Customs, Excise and Gold Tribunal - Delhi
Jagat Steels Pvt. Ltd. vs Collector Of Central Excise on 23 September, 1996
Equivalent citations: 1996(88)ELT776(TRI-DEL)
ORDER Lajja Ram, Member (T)
1. M/s Jagat Steels Pvt. Ltd., Khanna (Ludhiana), had received iron and steel scrap from the open market during the period November, 1986 to March, 1987 and availed of the deemed Modvat credit thereon at the rate of Rs. 365/- per M.T. under Ministry's order dated 7-4-1986 issued from file No. B-22/5/86-TRU. It was alleged vide show cause notice dated 27-5-1987 that the scrap received from the open market by M/s. Jagat Steel Pvt. Ltd. was clearly recognisable as non-duty paid and the deemed Modvat credit was not admissible as per the conditions laid down in the Ministry's order dated 7-4-1986 aforesaid. The assessee had not produced any evidence of payment of duty on the scrap in question. It was their plea that no such proof of payment of duty was required. The Assistant Collector of Central Excise, Patiala, who adjudicated the matter held that the deemed Modvat credit was not admissible on the scrap received from the open market without proof of payment of duty by the assessee during the period in question prior to 1-4-1987. He confirmed the demand of Rs. 38,963.11 The Collector of Central Excise (Appeals), Chandigarh, had confirmed the adjudication order of the Assistant Collector of Central Excise, Patiala.
2. The matter was heard by me on 9-7-1996, when Shri K.K. Anand, Advocate, appeared for the appellants. Shri Y.R. Kilaniya, JDR, represented the respondents/Revenue.
3. Shri K.K. Anand, Advocate, stated that theirs was a rolling mill and they had availed of the Modvat credit on the basis of the Government's Order and that scrap in the market was deemed to be duty paid. He pleaded that for purchases from the market, no proof of payment of duty could be insisted upon and the inputs received by them from the market should be deemed to be duty paid. He also submitted that some inputs had been cleared by them on reversal of the credit and no allowance had been given for the same by the adjudicating or appellate authority.
4. Shri Y.R. Kilaniya, JDR, submitted that the scrap in question was purchased from the market and was in the form of rolls, cuttings, angles etc. and there was no proof of payment of central excise duty on such material. The Ministry's orders were clear on the subject and the orders and the clarifications issued fully established that no Modvat credit was available in respect of bazar scrap. The assessee had no proof of payment of duty and there was a clear finding by the adjudicating and appellate authorities that the scrap was non-duty paid. He further submitted that the matter had already been settled by the Larger Bench of the Tribunal in favour of the Revenue in the case of Machine Builders and Ors. v. Collector of Central Excise, Bolpur, reported in 1996 (12) RLT 817 (Tribunal).
5. I have carefully considered the matter in the Ministry's order F.No. B-22/5/86-TRU dated 7-4-1986 [at page T6 of 1986 (25) E.L.T.] issued under the 2nd Proviso to Rule 57G(ii), it was provided that no deemed credit shall be allowed if the inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty. The 2nd Proviso to Rule 57G(2) of the Central Excise Rules, 1944 (hereinafter referred to as the 'Rules') provided 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 payment of duty. This order dated 7-4-1986 inter alia provided for deemed credit in respect of the inputs unless it was clearly recognisable as being non-duty paid. This order was modified in August, 1986 vide order dated 29-8-1986 [refer Vadodara Collectorate Trade Notice No. 214/86, dated 5-9-1986 at page T18 of 1986 (26) E.L.T.] and the facility of deemed credit given in respect of wastes and scrap of steel falling under Heading No. 72.03 was withdrawn. The period involved in these proceedings is from 13-11-1986 i.e. subsequent to the order dated 29-8-1986 under which the facility of deemed credit in respect of wastes and scrap classifiable under Heading No. 72.03 of the Central Excise Tariff was withdrawn. Under Ministry's Order F.No. B-22/30-86-TRU, dated 29-9-1986, it was clarified that the wastes and scrap of iron and steel like bazar scrap which was clearly recognisable as being non-duty paid or charged to nil rate of duty, were not entitled to the deemed credit even during the period prior to 29-8-1986. It was further clarified that the amending order of 29-8-1986 was issued to deal with the problem of many manufacturers claiming deemed credit even in respect of scraps like bazar scrap (refer Ministry's Order F.No. B-22/30/86-TRU, dated 29-9-1986 at page 7 Annexure 'C of the paper book). Directions dated 20-10-1987 applied only from 1-4-1987 - the period with which we are not concerned in these proceedings. In this connection reference may be made to the Tribunal's decision in the case of Sri Krishna Steels v. Collector of Central Excise, 1989 (43) E.L.T. 640 (Tribunal).
6. The goods involved in these proceeds are rolls, cuttings etc. which were purchased from the market. There is a specific allegation in the show cause notice that the inputs received from the market were clearly recognisable as non-duty paid. The waste and scrap during the relevant period was classifiable under Heading 72.03. The waste and scrap was defined as waste and scrap of iron or steel fit only for the recovery of metal or for use in the manufacture of chemicals. It did not include slag, ash and other residues. Waste and scrap was dutiable when it was a manufactured product in a factory. The waste and scrap arising during the process of fabrication of different items in the bazaar was not dutiable. The scrap available with kabadies in the bazar could not be considered as a manufactured product and could not be taken to have paid any central excise duty.
7. We find that the matter is covered by the Tribunal's Larger Bench decision in the case of Machine Builders and Ors. v. Collector of Central Excise, Bolpur, 1996 (12) RLT 817. These appeals had been referred to the Larger Bench in view of the conflicting decisions of the Tribunal and the Larger Bench referred to above was constituted to hear and dispose of the various appeals. The Tribunal analysed the various orders of the Government providing for the deemed credit and the various provisions subject to which the deemed credit was available. It was held that the intention was not to deem that inputs which actually did not suffer duty were inputs which suffered duty, and the purpose was to ensure the benefit to those who use inputs in the manufacture of which duty has actually been paid but it might not be possible to produce duty paying documents which will unerringly connect the documents or duty payment with the particular inputs (refer Para 15 of the order). In Para 16 the mischief sought to be avoided by the deemed proviso had been discussed. It was observed that mischief could not have been overcome by stipulating that credit is available even if duty has not been paid on inputs, for that would be against the pivotal element of the scheme. If duty need not be paid and has not been paid, the question of duty paid being earned as credit did not arise. The only way of overcoming the mischief was to dispense with the requirement of documents evidencing the payment of duty. The Tribunal in Para 25 has held that the scrap input was clearly and wholly exempt from duty and the assessee were not entitled to deemed credit.
8. In view of the above provision, the appellants have no case on merits.
9. The deemed Modvat credit of duty had been taken during the period November, 1986 to March, 1987 and the show cause notice had been issued on 27-5-1987 within the period of limitation. The learned advocate had made a point that the period is from 23-10-1986. He has not substantiated this point. The appellants had submitted that out of the total raw material of 106.748 M.T. a quantity of 42.263 M.T. of the raw material involving credit of Rs. 15,426.09 had been sold out by them with the approval of the Central Excise Officers and there could be no question of including this quantity in the demand. The duty on this quantity had already been debited. This plea had been taken by them in reply to the show cause notice dated 27-5-1987. Para (x) from the reply is extracted below :
"(x) Without prejudice to the submissions made in the preceding paras it may be further submitted that out of the quantity of inputs received weighing 106.748, a quantity of 42.263 MT was sold as it is after obtaining permission from the Superintendent, Central Excise, Khanna, as required under the rules as per details in Annexure-I attached herewith for kind perusal. A copy of our letter dated 13-6-1987 vide which permission for sale of the said inputs was obtained, is also enclosed for reference. The credit taken against this quantity of inputs weighing 42.263 MT amounting to Rs. 15,426.09 has already been repaid vide debit entries in our RG 23X Part II. This amount has also been included in the said demand show cause notice. It is not justified to demand the said amount back as it has already been reversed. This amount is required to be excluded from the demand on the grounds explained above."
10. In the show cause notice, recovery of credit of Rs. 38,963.11 was demanded and in the order-in-appeal the same demand had been confirmed. I consider that subject to verification, the appellants are entitled to relief on this account.
11. Taking all the relevant considerations into account, subject to the relief with regard to the inputs which had been cleared by them on reversal of the credit, the appeal is otherwise rejected and I order accordingly.