Customs, Excise and Gold Tribunal - Tamil Nadu
Ums Radio Factory Pvt. Ltd. vs Collector Of Central Excise on 22 August, 1990
Equivalent citations: 1991(52)ELT579(TRI-CHENNAI)
ORDER V.P. Gulati, Member (T)
1. This appeal arises out of the order passed by the Collector of Central Excise (Appeals), Madras, on an application filed by the Assistant Collector of Central Excise, Coimbatore I Division, under Section 35E(4) of the Central Excises & Salt Act, 1944 against his own order dated 2-5-1988, as per the directions of the Collector of Central Excise, Coimbatore.
2. Brief facts of the case are that the appellants are manufacturers of various items classifiable under Chapter 84 and 85 and they were availing MODVAT facility under deemed credit on aluminium alloy castings purchased from manufacturer without any duty paying documents and which were clearly recognisable as non-duty paid or charged to nil rate of duty as seen from the purchase invoice/bills. The appellants contended before the lower authorities that the aluminium alloy castings supplied to them were exempted from payment of duty inasmuch as the said castings were obtained from duty paid aluminium ingots falling under Chapter Heading No. 76.01 and therefore, the credit taken by them was correct. The lower original authority allowed deemed credit in respect of aluminium alloy castings and steel bars/rods holding that aluminium alloy castings derived from aluminium ingots should have suffered duty when in unwrought form as ingots, pigs, blocks, billets etc. The plea taken before the Collector (Appeals) by the Revenue was that the Assistant Collector, the original authority, had incorrectly allowed the credit on inputs received at Nil rate of duty holding that the Aluminium alloy which was the input must have been derived from Aluminium ingots which would have suffered duty when it was in unwrought form as ingots, pigs, blocks, billets, etc. and that credit under MODVAT Scheme could not be allowed for the inputs which were cleared at Nil rate of duty which is the case in the proceedings drawn. The learned lower appellate authority allowing the appeal of the Revenue has held as under:
"Aluminium castings are exempted in the present case, though they have been manufactured from duty paid aluminium ingots. The learned Consultant stated that payment of duty does not mean that any amount should be paid, but where goods are totally exempted from duty, they are to be held as duty paid, even if cleared without payment of duty. First of all, I find that aluminium castings have been received without payment of duty, because the same are manufactured out of aluminium ingots. The exemption is not disputed by the respondents. The inputs are not aluminium ingots, but are aluminium alloy castings. The said castings being chargeable to nil rate of duty, the respondents are entitled to take credit of nil rate of duty, which is of no consequence in the present matter.
Coming to the contention that because ingots were duty paid, castings are also to be held as duty paid, I am unable to agree to this contention of respondents, as castings are different excisable goods than aluminium ingots. The Government of India's letter referred to by them is in respect of scrap and it cannot cover the respondents' contention as stated above. The said inputs having been received from the manufacturers thereof, under cover of invoices showing no payment of duty, they are clearly recognisable as non-duty paid."
He, therefore, disallowed the benefit of MODVAT credit which was earlier allowed by the Assistant Collector.
3. The learned Chartered Accountant for the appellants pleaded that the Aluminium castings were eligible for the benefit of MODVAT credit inasmuch as these are being manufactured out of ingots which had suffered duty and, therefore, these should be deemed to have suffered duty on that account. He pleaded that it was for the Department to prove that the castings were non-duty paid. In this connection he cited the case of Collector of Central Excise, Chandigarh v. Electrical Switchgears (P) Ltd. & Ors., reported in 1990 (27) ECR 398 (Cegat NRB).
4. The learned D.R. adopted the reasoning of the learned Collector (Appeals), while opposing the plea of the learned Chartered Accountant for the appellants.
5. It is not in dispute that the appellants have received the Aluminium alloy castings from manufacturers, who had cleared the same without payment of duty. It has been pleaded that these castings are made from ingots etc., which had suffered duty and inasmuch as these had been manufactured out of duty-paid ingots no duty was required to be paid on the same in view of an exemption notification applicable to the goods at the relevant time. The appellants have claimed the benefit, which was allowed by the original authority and later disallowed by the Collector (Appeals) on the ground that they were not eligible for the deemed MODVAT credit in terms of Rule 57G(2) read with Notification No. 177/86-C.E,, dated 1-3-1986. They have pleaded that once it is held that Aluminium ingots out of which the castings were produced had suffered duty, notwithstanding the fact that the castings were cleared without payment of duty in terms of exemption notification, the same should be deemed to be duty paid. In this connection he referred to the directions issued by the Govt. of India, which finds mention in the impugned order of the lower appellate authority in F. No. 822/5/86-TRU dated 7-4-1986 whereby it has been notified that some of the specified inputs 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 1-3-1986 might be deemed to have paid the specified duty at the rate specified and a credit of the specified duty could be given in respect of the same under the MODVAT Scheme without the production of documents evidencing payment of duty. It is observed that the learned Collector (Appeals), while taking note of this has also taken note of the fact that in the same notification issued by the Govt. of India it has also been stated that no such credit shall be allowed if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty or wholly exempt from duty. The learned Collector (Appeals) in his order has observed that since the Aluminium castings in respect of which input credit has been claimed were received without payment of duty, in view of the proviso to the Notification in F. No. 822/5/86-TRU dated 7-4-1986 the appellants were not eligible for the benefit of the input credit as claimed. We observe that in the MODVAT Scheme the relief is sought to be provided by making a set-off of the duty paid on the specified inputs for specified finished products. These have been specified under the notification issued under Rule 57A. The item which qualifies as input under this notification is the one which has to be taken into reckoning for the purpose of consideration of MODVAT credit. In the instant case this item has been cleared without payment of duty on account of an exemption notification. The appellants are wanting the MODVAT credit to be given in respect of the duty which was paid on the raw materials out of which the input in question viz. Aluminium castings emerged. There is no warrant in law for extending the benefit of the MODVAT credit in the way the appellants have sought for in the appeal. It is not the case of the appellants that the goods were purchased from the open market and were not from a factory and that in terms of Rule 57G(2) they will become eligible for the MODVAT credit. The Rule 57G(2) which makes a provision for the deemed credit reads as under:
"A manufacturer who has filed a declaration under sub-rule (1) may, after obtaining the acknowledgement aforesaid, take credit of the duty paid on the inputs received by him:
Provided that no credit shall be taken unless the inputs are received in the factory under the cover of a Gate Pass, an AR-1, a Bill of Entry or any other document as may be prescribed by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) in this behalf evidencing the payment of duty on such inputs:
Provided further that having regard to the period that has elapsed since the duty of excise was imposed on any inputs, the position of demand and, supply of the said inputs in the country and any other relevant considerations, the Central Government may direct that with effect from a specified date, all stocks of the said inputs in the country, except such stocks lying in a factory, customs area as defined in the Customs Act, 1962 (52 of 1962) or a warehouse as are clearly recognisable as being non-duty paid, may be deemed to be duty-paid and credit of duty in respect of the said inputs may be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing the payment of duty:
Provided also that the manufacturer shall take all reasonable steps to ensure that the inputs acquired by him are goods on which the appropriate duty as indicated in the documents accompanying the goods has been paid."
The basis of the Government of India's instruction is this Rule 57G(2). This rule specifically ordains that benefit of the deemed credit is not allowable to such stocks as are lying in a factory or Customs area or a warehouse as are clearly recognisable as being non-duty paid. In the MODVAT Scheme since the benefit of credit is sought to be given for that quantum of duty which has been paid towards the goods or which is otherwise directed to be given in terms of the Rules, it has to be held the term "non-duty paid" refers to the goods where numerically no duty has been paid. As it is under Rule 57C no credit of duty is to be allowed if the final product is exempt from the whole of excise duty leviable thereon or if chargeable to Nil rate of duty. Thus if the inputs are used for the exempted goods, the inputs are not eligible for the benefit of MODVAT credit and the question of carrying forward the duty paid on the inputs, which resulted in the production of the exempted goods and which in turn are used in the manufacture of specified finished product, cannot arise. The case law cited by the learned Chartered Accountant [Collector of Central Excise, Chandigarh v. Electrical Switchgears (P)Ltd. & Ors. reported in 1990 (27) ECR 398 (Cegat NRB)], is not applicable to the facts of the present case.
6. In this view of the matter the appellants' plea has no force and is therefore, rejected. The appeal is therefore, dismissed.