. 243 (Tri.-Del.)] Commissioner of C. Ex., Jaipur Vs. Rajasthan Spinning & Weaving Mills [2001 (128) ELT 239 (Tri.-Del.)] Commissioner of Central Excise, Jaipur-II vs. H.E.G. Ltd. [2001 (127) E.L.T. 121 (Tri.-Del.)]
5. We have carefully considered the facts of the case, the submissions of both the sides and the case laws cited.
6. The Revenues case is based mainly on the ground that the appellant availed Modvat/Cenvat credit under Rules 57A, 57Q of Central Excise Rules, 1944 and under Rule 57AB of the Central Excise Rules, 2000 (second amendment) where the goods had been damaged in transit, storage, erection , fire or lost, stolen before their use. The Revenue alleges that on many of the goods, the appellants claimed insurance; that the subject goods were not used in the factory at all, in the manufacture of final products.
6.1. The appellants have referred to the relevant Rules under which Modvat / Cenvat credit was claimed. The appellants refer to the rules which are part of the then Central Excise Rules, 1944. They especially refer to some of the clauses of the Rules 57D, 57E, 57F, 57G, 57S, 57T of the Central Excise Rules, 1944.
6.1.1. The Department further alleges that the subject goods were damaged or lost or stolen before their actual use.
6.1.2. The period involved mentioned in the show-cause notice dated 19.12.2001 is from 01/97 to 11/2000.
6.1.3. The main defence of the appellants is that the goods were in the factory only; in case of damaged goods, the same are available in the factory and whenever they would be cleared, it would be either as non-usable items or as waste/scrap and the applicable duty will be paid on the same; therefore, as long as the items remained in the factory even when they have been destroyed by fire or in any other manner, the Cenvat credit cannot be disallowed.
6.1.4. The appellants also offer the defence that in case of damaged goods, they may be repaired subsequently. Hence, Cenvat credit cannot be denied.
6.1.5. In case of the goods lost in transit, received less and when they have not entered into their premises, the appellants argument is that the duty had already been paid by the supplier manufacturer and the goods were lost in transit without there being any fault on the appellants part. The appellants say that when there is no refund paid for the duty incurred on the said non-received goods and right duty was paid to the Exchequer by the supplier manufacturer, the Modvat/Cenvat credit cannot be denied to the appellants.
6.2. The demand here is in case of two categories of inputs: one category is - the inputs received in the factory and later they were damaged/lost because of exigencies like mishandling, storage, erection, fire, stolen etc. after their receipt in the factory. The second category is - the goods where they were lost before they could reach the factory premises of the appellants.
6.2.1. The basic premise of the Modvat scheme is that the inputs which have suffered the taxes, when they are used for further manufacturing, the taxes/duties suffered on the said inputs are to be set off / or the credit for the same has to be given wherever the duties / taxes are levied on the final product so that there is no cascading effect i.e. there is no further tax on the tax paid earlier.
6.2.2. The Revenues contention is that when the goods are not used or the subject goods were damaged or are not in the condition to be used or are not available in use for final manufacturing, Modvat/Cenvat credit cannot be allowed in case of such inputs. The appellants say that in case of the goods received but later damaged or destroyed because of certain reasons, it is not their fault as that damage to such goods is in normal course of manufacturing operations. The appellants submit that the relevant rules do not bar them from taking Cenvat credit in such cases, when they have followed all the procedures before taking Modvat/Cenvat credit; therefore the Department is not right in denying the Cenvat credit in cases where inputs were damaged on account of certain exigencies during storage, erection, fire, etc. 6.2.3. The appellants have strongly argued that even in case of damaged goods, whenever they are removed from factory as waste, scrap, the duty of Central Excise is leviable and paid accordingly. The appellants also plead that they are a huge steel manufacturing factory, where annual revenue payment to the National Exchequer is over Rs. 800 crores and such damage to the inputs is in the category of normal process and is of negligible amount. The appellants refer to a series of case laws based on which they argue that Modvat/Cenvat credit cannot be disallowed to them. They further plead that it is not the case of the Revenue that the goods were diverted by the appellants.
7. In case of the first category, where Cenvat credit has been disallowed for the inputs, which were damaged during storage, erection, fire etc., we find that there are number of case laws supporting the stand of the appellant. In this category of the goods, we find that there is no dispute that the goods (inputs) entered the factory of production of the appellants. The case laws hold that even when the goods were unfit for use, which is also the fact for certain goods in case of the present appellant, higher judicial fora have given the rulings in favour of the appellant. For instance, in the case of C.C.E. vs. Hindalco Industries Ltd. [2011 (272) ELT 161 (Bom.)], the Honble Bombay High Court dismissed the appeal of the Revenue, thus supporting the stand of the present appellant. Similarly, The Tribunals Bangalore Bench decision in the case of Bakelite Hylam Ltd. Vs. CCE, Hyderabad [2005 (192) E.L.T. 609 (Tri.-Bang.)] supports the stand of the present appellant. The Tribunal in this decision, in paragraph five held as under :
5. We have gone through the rival contentions. In this case, the impugned goods were imported. The jurisdictional authorities had already given end-use certificate based on the Stores Receipt Advise maintained by the appellants. This indicates that the Department was well aware of the procedure followed by the appellants. The appellant received all the goods including those damaged during transit. The goods were issued to the production department irrespective of their condition. Later the goods which can be used in spite of the damage were put to use. The goods which were totally unsuitable and rejected as waste were cleared on payment of duty. Going by the interpretation of the word for use by the Honble Supreme Court in the case relied on by the appellants, we have to point out that all the imported goods including those damaged have been intended for use in the factory. It is not the case of the Revenue that these goods were diverted. In the BPL Display Devices Ltd. case also some of the imported picture tubes were damaged during transit. In respect of those goods, the Honble Supreme Court held the view that such goods should not be denied the benefit of exemption Notification No. 13/97-Cus. The phrase for use has to construed to mean intended for use. This Tribunal in the true spirit of judicial discipline has to follow the Honble Apex Court ruling. Hence looking into the facts and circumstances of the case, we are satisfied that even the damaged goods have been put to use as they were segregated in the production department. In any case as the goods which actually did not go into production are covered by Rule 57D, credit cannot be denied on the ground that some of the inputs are contained in waste in relation to the manufacture of final products. The fact that the Departmental officers issued the end-use certificate on the basis of records maintained by the appellants strengthens the case of the appellants regarding time bar. The Order-in-Original has no merits. Hence we allow the appeal with consequential relief. 7.1. Further The Tribunals Mumbai Bench decision in the case of Philips Electronics India Ltd. vs. CCE, Pune [2011 (274) ELT 311 (T-Mum.)] supports the stand of the present appellant. The Tribunal in the said decision inter alia observes in para 14 as under :
14. .. this Tribunal has, time and again, held that demand of duty or reversal of Cenvat Credit cannot be made in respect of inputs or capital goods although they have become obsolete but are lying in the said factory; duty is payable only at the time of removal of such inputs. The case laws cited by the Ld. JCDR in the case of RPG Cables Ltd., cited supra is not relevant to the facts of this case. In that case it was admitted that the inputs were not physically available in the factory after being written off. In this case, show-cause notice clearly shows in paragraph 29 that the inputs removed from financial accounts for the year 1996 onward continued to remain in stores accounts even today awaiting its removal from the stores as well as for reversal of credit. Therefore, following the above cited judgments, the appellants are not required to reverse the Cenvat Credit as alleged in the show-cause notice dated 25-11-2004 the credit on inputs which has written off obsolete in the financial accounts but were physically lying in their stock. As the appellants have succeeded on this issue, therefore, we are not dealing with other issues. 7.1.1. Further the Tribunals Chennai Bench decision in the case of CCE, Chennai-III vs. Indchem Electronics [2003 (151) ELT 393 (CEGAT-Che.)] firstly gives the facts as under and thereafter, in paragraphs five and six inter alia observes as under :
5. We have carefully considered the rival submissions and gone through the case records. We observe that in this case, the fact of destroying the goods by fire accident is not disputed by the department. The contention of the department is that Rule 49 is not applicable in this case because the goods destroyed were not finished goods kept in a store room or in approved place. We find that the proviso to Rule 49 lays down that the manufacturer is required to pay duty on any goods which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage. In the present case as already noted, there was no dispute that the goods were destroyed by fire. The survey report furnished by the surveyor appointed by the Insurance Company which is reproduced in the order in appeal clearly stated that the goods in the form of assembled and semi assembled circuit boards and electronics components viz. ICs Diodes, Contactors, relays etc. totally valued at Rs. 1,46,79,988.96 have been destroyed by fire accident and the damaged PCBs and electronic components do not have any commercial value and are useless. Therefore, the plea of the Revenue that Rule 49 is not applicable cannot be countenanced. The Revenue has also contended that the reliance by the Commissioner (Appeals) on the CEGATs decision is not correct as those decisions are not relevant to the facts of the present case since fire accidents were not involved in those case. We have no hesitation to record that the Revenue has taken this plea without going into the case laws relied upon by the Commissioner (Appeals). They should have gone through the case laws before taking such a ground. We observe that the Commissioner (Appeals) has rightly applied the ratio of the following decisions in this case :
(a) CCE v. Foods, Fats and Fertilizers Ltd. reported in 1989 (41) E.L.T. 277 (T) wherein it was held that exemption under Notification No. 118/75-C.E. is admissible when goods removed from place of production and intended for use in the manner specified even though lost due to destruction by fire.
(b) Larsen & Toubro Ltd. v. Assistant Collector of Central Excise reported in 1992 (61) E.L.T. 510 (Collr. App.) wherein it was held that Modvat credit cannot be reversed in respect of inputs actually issued and damaged in fire accident while in manufacturing process, whereas Modvat credit to be reversed only in respect of inputs not issued for manufacture but got damaged in fire, in terms of Rule 57A.
(c) Prem Pharmaceuticals v. CCE, Indore reported in 1996 (88) E.L.T. 278 wherein it was held that in respect of credit taken on bottles broken during handling, the demand for duty on such bottles is not justified, in terms of Rule 57D. It was also held therein that credit is not to be denied in terms of Rule 57D subject to the bottles being destroyed as per procedure under Rule 57F of the CE Rules.
(d) In the case of CCE, Aurangabad v. Glindia Ltd. reported in 1996 (87) E.L.T. 73 (T) wherein it was held that Modvat credit on broken glass bottles not to be denied in terms of Rule 57D.
6. As we have already observed, in this case, the fact regarding fire accident and goods having been destroyed as a result there of is not disputed. The department has also not contested the claim of the assessee that the inputs were destroyed after the inputs were actually issued. Further, there was also no allegation that there was any diversion of the goods elsewhere. In view of our discussion above, we are of the considered opinion that the Commissioner (Appeals) has come to a correct conclusion after analysing the evidence on record, that there was no warrant to reverse the input credit taken in this case and we do not find any reason to interfere with the order passed by the lower appellate authority. Accordingly, the Revenue appeal is dismissed. [Emphasis supplied] 7.1.2. This is to be noted that in the case of Indchem Electronics (supra) Revenues Special Leave Petition was dismissed by the Honble Supreme Court, thus in effect endorsing the view that Modvat/Cenvat credit is not deniable on inputs destroyed in fire accident .. 7.1.3. There is no need of giving further case laws (in support), where the stand of the appellant that they are eligible to claim Cenvat credit in case of goods damaged (because of certain contingencies) after receipt of the said goods in the factory premises, has been found to be legal, considering the provisions of law relating to Cenvat credit and the decisions of the higher judicial fora as discussed in above paragraphs.
7.2. The appellants referred to certain provisions of the Central Excise Rules, 1944 saying that these provisions support their stand that subject goods damaged and lost ones are entitled to the Cenvat credit, once these goods have been received in the factory. Some of these provisions (Rules) of Central Excise Rules, 1944 are reproduced here :
RULE 57D. Credit of duty not to be denied or varied in certain circumstances : (1) Credit of specified duty shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by-product arising during the manufacturing of the final product, or that the inputs have become waste during the course of manufacture of the final product, whether or not such waste or refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty or is not specified as a final product under rule 57A. RULE 57F. Manner of utilization of inputs and the credit allowed in respect of duty paid thereon (1) The inputs on which credit has been taken may be used in or in relation to the manufacture of final products.
(2) The inputs may be removed for home consumption or for export under bond.
(3) All removals of inputs for hom consumption shall be made
(a) on payment of duty equal to the amount of credit availed in respect of such inputs; and
(b) under the cover of invoice prescribed under rule 52A.
.. . RULE 57F (18) Any waste, arising from the processing of inputs, in respect of which credit has been taken may be
(a) removed on payment of duty as if such waste is manufactured in the factory; or
(b) removed without payment of duty, where such belongs to such class or category of wastes as the Central Government may, from time to time, by notification in the Official Gazette, specify for the purpose of being used n the manufacture of the class or categories of goods as may be specified in the said notification, subject to the procedure under Chapter X being followed; or
(c) destroyed in the presence of the proper officer on the application by the manufacturer and if found unfit for further use, or not worth the duty payable thereon, the duty payable thereon being remitted. RULE 57S. Manner of utilization of the capital goods and the credit allowed in respect of duty paid thereon (1) The capital goods in respect of which credit of specified duty has been allowed under rule 57Q may be
(i) used in the factory of the manufacturer of the final products; or
(ii) removed, after intimating the Assistant Commissioner of Central Excise, having jurisdiction over the factory and after obtaining dated acknowledgement of the same, from the factory for home consumption or for export, on payment of appropriate duty of excise leviable theron or for export underbond, as if such capital goods have been manufactured in the said factory.
(2) In a case, -
(a) where capital goods are removed without being used from the factory for home consumption, on payment of duty, or for export on payment of duty of excise, such duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such capital goods order rule 57Q;
(b) where capital goods are removed after being used in the factory for home consumption on payment of duty of excise or for export under rebate on payment of duty of excise, such duty of excise shall be calculated by allowing deduction of 2.5 per cent of credit taken for each quarter of a year of use or fraction thereof, from the date of availing credit under rule 57Q; and
(c) where capital goods are sold as waste and scrap, the manufacturer shall pay the duty leviable on such waste and scrap. .. .. .. ..
7.2.1. We find that above Rules support the stand of the appellant that whenever damaged goods are removed in whatever state (as such as waste / scrap etc.) appropriate duty of Central Excise has to be paid on them; therefore, Cenvat credit taken on said goods (damaged etc.) is not to be disallowed or reversed. Thus, there cannot be two opinions that the goods damaged/lost (because of certain exigencies in the factory premises), once they are received by the manufacturer, are eligible for Cenvat credit.
8. There is another category of the goods, where because of certain reasons, the inputs (goods) did not at all reach the factory premises of the appellant though the said goods had been supplied by the supplier to the appellant. The appellants main defence in this regard is that the manufacturer supplier had paid the duty on the said goods and it is not their fault that the goods did not reach their factory premises. It has also been submitted by the appellant that no refund has been taken by the supplier for the duties/taxes paid on the said goods, which they are claiming as Modvat/Cenvat credit on account of such goods (reference Rule 57 E of Central Excise Rules, 1944). The appellant argues that though they cannot use such lost goods, they had been supplied with intention of their use in their factory plant; therefore, as long as no refund has been claimed for the duty paid on such goods, the Modvat/Cenvat credit on such goods cannot be denied to them. In this regard, the appellant has also given certain case laws, however we find that these case laws are not applicable to the present facts. The Central Excise Rules claiming Modvat/Cenvat credit are very clear and basic premise of the scheme of Modvat/Cenvat credit is that the goods are to be received in the factory premises and duty/taxes for which credit has been claimed has to be paid. In this case, though there may be evidence / documents with the appellant that the duty had been paid, it is also the fact that the goods have never been received in the factory premises. Hence when the goods were never received in the factory, there cannot be any question of their use in the manufacturing in the factory plant of the appellant. Claiming any Modvat/Cenvat credit or allowing any Modvat/Cenvat credit on the goods which were not received in the factory is directly against the basic premise of Modvat/Cenvat credit scheme under the Indirect Tax system. Therefore, we do not have any hesitation to hold that the Modvat/Cenvat credit on the goods short received or which were never received in the factory premises is to be disallowed by all means. We have the well considered view that the said goods are not eligible for Cenvat credit and the Cenvat credit / Modvat taken for such goods has to be reversed forthwith by the appellants.
9. The appellants plea of Refund of Rs. 7,54,753/- :The appellants plead that they deposited an amount of Rs. 7,54,753/- in Modvat on 8.2.2001 and 12.3.2001 at the insistence of the Department during investigation; The appellants state that this duty amount of Rs. 7,54,753/- was neither demanded nor confirmed and has also not been appropriated in the impugned order. The appellant says that the said amount of Rs. 7,54,753/- deposited during the investigation continues to be retained by the Department as a deposit.
9.1. However, in Para 34 of the Order-in-Original, the Commissioner has made a mention that the said amount of Rs. 7,54,753/- was paid without any protest for the Cenvat credit relating to the period of 11/1995 to 12/1996, which is not a part of present show-cause notice. When this amount of Rs. 7,54,753/- does not relate to the period of present proceedings, the said amount cannot be linked with the present proceedings.
9.2. If above amount of Rs. 7,54,753/-, relates to the period 11/1995 to 12/1996, which period is not the subject matter of the impugned show-cause notice issued to the appellants, then as held by the Commissioner in the impugned order, no findings or any decision can be given in respect of the said amount of Rs. 7,54,753/- said to have been deposited in the Modvat account on 8.2.2001 and 12.3.2001 by the appellants. However, the appellants submit that this amount is with reference to the present proceedings, which formally started by issue of show-cause notice dated 19.12.2001 to the appellants, though investigation had started earlier. Our considered view is that if the said amount relates to the period not covered by the show-cause notice, there cannot be any finding and decision on this amount from the Tribunal.
9.2.1. However, considering the submission of the appellant on this amount of Rs. 7,54,753/-, we remand the issue to the Commissioner who will re-examine and decide the matter afresh after giving necessary opportunity of personal hearing and that of production of the relevant documents to the appellant.
10. The appellants plea of limitation : The appellants submission regarding non-applicability of provisions of law of Central Excise for the demand of Central Excise duty / for reversal of non-admissible Modvat / Cenvat credit have been examined. We find that in the case of damaged goods (on account of various exigencies), where Cenvat credit is being allowed by this Order, this plea of limitation is irrelevant as the appellant is being given the relief and the Revenues impugned order confirming the demand on such goods is being set aside in the present proceedings by the Tribunal.
10.1. In the case of short received goods i.e. the goods which never reached the factory premises of the appellant, we are upholding the impugned order confirming the demand of Modvat/Cenvat credit. In other words, the appellant is liable for payment of the Modvat/Cenvat credit taken for the goods which were never received by them; the appellant is to either reverse the Modvat/Cenvat credit along with interest taken on such goods or has to deposit the equivalent amount along with interest in their Modvat/Cenvat account.
11. The impugned order has imposed penalties in the Order portion in Para 46 (5) & (6) of the Order on the assessee appellant; we are setting aside these penalties. However, the original adjudicating authority, the Commissioner of Central Excise, Belgaum will decide on the issue of penalty to be imposed on the assessee appellant when he/she decides on the quantum of the confirmed demand on Modvat/Cenvat credit held as wrongly taken in this Order in case of the goods, which were never received by the assessee appellant in their factory.
12. The impugned order has been modified to above extent and the net outcome is as under :
(i) For quantification of the demand of Modvat/Cenvat credit confirmed along with interest in case of short received or not received goods, the matter is remanded to the original adjudicating authority.
(ii) Penalty on the assessee appellant in respect of the quantified demand and interest on non-received goods will be imposed by the original adjudicating authority, the Commissioner accordingly.
12.1. The matter remanded is to be decided by the original adjudicating authority, Commissioner of Central Excise, Belgaum within three months of receipt of this Order after giving opportunity of personal hearing to the appellants. The appeal is disposed off in the above manner.
(Pronounced in open court on .. )
(ASHOK K. ARYA) (S. S. GARG)
TECHNICAL MEMBER JUDICIAL MEMBER
/vc/