Customs, Excise and Gold Tribunal - Delhi
Somani Steels vs Collector Of Central Excise on 25 November, 1992
Equivalent citations: 1993ECR421(TRI.-DELHI), 1993(65)ELT95(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The issue for determination in this appeal is the admissibility of Modvat credit in terms of Rule 57F(3) of the Central Excise Rules, 1944 taken in lieu of duty of excise already paid on inputs viz. scrap of iron and steel to final products i.e. steel ingots manufactured out of such scrap as well as from other scrap i.e. steel melting scrap received without payment of duty under Chapter X of Central Excise Rules and imported scraps exempt from countervailing duty under Notification 2/79 as amended.
2. The brief facts of the case are that the appellants are engaged in the manufacture of steel ingots falling under Heading No. 72.06/sub-heading No. 7206.20 of the Schedule of the Central Excise Tariff Act, 1985 with the aid of electric furnace from various types of iron and steel scrap, ferro alloys. Under Notification No. 55/86-C.E., dated 1-3-1986 their said final product is chargeable to duty of excise at the rate of Rs. 315/- per metric tonne. During the relevant period, they purchased scrap of iron and steel from the open market, received steel melting scrap under Chapter X procedure at Nil rate of excise duty as per Notification 55/86-C.E., dated 1-3-1986 and also directly imported shredded melting scrap chargeable at Nil Additional/countervailing duty. While operating under Modvat Scheme, they accounted for the receipt of input scraps purchased from open market in RG 23A Part I register and availed of its credit in RG 23A Part II on the basis of its deemed paid character as admissible in terms of Government of India, Ministry of Finance, Order F. No. B. 22/5/86-TRU dated 7-4-1986 issued under Rule 57G(2) of the Central Excise Rules, 1944. The aforestated facility for deemed credit on iron and steel scrap was withdrawn vide Ministry's order F. No. B/22/30/86-TRU dated 29-8-1986 but due to lack of communication of the said order the appellants continued to avail such credit for some time later. Such credit amounting to Rs. 12,74,791.50 was however, debited by them in their RG 23A Part II/PLA in January 1987 on this mistake being realised. They also accounted for the receipt of duty paid ferro alloys in RG 23A Part I and the credit of such duty of excise already paid thereon in RG 23A Part II. The input scrap received indigenously at Nil rate of excise duty under Chapter X Procedure was accounted for in RG 16 register maintained for the purpose and imported scrap in Form IV raw material account. Since no credit of Modvat was available on these scrap, the same was not entered in RG 23A Part I account or any credit in this respect in RG 23A Part II. The liability of excise duty on the final product viz. steel ingots, was discharged from PLA as well as from input credit available in their aforesaid RG 23A Part II accounts.
3. A show cause notice dated 10-12-1987 the Collector of Central Excise, Kanpur was issued proposing levy of excise duty amounting to Rs. 26,92,053.90 involved on 8546.203 M.T. of steel ingots manufactured and a total 9597.175 M.T. waste and scrap received under Chapter X and shredded melting scrap and cleared during the period from 25-3-1986 to 17-12-1986 and proposing imposition of penalty on the premises inter alia that the liability of excise duty on the final product made out of scrap received under Chapter X at Nil excise duty and out of imported shredded melting scrap cleared at Nil additional duty of customs/CVD, could not be discharged from credit available in KG 23A Part II as in terms of Rule 57F(3) of the Central Excise Rules, 1944, such credit cannot be utilised for any other purpose except for payment of duty on the finished goods which are made from the inputs received under the Modvat Scheme; that the said inputs received under the Modvat Scheme; that the said inputs (Chapter X and imported scrap) were in fact outside the purview of Notification No. 177/86-C.E., dated 1-03-1986 issued under Rule 57A of the Rules ibid; that excise duty on steel ingots made, out of such scrap exempted/ paid at Nil rate of duty was required to be debited exclusively in their Personal Ledger Account (PLA); that the appellants had not disclosed the full facts of the source of getting the scrap nor their utilisation sourcewise, either in the classification list or in the RT 12 and RT 5 returns and thereby suppressed the material facts.
4. The appellants replied thereto, stating inter alia that during the material period, they had debited duties leviable on the final product from PLA and from RG 23A Part II, that there was no violation of the provisions of Rule 57F(3) as there was no one-to-one co-relation between the input and the final product envisaged in the Modvat Scheme and that there was no suppression on their part as due declarations and classification lists had been filed and proper records maintained and regular returns furnished to the Department.
5. The Collector confirmed the demand for duty of Rs. 26,92,053.90 less Rs. 12,74,791.50 (on confirmation of debits made in RG 23A Part II and PLA during January 1987) and imposed a penalty of Rs. 5 lakhs applying the extended period of limitation and holding that "vide Rule 57F(3) credits on inputs can be allowed towards payment of duty of excise on the final products in relation to the manufacture of which such inputs are intended to be used as per declaration filed under Rule 57G(1). Thus availing the procedure for payment of duty by debiting of the credits on the inputs has to be confirmed only in respect of the inputs and final products which are the subject matter of Rule 57G". Hence this appeal.
6. We have heard Shri A.N. Sharma, learned Consultant and Shri S.K. Sharma, learned JDR.
7. We have carefully considered the submissions of both sides. We have perused the Trade Notice dated 8-8-1988 on the issue whether Modvat credit taken on duty paid inputs can be used for payment of duty on similar goods manufactured out of non-duty paid inputs.
The trade notice is reproduced below :
"MODVAT - Whether Modvat credit taken on duty-paid inputs can be used for payment of duty on similar goods manufactured out of non-duty paid inputs. Doubts have arisen whether the credit of duty taken on inputs brought under MODVAT scheme could be utilised towards payment of duty even in respect of the same final products in the manufacture of which inputs brought without payment of duty under Chapter X of the Central Excise Rules have been utilised. To illustrate, in the manufacture of iron and steel products, ferro alloys are brought both under Chapter X without payment and on payment of duty. The duty on ferro alloys is much more than on the final products. Therefore, there is always excess accumulation of credit as against the actual payment of duty on the final products manufactured therefrom.
The credit thus earned on these inputs is being utilised by certain assessees for payment of duty on the finished product manufactured out of the non-duty paid inputs brought under Chapter X procedure.
The matter has been examined by the Board. It is observed that what Rule 57F(3) basically provides is that the credit of duty allowed in respect of any inputs may be utilised towards payment of duty on any of the final products in or in relation to the manufacture of which such inputs are intended to be used. This rule does not debar utilisation of excess (accumulated because of less duty on final products than on the inputs) for payment of duty on the same final products which are manufactured by non-duty paid inputs (whether procured under Chapter X procedure or otherwise exempt under any notification). Moreover, there is no one to one co-relation of inputs and final product under the MODVAT scheme for utilisation of credit. It has, therefore, been decided by the Board that the excess credit accumulated if any, can be utilised towards payment of duty on the same final products even if manufactured out of non-duty paid inputs."
8. The trade notice clarifies that Rule 57F(3) does not debar utilisation of excess for payment of duty on the same final products which are manufactured by non-duty paid inputs whether procured under Chapter X Procedure or otherwise exempt under any other Notification and also that there is no one to one co-relation of inputs and final product under the Modvat Scheme for utilisation of credit. The Tribunal has held in the case of Sawottam Ispat Private Ltd. v. Collector of Central Excise reported in 1989 (41) E.L.T. 181 (Tribunal) that Modvat credit utilisation is not barred if credit has accumulated on account of duty on final product being less than duty on inputs utilised therefor. Para 5 of the order which is relevant is reproduced below :
"5. On a careful consideration of the submissions made by the learned Consultant and the learned SDR, we find that according to Rule 57F(3) as amended, credit of specified duty allowed in respect of any inputs may be utilised towards payment of excise duty on any of the final products in or in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under Rule 57G. The appellants' case is that they have in fact, utilised the credit earned by them on the input scrap only on the single final product that they manufactured viz. steel ingots and that the provisions of Rule 57F(3) as above do not bar such utilisation when admittedly there is no one-to-one co-relation between the input and output under the Modvat scheme. Examining this issue, it is observed that what Rule 57F(3) provides is that the credit of duty allowed in respect of any input can be utilised towards payment of duty on any of the final product in or in relation to the manufacture of which such inputs are used. A plain reading of the Rule, when considered in the background of the objective of the Modvat Scheme, viz. to provide instant credit for the manufacturers and to avoid cascading effect of taxation on input in relation to the final product, it will be clear that the Rule in terms will not be a bar for utilisation of amount of credit which may accumulate because of a situation where the duty on the final product is less than the duty on the inputs for payment of duty on the same final product. This conclusion is also supported by the admitted position that for the purpose of Modvat credit scheme, there is no one-to-one relationship of input and final product for the purpose of utilisation of credit. Therefore, in such a view of the matter, there is a lot of force in the submission of the appellant, which is accordingly accepted, and the appeal is consequently allowed".
9. In view of the above we hold that Modvat credit in terms of Rule 57F(3) availed of in lieu of excise duty already paid on inputs is available to the final products i.e. steel ingots admittedly manufactured out of duty paid inputs as well as from steel melting scrap and imported scrap.
10. In the result we set aside the impugned order and allow the appeal with consequential relief, if any, due to the appellants.
P.C. Jain, Member (T)
11. I have perused the order proposed by my learned Sister. I agree with the conclusion but for different reasons. The appellant is manufacturing steel ingot from a combination of various scraps and other inputs such as ferro alloys. One particular type of scrap i.e. kabari scrap purchased from the open market is given deemed MODVAT Credit at the rate of Rs. 365/-. Similarly, MODVAT Credit is given in respect of ferro alloys. The appellant brings two other types of scraps - one is imported scrap on which no countervailing duty is paid and consequently no MODVAT Credit of duty of such countervailing duty is taken by the appellant. Similarly, it also purchases scrap from Ordnance Factory (turning and boring scrap) without payment of duty in terms of an exemption Notification 55/86.
12. A plea was taken which is admittedly on record in the impugned order in the last para on page 2 and going over to page 3 that the appellant was not manufacturing the steel ingots exclusively out of imported scrap but from combination with other scrap available in the stock. This plea was repeated in the course of hearing by the learned consultant that every batch of steel ingots manufactured by the appellants contained duty paid inputs on which MODVAT Credit was taken and no batch of steel ingots was made exclusively out of non-duty paid scrap in terms of Notification 55/86 or imported scrap. This being the position every batch of steel ingots has utilised the inputs on which MODVAT Credit has been taken and therefore, duty payable on each such ingot can be paid out of the MODVAT Credit taken on inputs utilised in the steel ingots either wholly or partly as a manufacturer may desire. This is actually what has been done by the appellant herein. There is no contravention of Rule 57F(3), as alleged.
12.1 The department's allegation would have had some force; if it had also been alleged that any batch of steel ingots was made exclusively out of inputs on which MODVAT Credit has not been taken but there is no such allegation. Accordingly, I hold that the impugned order is not at all sustainable and it is accordingly quashed and the appeal is allowed.