Customs, Excise and Gold Tribunal - Delhi
Hindustan Lever Ltd. vs Collector Of Central Excise on 18 November, 1993
Equivalent citations: 1994(51)ECR195(TRI.-DELHI)
ORDER N.K. Bajai, Member (T)
1. This is an appeal against the order of Collector of Central Excise, Indore, confirming a demand of duty on account of wrong availment of Modvat credit amounting to Rs. 66,13,756.32 (BED) and Rs. 3,72,991.56 (SED) during the period 1986-87 to 1988-89. The finding of the adjudicating authority is that the appellants had cross-utilised the credit of duty paid on inputs of Rin towards payment of duty on Surf and the credit of duty paid on inputs of Surf towards payment of duty on Rin. Since the Collector has held that the appellants had availed the Modvat credit with intention to evade payment of Central Excise duty on account of wilful mis-statement, he has invoked the extended period of limitation provided under Rule 57-I of the Central Excise Rules 1944. He has also imposed a penalty of Rs. 5,00,000/- on the appellants under Rule 9(2), 173-Q(bb) and 210 ibid.
2. The appellants' case broadly is that in the absence of any allegation of wilful mis-statement, collusion and suppression in the show cause notice, the extended period of demand could not have been invoked in terms of the Proviso to Rule 57-I. It is also claimed that the Central Board of Excise and Customs as well as the different Collectorates of Central Excise had issued departmental clarifications for maintenance of account of Modvat credit in Form RG-23A, Part II Chapter wise, since such a procedure was followed by them, the duty paid by them by adjustment in the PLA as well as the Modvat credit taken by them, when added together, do not indicate any short payment of duty. Moreover, the show cause notice which was initially issued by the Assistant Collector was, by a subsequent corrigendum issued in exercise of the powers under Rule-6 by the Collector, made answerable to the letter and in doing so, the provisions of Rule 9(2) and Section 11-A of the Central Excises & Salt Act, 1944 were deleted. Once the provisions of Rule 9(2) were deleted, no penalty under this provision could have been imposed.
3. Arguing for the appellants, Shri C.S. Lodha, the learned Counsel raised the following three propositions of law for the consideration of the Bench:
(a) Whether a show cause notice issued on 16.1.1989 by the Assistant Collector levelling no allegations of mis-statement or suppression and seeking to recover duty from 1.3.1986 to 31.1.1989 under Rule 57-I can be legally valid?
(b) When a Show Cause Notice specifically withdraws allegations made under Rule 9(2) and Proviso to Section 11-A, is it legally permissible for the Collector to invoke these provisions in the order and travel beyond the show cause notice?
(c) Can any penalty be imposed when not only the manufacturer has been guided by the Circulars issued by the Central Board of Excise and Customs, Trade Notices and Departments' directions but also when the entire exercise is revenue neutral?
4. Referring to Question No. 14 and its answer in the Publication "A Guide to Modvat" issued by the Central Board of Excise and Customs, Shri Lodha submitted that the Board itself had clarified that the manufacturer "Was permitted to maintain the RG-23A, Part II Register Chapterwise, and submitted that whatever amount they were expected to have paid through the Personal Ledger Account had been paid through the Personal Ledger Account and whatever credit the appellants were entitled to take and avail of had been taken and availed of correctly and there was no short-payment of duty through the PLA. Shri Lodha also submitted that in accounting procedure adopted by the appellants was correct and, since no one-to-one correlation was required to be done under the Modvat Scheme, the duty had been correctly calculated and paid by them.
5. Shri Lodha placed reliance on the decision of the Tribunal in the case of Collector of Central Excise v. Ashim Paper Products (P) Ltd. , in which it was held that in the absence of allegations of wilful mis-statement, collusion or suppression of facts, the demand had to be restricted to a period of six months only. Where an assessee had been guided by the Department, he could not be put in peril by changing the stand of the Department. For this purpose, he placed reliance on the decision of the Supreme Court in the case of M/s Godfrey Phillips v. Union of India .
6. Shri G. Bhusan, the learned SDR invited attention to the show cause notice and submitted that the facts should become clear from the following portions of the Notice:
Whereas it appears that the said party have maintained a consolidated RG-23A, Part II Register in respect of all the inputs and kept on paying excise duty through the same, irrespective of the fact whether or not the inputs in respect of which the credit was lying in balance were used in the manufacture of the finished excisable goods under assessment.... On scrutiny of RG-23A Part-II Register, it has been found that the party had used the Modvat credit of duty paid on inputs of Surf and Soap used for payment of duty on Rin and credit of duty paid on inputs of Rin used for payment of duty on Surf.
(Emphasis added)
7. Reading from paragraph-3 of the show cause notice, Shri Bhusan submitted that there was a specific allegation in that para, that the appellants had mis-used the Modvat credit in the manner indicated above and had contravened the provisions of Rule 57A to 57J and were, therefore, liable to pay the amounts demanded in the show cause notice. Shri Bhusan explained that the allegation that the appellants had mis-used the Modvat credit was covered by the Proviso to Rule 57I, which referred to "wilful mis-statement" as the ground for invoking the larger period of demand. He went on to explain that once the inputs declared are not used in the manufacture of the declared final product, there is a contravention of the basic provisions of Modvat namely Rule 57A and a demand could be issued under Rule 57I. No. instructions of the Board or clarification issued by any authority could over-ride the basic provisions of the law and eligibility of Modvat credit under the relevant Rules. Shri Bhusan admitted that although the reference to Rule 9(2) in the show cause notice had been deleted by the Corrigendum issued by the Collector, the invoking of the same provision by the Collector in the impugned order was not proper. However, he hastened to add that the imposition of penalty under Rule 173Q(bb) was still permissible because it specifically covered cases of wrong availment of Modvat credit and the order should, therefore, be sustained on that ground.
8. Shri Lodha disputed the contention of the learned SDR that the reference of the words 'mis-used Modvat credit' in the show cause notice would be covered by the Proviso which refers to "wilful mis-statement". He further submitted that the appellants had regularly filed RT-12 Returns, extracts of RG-23 Part I & II and unless "Suggestio falsii" was invoked and proved against the appellants, the period of demands could not have been extended beyond six months. He also submitted that the word "mis-use" could not go beyond the words "error, omission or mis-construction" used in Rule 57I(1)(i). It could not be said that the word "mis-use" would be covered by the proviso and submitted that all cases of incorrect use would be those of mis-use. Shri Lodha went on to say that the appellants had not with-held any information from the Department and the show cause notice had been issued to them after they wrote a letter to the Collector in June 1989 placing all facts before him. After the reference to Rule 9(2) had been dropped from the show cause notice by issuing the Corrigendum, the whole proceedings were vitiated because this particular provision could not have been invoked for passing the final order. In view of this the order itself was without jurisdiction.
9. We have carefully considered the appeal, the submissions of both sides and perused the case records. We observe that the allegations in the show cause notice was specific and was clearly spelt out viz. that the credit of duty paid on inputs of Surf and Soap was utilised for payment of duty on Rin, similarly, credit of duty paid on inputs of Rin was utilised for payment of duty on Surf and that such action was in contravention of the provisions of Rule 57A to 57J inasmuch as the appellants mis-used the Modvat credit during the period 1986 to January, 1989. The break-up of the amounts utilised in this manner was indicated financial year-wise in the show cause notice. It is evident from the reply of the appellants that they had correctly understood the allegation. They, however, did not accept the liability on the ground that, apart from the peculiar circumstances in which the demand arose, it was not a case of wilful mis-statement, collusion or suppression because no allegations to that effect were made in the show cause notice. The appellants' case, as stated in the appeal as well as ably argued by their learned Counsel Shri C.S. Lodha, is that although they had initially maintained the RG-23A Part II Account product wise till the end of December 1986, they had switched over to maintenance of this account Chapter wise because of the Trade Notices issued by the Bombay-I and Cochin Central Excise Collectorates in May 1987. They have also placed reliance on Question No. 14 and its answer in the 'Guide to Modvat' issued by the C.B.E.C.
10. Although copies of the Trade Notices of the Bombay-I and Cochin Collectorates have not been placed before us, Shri Lodha submitted a copy of the Delhi Collectorate's Trade Notice No. 72/87, dated 18.12.1987 during the hearing. It is necessary to refer to this Trade Notice which is reproduced below:
MODVAT SCHEME--MAINTENANCE OF RG-23A ACCOUNTS Attention of the trade is invited to this office Trade Notice No. 44-CE (26-Misc.) 86 dated 4.6.1986 wherein it was prescribed that whereas RG-23A Part-I register may be maintained in a consolidated manner, the RG-23A Part-II register should be maintained separately for each of the final products.
2. It has been decided that a manufacturer would be allowed to maintain RG-23A Part-II register Chapterwise. During the course of the month, the manufacturer can utilise the Modvat credit (by debit) without indicating the details separately each final productwise. The manufacturers would be required to submit a monthly statement along with the RT-12 indicating separately for each final product, the details of input duty credit availed of.
(Delhi Collectorate Trade Notice No. 72/87, dt. 18.12.1987) (Emphasis added)
11. A careful perusal of this Trade Notice would show that all that it says is that RG-23A Part II Register could be maintained Chapterwise in stead of being maintained separately for each of the final products. But the manufacturers would be required to submit a monthly statement along with RG-12 indicating separately for each final, product the details of input duty credit availed of. Thus, while the day-to-day account could be maintained Chapterwise, the monthly statements would have to indicate the details of the input duty credit availed of separately for each final product. Once this is done, the basic requirement of Rule 57-A and the Notification issued thereunder of taking the credit on inputs used in, or in relation to the manufacture of the final product would have to be fulfilled. It is significant that the appellants have not denied the allegation in the show cause notice that they have cross-utilised the input credit of one product for payment of duty on another product. They have all along been saying that this has happened because the accounts had to be maintained Chapterwise in RG-23A Part II and not productwise. It will be seen from the Trade Notice reproduced above that it does not relax (and cannot obviously do so) the basic requirement of the Modvat Rules. The learned SDR had placed on record a report of the Assistant Collector of Central Excise which indicated the position of credit balance and debit of RG-23A Part II as under:
The report in brief is as under:
Commodity Month Credit at Debit from RG 23A
balance Part II
SURF March 1987 Nil Rs. 1.10 lakhs
February 1988 Nil Rs. 1.59 lakhs
July 1988 Nil Rs. 2.19 lakhs
RIN November 1987 Nil Rs. 2.53 lakhs
January 1988 Nil Rs. 58.71 lakhs + Spl. 3.73 lakhs
Total Rs. 66.12 lakhs
Chart furnished by the party to the Bench is self-explanatory in as much as against total credit of Rs. 11.81 crores available they had debited Rs. 12.44 crores for payment of duty in RIN i.e. Rs. 63 lakhs more.
Cross utilisation of credit specially when the inputs are quite different for SURF and RIN is not permissible under Modvat Rules.
Consolidated figures as furnished by the party do not depict factual position.
It is a case of evasion of duty by misusing the Modvat credit and by maintaining one single common RG 23A Part-II.
Finished productwise monthwise breakup indicating wrong utilisation of credit and the breakup of duty paid from PLA and RG 23A Part II is being forwarded by post separately.
12. It appears from the above report which elucidates the position in the show cause notice that there was a wrong utilisation of Modvat credit in the manner indicated in the show cause notice. The appellants have not disputed the basic allegation and, in the absence of anything to support their contention that wrong utilisation of Modvat credit was permitted by the departmental instructions, the allegation stands proved.
13. The next question for consideration is whether the allegation of mis-use of Modvat Credit in the show cause notice can be taken to fall under the Proviso to Rule 57I as a result of which the extended time limit could be invoked. While the learned SDR submitted that this could be done, Shri Lodha contested it by saying theat mis-use would be covered by the words error, omission, mis-construction. We do not agree with the learned Counsel's view. The word misuse has a "stronger connotation than error, omission or mis-construction". It means wrong use; use which is not permissible by law and goes beyond the realm of error, or mis-construction. We have no doubt in our mind that the appellants had correctly understood the allegation in the show cause notice and there was nothing vague about it so as to prevent them from answering the allegation. So far as their conduct is concerned, it is clear that they had themselves maintained the accounts in RG 23A Part II productwise up to the end of December 1986 and, well before the issue of the Trade Notices by Bombay-I and Cochin Collectorates in May 1987, switched over to chapterwise maintenance of accounts on their own. The Trade Notice of the Delhi Collectorate which has been placed before us was issued on 18.12.1987-almost one year after the appellants themselves had changed their system of accounting. It cannot, therefore, be said that they had changed the system as a consequence of certain instructions issued by the Collectorates. Moreover, no Trade Notice of the Indore Central Excise Collectorate under whose jurisdiction the appellants' manufacturing Unit is located has been produced before us to prove that they were guided by the jurisdictional officers. It is significant that as early as in March 1989, the Superintendent had sent a letter to the appellants which, though not in the form of a show cause notice, nevertheless brought to their notice, the irregular availment of Modvat credit by them by pointing out the very same allegations as were subsequently contained in the show cause notice. The appellants had, thereafter, taken up the matter with the Collector and other authorities and had even in their letter dated 12th June 1989 to the Collector requested him for confirmation that the utilisation of credit during the relevant period was in order. The position taken in this letter, to quote, is as under:
During the period 86-87, 87-88 and 88-89, we received various quantities of raw-materials for use in the manufacture of detergent powders, bars and soaps all of which fall under the same Chapter number i.e. 34. In view of various clarifications issued by the Ministry allowing maintenance of RG 23A Part II Accounts on a chapterwise basis and in view of the fact that all the goods produced by us at our factory at Chhindwara fall under Chapter 34, we had since 1.1.1987 maintained only one single RG 23A Part II. We have now received a letter dated 4.3.1989 from the Inspector, Central Excise, Incharge of Factory, which is self-explanatory. The said letter directs us to debit an amount of Rs. 69,86,695.88 in our PLA account and take corresponding credit in RG 23A Part II Account on the ground that the Modvat credit of duty paid on inputs for Surf and soaps were used for payment of duty on Rin and the Modvat credit of duty paid on inputs of Rin were used for payment of duty on Surf. The utilisation of credit as worked out by the Inspector has occurred basically because no one-to-one correlation has been maintained for payment of duty through RG 23A Part II, since maintenance of a single Part II account has been permitted by most Collectorates.... From this it would be clear that the entire Modvat credit of duty paid on Surf could have been more than offset against payment of duty on finally packed Surf cleared from our factory and similarly, the duty on Rin and soaps were far in excess of the Modvat credit availed thereon.
14. Thus, the appellants did not take a categorical position and did not deny 'the allegation or provide their own calculations to contest the demand which had been worked out on the basic principle of the Modvat Scheme.
15. The fact that the appellants had stopped maintaining productwise accounts in December 1986 has nothing whatsoever to do with the instructions of the Central Excise Collectorates issued in May" 1987. This was apparently an independent action taken after properly understanding the implications thereof. This itself would show that the appellants were guided by their own considerations in maintaining Chapterwise accounts. We have seen that even when Chapterwise accounts were prescribed, the manufacturers were required to furnish a monthly statement indicating the position productwise and the" credit taken on the inputs of each product. In their letter, dated 7th August, 1989 to the Inspector, Central Excise, Chhindwara, the appellants had to refer to oral instructions of Shri B.M.S. Rao, the then Superintendent, Central Excise, Seoni under which they had switched over to maintenance of consolidated RG-23A Part II Account with effect from 1.1.1987. The Collector has rightly rejected this claim on the ground that no evidence has been produced in support of such instruction.
16. Even reference to Question No. 14 and its answer in the Modvat Guide does not help the appellants. We reproduce the Question and its answer below:
Question 14: What are the accounts to be maintained by a manufacturer availing credit of duty?
Answer: As soon as duty paid inputs are received in the factory, the particulars of the inputs/quantity received, duty paying documents and other information as required under RG 23A Part I Account should be entered in the said account. While all receipts have to be entered in the prescribed account, the manufacturers may continue to have their stock accounts such as bincards, etc. for the inputs. Instructions have been issued to the officers of Central Excise to allow suitable relaxation relating to maintenance of stock accounts depending upon the number of inputs/varieties of inputs received by the manufacturers. Wherever so permitted, the stock accounts such as bincards, etc. would have to be made available to the Central Excise Officers for inspection whenever So required.
The particulars of credit taken would have to be entered in the RG 23A Part II Ac-count giving the various details as required. The manufacturer will maintain the RG 23A Part II register chapterwise. During the course of the month, the manufacturer can utitlise the Modvat credit by debit without indicating the details separately each final productwise. However, to ensure that there is no misuse of the Modvat credit (like ineligible inputs being taken for Modvat credit), the manufacturers would be required to submit a monthly statement along with the RT-12 return, indicating separately for each final product, the details of the input duty credit availed of.
(Emphasis added)
17. It will be clear that the answer itself stipulates that in order to ensure that there is no mis-use of the Modvat credit (like ineligible inputs being taken for Modvat credit) the manufacturers would be required to submit a monthly statement along with the RT-12 Returns, indicating separately for each final product, the details of the input duty credit availed of. Thus, the very question and its answer on which the appellants have sought to rely, explains the position so clearly and talks of mis-use of ineligible inputs being taken for Modvat credit, as if the allegation in the show cause notice was before the authorities while framing the question and its answer. The case laws cited by the appellants does not help them because the above discussions would show that this was a case of mis-use of credit.
18. The appellants point that, in the absence of allegation of wilful mis-statement etc. in the show cause notice, no demand could be made for the extended period, has been contested by the learned SDR by claiming that the allegation of "mis-use of Modvat credit" is wide enough to cover the allegation of wilful mis-statement and that misuse of Modvat credit is always a case of mis-statement. We observe that quite apart from the basic provisions of law that credit of duty could be taken only for those inputs which are used in the manufacture of the declared final product, (and the appellants have not disputed the allegation that they have utilised credit of certain inputs which were not used in the manufacture of declared final products), the requirement of the law was to maintain proper accounts in Forms RG 23A Parts I & II indicating how the credits were taken and how they were utilised. If therefore, credit has been taken on inputs which did not go into the manufacture of the final product, it has to Be recovered in accordance with the provisions of Rule 57-I. Now the question which has to be seen is as to what were the documents/accounts required to be maintained and whether, as claimed by the learned SDR, misuse of the credit can be interpreted to mean "wilful mis-statement" in the circumstances of the present case.
19. The accounts prescribed under Sub-rule (3) of Rule 57G are RG-23A Parts I & II and it appears from the proformas of these accounts that while Part I is a stock account of inputs, Part II is an Entry Book for Duty Credit. Sub-rule (4) of Rule 57G also provides that a manufacturer of final products shall submit a monthly return to the Superintendent of Central Excise indicating the particulars of the inputs received during the month and the amount of duty taken as credit, along with extracts of Parts I & II of Form RG-23A and shall also make available the documents evidencing the payment of duty on the inputs on demand by the proper officer. Sub-rule (1) of 57G provides that every manufacturer intending to take credit of the duty paid on inputs under Rule 57A is required to file a declaration indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products. A careful reading of these provisions of Rule 57-G would show that the requirement of making a declaration and maintenance of accounts in Form RG-23A Parts I & II and of submitting a monthly return indicating the particulars of the inputs received is basic to the utilisation of Modvat credit. The monthly" returns as stipulated in Sub-rule (4) for furnishing the particulars on inputs and the amount of duty taken as credit was not dispensed with by the Trade Notices relied upon by the appellants. The maintenance of account in RG-23A Part II Chapterwise did not mean that the appellant could have utilised the credit on inputs which were not used in the manufacture of the finished products even if all of them fell within the same Chapter. Thus, the basic requirement of eligibility for Modvat credit continue to be that each of the inputs is declared, the inputs are duty paid, they are used in the manufacture of the finished products, evidence of payment of duty on the inputs is available and the prescribed accounts are maintained so that the authorities concerned could make a proper verification. It also appears from Columns (9) to (11) of the proforma of the account prescribed in RG-23A Part II that the particulars of the gate-passes and the details of the basic and other duty have to be indicated while debiting the credit. It follows from this that wrong credit is taken of inputs which are not utilised in the manufacture of the final product, the entries made in the RG-23A Part II account and in the corresponding gate-passes would be a mis-statement of the facts. As to whether such entries are made wilfully or otherwise would have to be judged from the circumstances of the case.
20. We have found that the appellants were maintaining a productwise account till the end of December, 1986 and had switched over to maintaining Chapterwise account from 1st January, 1987--well before the Central Excise authorities issued instructions relaxing this requirements. The fact that the appellant had continued to maintain product-wise account up to the end of 1986 and switched over to a different system thereafter would itself lead to the inference that the appellants were aware of the implications of the change of practice which they adopted on their own. Apparently, this resulted in financial gains to the appellants inasmuch as they utilised credit of certain inputs which were not used in the manufacture of the declared finished product by clubbing all the inputs under one Chapter. In the circumstances of this case, it has to be presumed that they were aware of the financial gains which accrued to them by such a practice and the consequent loss of revenue. Such a conduct cannot lead to any other inference except that it was done wilfully with a view to deriving financial gain. In this view of the matter, we agree with the learned SDR that mis-use of the credit arose out of mis-statement of entries in the accounts in RG-23A Fart II and gate-passes under which the final products were cleared. We have also seen how in the circumstances narrated here this was done wilfully.
21. The appellants were working under the self-removal procedure and are a well established Company having all the facilities for maintenance of accounts and understanding of the law and the procedure. They had also maintained productwise account till the end of December 1986 and then chosen to switch over to Chapterwise maintenance of accounts on their own. They have not placed any letter or correspondence in support of their claim that they had done so in pursuance of any instructions of the Range Superintendent. They have derived a monetary benefit by misuse of the Modvat credit and the exercise, as contended by Shri Lodha, was not revenue neutral. In these circumstances, imposition of penalty was called for and was permissible under Rule 173Q(bb) which has a specific provision to cover cases of this nature. The order imposing penalty can be sustained even when it is held that it was not permissible for the Collector to invoke Rule 9(2), reference to which had been deleted by the Corrigendum.
22. Considering the loss of revenue, we do not think that the penalty of Rs. 5 lakhs was, in the circumstances of this case, excessive. The appeal, therefore, fails and it is dismissed.
The cross-objection is also disposed of accordingly.
Dt. 24.4.1992 Sd/- (N.K. Bajpai) Technical Member.
Per Shri S.L. Peeran.-I have gone through the order prepared by the learned Member (Technical) but I could not persuade to agree to his findings hence I am recording a separate order.
24. The appellants contend that they are manufacturing inter alia, soaps and Organic Surface Active Agents at its various units in India. They manufacture detergents cakes (RIN) and Surf detergent powder both falling under Chapter 34 of the Central Excise Tariff. The present appeal relates to availment of Modvat credit on inputs used in the manufacture of final products OSAA and Rin in their factory situated at Chhindwara, M.P.
25. It is stated by them that the Modvat Scheme was introduced with effect from 1.3.1986 vide issue of Notification No. 176/86 dated 1.3.1986 and vide Notification No. 177/86 dated 1.3.1986 issued under Rule 57A of the Rules, by which the various inputs which are eligible for Modvat credit when used in the manufacture of specified final products were stipulated. It is stated by them that as comtemplated under Rule 57G of the Rules, they had submitted a Declaration vide letter No. Nil dated 12.3.1986 detailing therein the various inputs that would be received for use in the manufacture of final products specified therein; the same has been acknowledged by the Department. It is stated by them that the final products like Rin and Surf Powder fall under the same Chapter subheading No. 3402.90 and the raw material inputs falling under various chapters as specified in the aforesaid Declaration were covered by Notification No. 177/86, they claim that they are entitled for availment of Modyat credit. They were accordingly maintaining the statutory account of RG 23A Part II separately for each brand of the final products, though they were covered under Chapter 34 of the Central Excise Tariff, 1985.
26. It is stated by them that it was subsequently clarified by the Excise authorities that a consolidated RG 23A Part II on chapterwise could be maintained. It is further stated by them that this was in response to the various representations made by the Trade stating the difficulties experienced in maintaining separate account for each final product, especially where a large number of final products were made out of some inputs and where the same inputs were used in different final products as was the case with the appellants and in accordance with the decision of the CBEC to permit the manufacturer to maintain consolidated RG 23A account. They say that various Collectorates had also issued trade notices in this regard and, therefore, they started maintaining a consolidated account in RG 23A Part II from 1.1.1987. They say that they took adequate care to ensure that separate accounts in RG 23A Part I was being maintained so that receipts and issues in respect of each input was recorded separately and that there was no overlapping. They also filed a monthly RT 12 return along with a copy of the RG 23A Part I account and the RG 23A Part II account was also submitted together with gate passes of the inputs for due scrutiny and assessment by the Central Excise Authorities. They state that they were fully complying with all the requirements of the Modvat Rules as well as maintaining RG 23A account as clarified by CBEC.
27. However, the Range Superintendent directed the appellants vide letter No. Modvat Credit/HLL/Chd/87/150 dated 4.3.1989 to regularise the utilised credit in relation to inputs for Surf for payment of duty on RIN and credit utilised for input of RIN towards payment of duty on SURF. The Superintendent directed the appellants to regularise the above credit utilisation by debiting in PLA account and take credit in RG 23A Part II. The appellants contended that as they had switched over to the consolidated maintenance of RG 23A account only in accordance with the Departmental clarification issued from time to time, and as there was no irregularity whatsoever in such a cross-utilisation, as also as they had taken precaution to ensure that the statutory requirements are fulfilled and the revenue interests are protected; they contend that they made representation detailing the basis on which the accounts were being maintained in a consolidated fashion accompanied by supporting Departmental clarifications. The Department not being satisfied with the explanation furnished by them issued a show cause notice dated 7/9.11.1989 signed by the Assistant Collector of Central Excise, Jabalpur.
28. It is alleged in the show cause notice that the appellants had contravened the provisions of Rule 57A to 57I of the Central Excise Rules, 1944 inasmuch as they misused the Modvat credit to the tune of Basic Excise duty of Rs. 66,13,756.32 and Special Excise duty Rs. 3,72,991.56 towards the payment of excise duty on various finished products viz. Rin, Detergent Cake, Surf Powder and Lifebuoy Soaps manufactured and cleared by them during the years 1986 to' January 31st, 1989. It was stated in the Show Cause Notice that the appellants are engaged in the manufacture of two different types of detergent, namely, Rin detergent cake and Surf Powder both falling under Heading No. 3402.91 and Lifebuoy Soap falling under Heading No. 3402.10 of the Central Excise Act, 1985. The inputs used in the manufacture of above said finished, products are distinct and separate for each of the final products, the party was required to maintain a separate RG 23A Part II register for the purpose of taking credit of duty paid on inputs and for further uitilising the credits so available towards payment of excise duty on the clearance of their respective finished products as said above.
(Emphasis supplied) The finished products and their related main inputs are as under:
Finished Products Main Inputs
1. Rin Detergent Cake (i) Sulphonic Acid (3402.90)
(ii) ST P P (2835.00)
(iii) Soda Ash (2836.10)
(iv) P L A B (2905.13)
(v) Perfume (3302.90)
2. Surf Powder (i) Bulk Surf Powder (3402.90)
(ii) PP Films
3. Lifebuoy Soap (i) Soap Noodles
It is further alleged that the party have maintained a consolidated RG 23A Part II register in respect of all the inputs and kept on paying excise duties through the same, irrespective of the fact whether or not the inputs in respect of which the credit was lying in balance were used in the manufacture by way of allowing credit in respect of the inputs used in or in relation to the manufacture of final product and for further utilising the credit so allowed towards the payment of duty of excise leviable on the said final products. On scrutiny of RG 23A Part II register it has been found that the said party had used the Modvat Credit as under:
Credit of duty paid on inputs of Surf & Credit of duty paid on inputs of RIN Soap used for payment of duty of RIN used for payment of duty of Surf Rs. 2,53,847.47 SED Rs. 1,10,57I.61 BED Rs. 3,72,991.56 SED Rs. 1,58,933.18 BED Rs. 58,70,915.77 SED Rs. 2,19,436.29 BED Rs. 66,13,756.32 Basic + Rs. 3,72,991.56 SED The appellants were called upon to explain as to why the said credit of the above amount should not be disallowed and amount recovered under Rule 57I of the Central Excise Rules, 1944 read with Section 11A of the Central Excises & Salt Act, 1944 and why penalty should not be imposed under Rule 9(2), 173Q(bb) & 210 of the Central Excise Rules, 1944.
29. The Collector of Central Excise, Indore by his letter dated 11/12.1.1990 issued a corrigendum to the show cause notice by which it was stated that the show cause notice shall be deemed to have been issued by the Collector in exercise of the powers conferred upon him under Rule 6 of the Central Excise Rules, 1944 with the following amendment/corrigendum:
(i) In para 4 of the show cause notice for the words "the Assistant Collector, Central Excise, Division, Jabalpur" please read as "the Collector, Central Excise, Manik Bagh Palance, Indore", and the words "read with Section 11A Of the Central Excises & Salt Act. 1944". and "(Rule 9C2V shall be deemed to have been deleted.
(Emphasis supplied by me)
30. The appellants filed a detailed reply dated 5.3.1990 to the show cause notice. Inter alia, they contended that they had filed a declaration and thereafter maintained a consolidated account in RG 23A Part II from 1.1.1987 and separate accounts in RG 23A Part I was however maintained for each of the inputs wherein the receipts and issues were accounted for separately. They were filing RT12 return along with a copy of RG 23A Part I account and the RG 23A Part II account was also submitted together with gate passes of the inputs for due scrutiny and assessment of Central Excise authorities. On the basis of submission of such documents and copies of RG 23A Part I & II maintained, the various RT 12 returns had been duly assessed with respect to the credits availed and such assessments had been completed for the period in question i.e., from January, 1987 to January, 1989. It is stated by them that Superintendent after scrutiny of their records had issued a letter dated 4.3.1989 and in terms of that letter, they were required only to regularise the problem of debiting the amount of credits alleged to have been incorrectly availed in the PLA account and were also directed to take the credit of the corresponding amount in RG 23A Part II account. They state that in response to this letter they made a representation detailing the background leading to cross utilization of credits, which was also in terms of various departmental clarifications issued on maintenance of account in Form RG 23A Part II wherein it was clarified that a manufacturer may be allowed to maintain RG 23A Part II chapterwise. They relied on trade notice No. 63/87 dated 11.5.1987 issued by Cochin Collectorate, Trade Notice No. 29/87 dated 1.5.1987 issued by the Bombay-I Collectorate. The following defences were raised by them:
(i) That the entire show cause Notice is clearly barred by the period of limitation prescribed under Rule 57I since it seeks to recover credits availed by them beyond the six month period. It is not open for the authorities to issue a Show Cause Notice which covers a period in excess of six months limitation as comtemplated under Rule 57I the only rule involved in the Show Cause Notice seeking to recover the amounts allegedly availed of in an incorrect manner. There is no allegation of their having taken the credit on account of any willful mis-statement, collusion or suppression of facts in order to enable the department to invoke the period of 5 years as comtemplated under the proviso to Sub-rule 1(i) of Rule 57I of the Rules. Without such an allegation in the show cause notice, the proviso to the said Rule cannot and does not get attracted in view of which the limitation cannot extend beyond the six month period prescribed under Rule 57I.
(ii) They were maintaining separate account for each brand of final product till 31.12.1986 and from 1.1.1987 they maintained a consolidated RG 23A Part II account for all the inputs used in the month of final product falling under the same chapter i.e., Chapter No. 34 based on the Department's clarification regarding maintenance of consolidated Part II account chapterwise. An appropriate declaration giving details of various inputs in the manufacture of specified final products along with the chapter sub-heading numbers was filed before Assistant Collector and an acknowledgement obtained prior to the availing the Modvat credit. At the end of each month along with RT 12 returns, copies of RG 23A Part I account and Part II account were also submitted to the Department for scrutiny and assessment. The Superintendent in charge was fully aware of the manner of maintenance of the account in Form RG 23 A Part II. The Department had not raised any objection on this practice. Notification No. 177/86 clearly deals with chapterwise Modvat credit for final products and inputs and so long as it has been proved that the various inputs falling under declared chapters were used in the manufacture of final products falling under a given chapter and further if both the inputs and the final products are specified under the said notification/the Modvat credit ought to be admissible.
(iii) There is no working done to establish as to whether the credits availed of duty paid on inputs was in excess of the duty payable on the final product Surf and similarly for any of the other final products. They state that they had filed a detailed working along with representation on 12.6.1989 and it would clearly indicate that the credits availed on the inputs were far less than the duty payments on either of the final products. Therefore, even assuming that the RG 23A Part II account was to be maintained on productwise basis, the duties payable on the final product were capable of more than absorbing the total Modvat credits availed on the inputs relatable to the said final products individually. They contend that if the not result of payments through RG 23 and PLA if taken together clearly shows that there has been no loss whatsoever to the Revenue and it is only because of maintenance of the Rg 23 Part II account in a consolidated manner that there has been cross utilisation of credits against different brands of finished products falling within the same chapter and in respect of a major portion thereof falling within the same chapter sub-heading number. It is asserted by them that it is in the light of this situation the Superintendent had by his letter dated 4.3.1989 required them to only carry out a rectification of the alleged error by debiting the said amount in PLA and taking a corresponding entry in the RG 23A Part II account. It is stated by them that there was no intention of the Department to seek to disallow the credits availed by them altogether and rightly so and this clearly indicates that it was only a book adjustment that was required to be made in order to rectify the situation. They contend that such an adjustment would only be an exercise in futility since the credits availed even if taken on a brand wise basis were far less than the duty payment on the finished products and this ought to be appreciated without their having to make debits/credits entries not effect of which would net result in any revenue realization for the Department.
(iv) They contend that even assuming that they had availed of Modvat credit of inputs on the basis of each brand of the final products, the position of Modvat Credit and duty payments during the relevant period would be so follows:
MODVAT CREDIT DUTY LIABILITY ON
FINAL PRODUCT
RIN 9,09,46,296.88 17,75,75,371.29
SURF 3,19,09,693.96 4,19,83,049.48
They say that from the above statement it is clear that duty payments made are far in excess individually for each of the brands of the final products detailed above. It is further stated that the allegation of that Modvat credit ought to be disallowed since it has been used for payment of duty on other final products in which the inputs were not used is not valid given the above facts and circumstances. They say that if the Department held this view, it ought to have communicated the same to them much earlier in which case, they would have maintained separate RG 23A Part II account. They say that the net result would have been realization of the same amount of duty by the Department. They contend that having accepted the method of maintenance of records for well over three years, it was not open for the Department to now turn around and disallow the credits on the ground of their not having maintained separate account in RG 23A Part-II.
(v) They have also pointed out that the Department has also not alleged about non-filing of declaration or of revenue loss or inputs not having been received without duty paid accounts, and that there is no allegation of clearance of goods without payment of appropriate duty, etc.
(vi) They also contend that Rule 173 could not be involved in the present case.
31. The learned Collector after affording a personal hearing rejected the appellants contention and confirmed the demand. In his crisp and brief findings at paras 4.2 & 4.3 he has held as follows:
4.2. The case relates to wrong availment of Modvat credit amounting to Rs. 66,13,756.32 (BED) Rs. 3,72,991.56 (SED) by the noticees during the period 1986-87 to 1988-89.The Notices had cross utilised the Modvat Credit of duty paid inputs of Rin towards the excise duty payment of final product of Surf and the credit of duty paid inputs of Surf towards the payment of duty on the final product of Rin.
4.3. As required under Rule 57(F)(1) of the Central Excise Rules, 1944 the inputs in respect of which a credit of duty has been allowed under Rule 57A may be used in or in relation to the manufacture of final product for which such inputs have been brought into the factory. But in this case the Noticees had wrongly utilised the Modvat credit of duty paid inputs of Rin towards the excise duty payment of final product of Surf and that of Surf towards the payment of duty of final product of Rin, which is not permissible under Central Excise Law. I do not agree with the contention of the noticees that this should be treated as mere procedural lapse. This is not a procedural lapse but it is wrong availment of Modvat credit. The Noticee's contention that the procedure followed by them is based on the guide to Modvat issued by the CBEC is not tenable. In fact it is clearly provided under the Modvat procedure that separate record of inputs should be maintained final productwise.
The salient and basic feature of the Modvat scheme is that credit taken in respect of inputs can be utilised for payment of duty on the final products manufactured from such inputs. They have to debit in RG 23A Part II register the duty of excise payable on final products inputwise. Separate RG 23A Part II register for each of the final product should be maintained. The case law referred to in Collector of Central Excise v. Vikrant Tyres Ltd. 1986 (9) ECR 616 is not relevant in this case. The Noticee is entitled to pay the Modvat credit wrongly availed by them. Ordered accordingly.
The contention of the Noticee that the demand is time barred, is not correct. I find from the case records that the assessments were provisional and have not been finalised till issue of the show cause notice. Thus the limitation is not applicable. The Noticee's contention that they started maintaining a consolidated RG 23A Part II record as per the instructions of the Range Superintendent which is not correct. The Noticee could not produce any evidence in support of their contention. Moreover, it is found that the party was maintaining separate RG 23A Part II w.e.f. 1.8.1986 till December, 1986 and thereafter immediately changed the practice and started maintaining RG 23A Part II in consolidated form against the prescribed procedure.
From the above it is evident that the Noticee had wrongly availed the Modvat credit with intention to evade payment of central excise duty. They had availed Modvat credit on account of wilful mis-statement. In view of this the extended period of limitation as provided under Rule 57I will be applicable here. Under these circumstances I hold that extended period of limitation will be applicable in this case and the Noticee is also liable to a penalty.
In view of the foregoing discussions I pass the following order:
ORDER The Noticee shall pay the credit of Rs. 69,86,747.88 (Rs. Sixty nine lakhs, eighty six thousand, seven hundred forty seven & paise eighty eight qnly) under Rule 57-I of Central Excise Rules, 1944.
Having regard to the facts and circumstances of the case I impose a penalty of Rs. 5.00.000/- (Rs. Five lakhs only) on M/s. Hindustan Lever Limited, Chhindwara, under Rule 9(2), 173Q(bb) and 210 of Central Excise Rules, 1944.
32.(i) The appellants in this appeal inter alia have contended that Rule 57I of the Rules is a specific provision and is a self-contained code and steps taken for disallowance or recovery of Modvat wrongly availed under the provisions of Rule 57I would need to be covered by limitation as prescribed in the said Rules. Rule 57I specifically provides that such proceedings can be initiated only within a period of 6 months from the date of such credit. The extended period of five years can be involved only when credit has been taken on account of wilful mis-statement, collusion or suppression of facts on the part of the manufacturer. They contend that there is no allegation of either mis-statement or suppression or collusion on their part in having availed Modvat in respect of inputs and hence the proceedings would be covered by 6 months limitation as prescribed from the date of credit availed and therefore the show cause notice is time barred. They contend that extended period of limitation can be invoked only when evidence available on record clearly establish that there was suppression of fact on their part. They contend that there is no evidence at all and that as they were maintaining RG 23 Part II account productwise until the end of 1986 and thereafter based on the CBEC clarification and trade notices, they started maintaining consolidated Part II account and information regarding the same had been regularly provided together with RT 12 submitted in the relevant months.
(ii) They contend that there is no dispute about the receipt of the duty paid inputs into the factory duly supported by authenticated duty paying documents and their use in the manufacture of final products, nor is there any doubt the fact that the subject inputs were received into the factory without being tampered with in any manner. They contend that no sooner all the preconditions for availment of Modvat credit are complied with by them a vested right for availment of the substantive benefit of Modvat credit is created in their favour and it is not open for the Department to curtail such a right by bringing in extraneous requirements into the scheme which is unwarranted and illegal and hence the impugned order is required to be set aside.
(iii) They contend that a plain reading of Rule 57A with Notification No. 177/86 would reveal that to qualify for Modvat credit, the requirements to be fulfilled are that the inputs and the final products should fall under the specified chapters referred to in column 2 and column 3 respectively of the Table annexed to Notification No. 177/86 and once they were covered under any of these chapters, then the duty paid on the inputs is available as credit to the manufacturer which can be utilised towards payment of duty on the final products at the time of their clearance subject to the restrictions imposed. They contend that these restrictions namely filing of 57G declaration, receipt of inputs supported by duty paying document, maintenance of RG 23A Part I & II account, etc. are merely of procedural nature to ensure that there is no misuse of the benefit of Modvat credit. They contend that at best their case represents an example of technical irregularity as Rule 57A Scheme read with Notification No. 177/86 nowhere provides for obligation on an assessee to maintain chapterwise RG 23A Part II accounts.
(iv) We have heard Shri C.S. Lodha, learned Advocate for the appellants and Shri G. Bhushan, learned SDR for the Revenue.
34. Shri Lodha, learned Advocate, while reiterating the stand of the appellants raised three prepositions of law, which have already been noted by Member (Technical) in his order. He contended that the appellants had maintained the RG 23A Part II as per questions 14 & 15 and answer to it as provided in the Modvat Guide issued by the Government. He contended that these instructions were changed during May, 1990 and, therefore, these instructions cannot be applied retrospectively. He contended that the Revenue has not lost a penny in this case. The excess payment in one product is adjusted into PLA of another product and contended that it is permissible as both the final products fall under Tariff Item 34 of Central Excises Tariff, 1985. He further contended that the amounts required to be paid through PLA had been done and whatever credit was entitled, it had been utilised and hence there is no short payment in PLA. He filed a chart showing the details as follows:
Product Duty Liability
Credit: 11.81 crores
RG23 - 12.44 crores
RIN 22.97 crores
PLA - 10.53 crores
Credit: 3.39 crores
RG 23 - 2.95 crores
SURF 4.50 crores
PLA - 1.55 crores
(have paid extra 44 lakhs)
Credit: 0.57 crore
RG 23 - 0.34 crore
SOAP 0.57 crore
PLA - 0.23 crore
(need not have paid anything in
PLA)
Total 28.04 crores
x + y + z = 15.73 crores (RG-23)
a + b + c = 12.31 crores (PLA)
All credits = 15.78 crores (Credits)
35. He further contended that once the allegations under Section 11A had been dropped, it was not open to the learned Collector to upholding the charges for extended period when there is no allegation of wilful mis-statement, suppression or fraud. He contended that wrongful utilisation or misuse of credit as alleged in show cause notice cannot be equated with the ingredients for invoking larger period, namely willful mis-statement, suppression or fraud. He contended that the Department had not disputed about the inputs having being duty paid and, therefore, incorrect utilisation even according to Department cannot be considered as wrongful utilisation of credit as laid down under Rule 57-I of the Rules. He contended that Rule 57-I was amended on 6.10.1988 but no allegation of mis-statement had been made in the show cause notice. The Rule 57-I was specified for recovery for 6 months only and that the Collector confirming it for 5 years was beyond the scope of Rule 57-I. He further contended that as per Question 20 of Modvat Guide it did not provide for one to one correlation also. He pointed out that the Collector had held that the assessments were provisional, if it were so then there cannot be a show cause notice under Rule 57-I. He further contended that the Collector had no jurisdiction to take over the proceedings from Assistant Collector and such an action is ultra vires. He further contended that when Rule 9(2) had been dropped the question of imposing penalty under Rule 173Q did not arise. He relied on the following rulings:
1. Chemiequip Limited v. Collector of Central Excise, Thane
2. Indian Oil Corporation Ltd. v. Collector of Central Excise, Patna
3. Godfrey Phillips v. Union of India
4. Mysore Prefabs and Prefabs India v. Collector of Central Excise, Bangalore
5. Sundaram Fasteners v. Collector of Central Excise, Madras
6. Punalur Paper Mills Limited v. Collector of Customs, Cochin
7. Gujarat State Fertilizer Co. Ltd. v. Union of India and Ors. 1988 (34) ELT 442 (SC) : 1989 (20) ECR 264 (Gujarat)
8. Collector of Central Excise v. Sarabhai Chemicals
9. Pratap Rajasthan Copper Foils & Laminates Limited v. Collector of Central Excise
10. Torrent Laboratories Pvt. Ltd. v. Union of India and Ors. 1990 (30) ECC 142 (Gujarat) : 1991. (32) ECR 381 (Gujarat)
11. Maschmeijer Aromatics I. Ltd. v. Collector of Central Excise
12. Collector of Central Excise v. TELCO
13. Ennore Steel Enterprises Ltd. v. Union of India
14. Grasim Industries Ltd. v. Collector of Central Excise
15. Collector of Central Excise v. Memory Steel Pvt. Ltd.
16. Collector of Central Excise v. Ashim Paper Products (P) Ltd.
17. M.R.F. Limited v. Collector of Central Excise
18. Tungabhadra Steel Products Ltd. v. Superintendent of Central Excise and Ors. 1991 (33) ECC 140 (Ker.) : 1992 (40) ECR 87 (Karnataka)
19. New Polymer Industries v. Collector of Central Excise
36. Shri Bhushan, learned SDR placed on record a report of the Assistant Collector of Central Excise which has already been incorporated in para 11 by Member (Technical). He contended that misuse of Mod vat credit is always a case of suppression. He contended that inputs declared for one product cannot be used for other products. By so doing it comes within the ambit of mis-statement. He contended that PLA has to be productwise. He further contended that there is no difference in Board's instructions and these instructions do not override the specified provisions of Rule 57I. There is a clear violation of Rule 57I. Shri Bhushan fairly conceded that the Collector's finding that the assessments were provisional is not valid and more so in cases of Modvat. He contended that it is a case of wrong availment of Modvat credit. He contended that the ward 'misuse' used in show cause notice would mean misrepresentation. There is short payment of duty and the party has tried to misread the rules according to their fancy instead of correctly following the rules. He contended that penalty can be imposed under Rule 173BB for wrongful utilisation of credit or for contravention of Rule 57I, 57A. Even if this Rule 173BB is not cited, it does not absolve the Collector from imposing the penalty. He contended that wrong citation of rule will not vitiate the proceeding. He contended that transfer from one head to another head is not permissible unless permitted by the authority.
37. Shri Lodha countering the arguments of learned SDR contended that all the details required including declaration, statutory forms and returns had been filed from time to time and assessment finalised. Therefore, the issue of show cause notice within 6 months was mandatory. He contended that there is no willful misuse and that there is also no wilful mis-statement nor there is no collusion, suppression of facts or fraud. He contended that Modvat Scheme was quite new and everything was strange and the appellants by following the instructions given in Modvat Guide had not committed any wrongful utilisation with any deliberation to evade duty. The appellants had followed the trade notices to the best of their understanding. He contended that there is no "suggestion falsi & supprossio veri". He contended that in the proviso to Section 11A there is no word of "misuse" and the Collector cannot incorporate it in the proviso to make out a case for extended period of five years.
38. On a careful consideration of the submissions made and on perusal of the entire records, the question that arise for our determination as to:
(i) Has the appellant by maintaining a consolidated RG 23A Part II in the manner alleged misused the Modvat credit to the tune of basic duty of Rs. 66,13,756.32 and Rs. 3,72,991.56 of special excise duty towards the . payment of excise duty on various finished products viz. Rin, Detergent Cake, Surf Powder and Lifebuoy Soaps manufactured and cleared by them during the years 1986 to January 31,1989 and can the credit of the said amount be disallowed and recovered under Rule 57I of the Central Excise Rules, 1944;
(ii) Can the demands be confirmed for five years in absence of a charge under the proviso of Section 11-A read with Rule 9(2) of the Act & Rules respectively;
(iii) Can the penalty be imposed under Rule 173Q(bb) and 210 of the Central Excise Rules, 1944.
39. The details of Modvat Credit Scheme are given in Rule 57A to 57J and the notification issued under these rules. The conditions and step-to-step procedure for availment of Modvat Credit Scheme is as under:
Step 1: Since Modvat Credit Scheme is applicable only to notified inputs and notified finished excisable goods, the assessee should ensure that both his inputs as well as finished excisable goods are duly notified under Rule 57-A (See Notification No. 177/86-CE).
Step 2: Modvat Credit Scheme is inapplicable where the finished excisable goods are exempted from the whole of duty of excise or chargeable to Nil rate of duty. The assessee should ensure that the finished products manufact-
ured by them are not fully exempted or chargeable to Nil rate of duty.
Step 3: The assessee interested in taking credit under Modvat Scheme, should file a declaration in the prescribed proforma and should obtain an acknowled-
gement thereof.
Step 4 After the filing of the declaration and obtaining dated acknowledgement, the assessee is authorised to take credit under the Modvat Credit Scheme as no formal permission is required.
Step 5: The assessee should maintain prescribed records and file monthly statements.
The Notification No. 177/86-CE permits the utilisation of credit availed on notified input in relation to the notified finished product for the manufacture of which the input had been brought. Clause (i) to Rule 57 F(l) initially restricted the utilisation of Modvat Credit only 'in relation to the manufacture of final products for which such inputs have been brought into the factory'. But by an amendment to Sub-rule 3 of the Rule 57F of the Central Excise Rules, 1944 now such correlation is not necessary and accordingly the credit earned to any notified input can be utilised towards payment of excise duty on any notified finished excisable goods under the Modvat Scheme.
40. Under the Modvat Scheme, there are two basic conditions. First the finished goods should not be exempted and secondly, the input should be used in the manufacture of declared finished goods. Thus, where the Modvat credit earned is more, than the duty payable on the finished goods manufactured out of such inputs, then both these conditions are satisfied. The modvat in such a case is permissible particularly when batch to batch correlation between the input and the finished product is not necessary. The credit accumulated on this account can be utilised towards payment of duty on any final product for the manufacture of which inputs were intended to be used. This is the view taken in the case of Tata Yodogawa Ltd. v. Collector of Central Excise as laid down in para 4 which is reproduced below-
We observe that Rule 56A is in the nature of a simplified self-contained procedure for giving relief to the extent of duty paid on certain inputs used in the manufacture of specified end products. No batch to batch correlation of the inputs used and the end products cleared on payment of duty is prescribed. All that is prescribed is that the proforma credit taken should be utilised for payment of duty for clearances of specified end product for which the inputs are permitted to be utilised. The relevant operative part of Rule 56A(2) is set out as under-
The Collector may, on application made in this behalf and subject to the conditions mentioned in Sub-rule(3) and such other conditions as may from time to time, be prescribed by the Central Government, permit a manufacturer of any excisable goods specified under sub-rule (1) to receive material or component parts or finished product (like Asbestos Cement) on which the duty of excise or the additional duty under (Section 3 or the Customs Tariff Act, 1975 (51 of 1975))(hereinafter referred to as the countervailing duty), has been paid in his factory for the manufacture of these goods or for the more convenient distribution of finished product and allow a credit of the duty already paid on such material or component. parts or finished products, as the case may be-
Provided that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods-
(i) If such excisable goods produced by the manufacturer are exempt from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty, and
(ii) unless-
(a) duty has been paid for such material or component parts under the same item as the finished excisable goods, or
(b) remission or adjustment of duty paid for such material or component parts has been specifically sanctioned by the Central Government.
Provided further that no credit of countervailing duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods, if countervailing duty has been paid in respect of such material or component parts, as fall under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944).
Explanation--Credit of the duty allowed in respect of any material or component parts shall not be denied or varied on the ground that part of such material or component parts is contained in any waste, refuse or by product arising during the process of manufacture of the finished excisable goods irrespective of the fact that such waste, refuse or by product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is not notified under Sub-rule (1).
Provided also that if the duty paid on such material or component parts (of which credit has been allowed under this sub-rule) be varied subsequently due to any reason resulting in payment of refund to, or recovery of, more duty from the manufacturer or importer, as the case may be, of such material or component parts, the credits allowed shall he varied accordingly by adjustment in the credit account maintained under Sub-rule (3) or in the account-current maintained under Sub-rule (3) of Rule 9 or Rule 173G(1) or if such adjustments be not possible for any reason, by cash recovery from or, as the case may, refund to the manufacturer availing of the procedure contained in this rule.
It may be seen that the credit can only be varied in specified contingencies. As pointed out, the Revenue has not shown as to under which provision the credit is sought to be extinguished. In fact we find that under Sub-rule 56A(2) under which the procedure for utilisation of the proforma credit has been prescribed, Sub-rule vi(a)(a) provides that the proforma credit in respect of materials etc. used in the manufacture of the goods which are allowed export without payment of duty could be utilised for payment of duty on any finished excisable goods if the same type of material or the same of components are used in the manufacture of the same. Rule 56A being a self contained simplified procedure providing for ruling under parameters laid down therein, the benefit of proforma credit cannot be taken away without any specific provision in this regard under the rule. Inasmuch as no provision has been brought to our notice, we hold that the lower authority was not right in denying the benefit of utilisation of the credit found to be outstanding as held by the lower authority. We observe that all that is required under the rule is that the proforma credit taken-for the materials should be utilised for the payment of duty on the specified finished goods in the manufacture of which the imports are used. The Hon'ble High Court of Madras in the case of E.I.D. Parry (India) Ltd. Madras v. Government of India 1979 ELT J 253 : 1979 Cen-Cus 370D (Madras) have ruled as under in this regard.
What is contended on behalf of the petitioner, there is no obligation that the imported rock phosphates must be utilised in one and the same process and so long as it is properly accounted for, there is every satisfaction of Rule 56A(3)(vi). As against this, the department takes the stand that there must be a correlation between the actual quantity of the goods imported and the ultimate product that, according to the department is the real purport and intent of Rule 56A(3)(vi).
In order to appreciate the respective contentions, let me extract Rule 56A(3)(iv)-
Except to the extent provided in the second proviso to Sub-rule (2) the credit allowed in respect of any material or component parts shall be utilised towards payment of duty on the finished excisable goods in the manufacture of which such materials or component parts are used or on the materials or component parts themselves and no part of such credit shall be refunded in cash or by cheque.
By reading of this rule, I do not get the imptession that there is any obligation on the part of the manufacturer to correlate the Rock phosphates imported to the ultimate finished product. In this case, it is not denied, that the entire Rock phosphate imported, nemely 745...490 MT was utilised for the manufacture of fertilisers, may be 56C 298 MT was utilised, but later on the remaining quantity was also utilised. So long as there has been a complete utilisation, in other words, there is no misdirection of the imported goods, there is every compliance with Rule 56A(3)(vi). Undoubtedly, the meaning of the word "such" has been misinterpreted by the department and that is which led to this writ petition. Therefore, I hold that the writ petitioners are entitled to succeed. Accordingly the writ allowed. No costs.
We therefore, in view of the above, find the lower authority's order is not maintainable in law and allow the appeal with consequential relief.
41. Again this view was reiterated in the case of Sawottam Ispat Private Ltd. v. Collector of Central Excise by South Regional Bench at para 5 as follows On a careful consideration of the submissions made by the learned consultant and the learned DR, 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 57-G. 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 correlation 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 this rule in terms will not be a bar for utilisation of amount of credit which may accumnulate 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.
42. It has been further held in Cans and Closures Ltd. v. Collector of Central Excise, Calcutta-II as reported in 1992 (16) ETR 156 para 4 : 1992 (40) ECR 410 (Tribunal) that There is no requirement that the inputs used should be present in the final product in order to qualify for Modvat benefit. As long as they are used in or in relation to -the manufacture of the final products and are not specifically excluded from the scope of the benefits like machines, machinery appliances etc. in the explanation clause in Rule 57A or by the exclusion in Notification No. 177/86 dated 1.3.1986 Modvat credit has to be allowed. The cases cited by the learned Counsel definitely support their case as pointed out above. In the circumstances, the appeal is allowed. The appellants would be entitled to consequential reliefs.
From the understanding of the Modvat Scheme and the rulings noted above, it follows that the Modvat Scheme as laid down under Rule 57A of the Central Excise Rules, 1944 and the Notification No. 177/86-CE dated 1.3.1986, allows credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act. 1975 as may be specified in the said notification paid on the goods used in or in relation to the manufacture of the said final products and for utilising credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the conditions and restrictions that may be specified in the notification. From the understanding of this Modvat scheme and the notification issued thereunder and also the trade notices referred by the appellants, it is very clear that credit of any duty of excise is available only on the inputs which have been used in or in relation the manufacture of the said final products: subject to the various procedural formalities to be observed by the assessee, There is no provision or Notification*1 or Trade Notice or a ruling of a Court or Tribunal rendered till date which states that credit of duty paid on input could be utilised in respect of any other final product which is also mentioned in the notification but into which this input has not been "used in or in relation to the manufacture" of that product. As we have seen the scheme of Modvat is a beneficial piece of legislation and it is meant to reduce the cascading effect on the final product and to provide substantial relief by way of provision of credit of duty on inputs to reduce the final burden on a manufacturer. The Tribunal and the Courts, however, have taken a lenient view as regards procedural lapse in as much as, in the non maintenance of registers or in any some procedural lapse i.e. it has been held that such procedural lapse should not come in the way of utilisation of the Modvat Scheme under Rule 57-A. One such view expressed in the case of Maschmeijer Aromatics Ltd. v. Collector of Central Excise in para 6 is reproduced below:
We observe that Modvat Scheme under Rule 57A is a beneficial piece of legislation and benefit under the same has been made available subject to certain procedural requirements. Rule 57F provides for the manner of utilisation of the inputs and the credit allowed in respect of the duty paid thereon. Rule 57F(2) provides for the removal of inputs outside the factory for further processing. The said Rule for convenience of reference is reproduced below:
Rule 57F(2)-Notwithstanding anything contained in Sub-rule (1) a manufacturer may, with the permission of the Collector of Central Excise and subject to such terms, and conditions and limitations as he may impose, remove the inputs as such, or after the inputs have been partially processed during the course of manufacture of final products, to a place outside the factory.
(a) for the purpose of test, repairs, refining, reconditioning or carrying out any other operations necessary for the manufacture of the final products and return the same to his factory for further use in the manufacture of the final products, provided that the waste, if any, arising in the course of such operations is also returned to the said factory; or
(b) for the purpose of manufacture of intermediate products necessary for the manufacture of the final products and return the same intermediate products to his factory for further use in the manufacture of final products, provided that the waste, if any, arising in the course of manufacture of such intermediate product is also returned to the said factory. Provided that the said waste need not be returned to the said factory if the appropriate duty of excise leviable thereon has been paid.
It is seen that the requirement of Rule 57F(2) is that the appellants should apply for the permission in regard to the removal of inputs to the job worker outside the factory and the Collector may prescribe the limitations and terms and conditions for the purpose. Obviously the permission^ contingent upon the satisfaction of the Collector of the bona fides of the need to, send the goods outside for and he has been given the authority to lay conditions for the purpose to safeguard revenue. It is clear that the purpose is to ensure that inputs in respect of which credit has been taken are not utilised for purpose other than the one covered under the Modvat scheme as incorporated in the rules. In the instant case, since the appellants did not apply for the permission, the question of satisfaction of the Collector and his laying any conditions therefor did not arise when the goods were removed. However, later when the appellants became wise to the requirements of the rules, the question is whether in respect of the removals made before that do they stand debarred from the availment of the substantive relief provided under the rules for. the procedural lapse committed by them. To reject their plea for benefit because of the procedural lapse would be defeating the purpose of the rules which have been legislated to provide substantive relief by way of provision of credit of the duty on inputs to reduce the financial burden on a manufacturer. There is no provision as such in the rules for condoning of this lapse of the appellants by the authorities under the rules. The situation in the present case is similar to the one in the case of Chapter X procedure or Rule 56A procedure under which certain procedural requirements like application for availing of the benefit of the concession and the permission etc. for the same are provided. The issue regarding the non-compliance with these provision and the denial of the concession under the said provisions has come up before this Tribunal in a number of cases. This Tribunal has taken the decision that so long as there is substantial compliance with the provision of law as set out in a notification or of the rule, the benefit could not be denied for a procedural lapse. It is observed that the credit under the rules of the Modvat scheme is available if the inputs and the finished products are notified and a declaration in this regard is filed before the competent authority and an acknowledgement therefore is obtained. There is no dispute in this present case that the appellants have fulfilled these requirements. So far as the utilisation of the product is concerned, it has to be shown by the appellants that the inputs have been utilised for the finished end product declared by them as is notified under the relevant notification for Modvat concession. If this can be shown by the appellants, then it can be said that there is substantial compliance for the purpose of availing of the Modvat Credit. Merely non-application for the operations connected with the manufacturing processes inside or outside the factory cannot by itself terminate the availability of the Modvat concession. In any scheme of things there is bound to be some scope for misunderstanding, omission or lapse but unless it can be shown that there was a mala fide involved and that the substantive purpose for which the concession has been given was not fulfilled, only then the concession of beneficial provisions like Modvat credit should be denied. It is not to say that those who have availed of the concession are absolved or can give a go by to the compliance of the rules but each lapse should be examined with reference to the factories involved and the ultimate test would be whether the infraction is such that the verification from the Revenue point of view for ensuring that the concessional facility given for the legislative purpose cannot be done. Only after examining this aspect the benefit of the relief provided can be denied. In the instant case we find the appellants for subsequent period have been given permission for removing the same inputs for processing outside the factory and necessary parameters exist for the purpose of verification as to whether the inputs earlier removed were utilised for the purpose for which the Modvat concession had been legislated. In this background, therefore, we hold that the lower authority should re-examine the matter and determine whether with reference to the records it can be verified that the inputs which were sent out and after reprocessing have been received back and the ultimate use of the inputs is utilised for the end product. If the lower authorities are satisfied, then the benefit of concession should be given notwithstanding the fact that they failed to apply and take the necessary permission for the same. We observe that there is a provision in the Rules for penalising when anything is done in violation of the rules. The authorities are free to take nay action under the relevant provisions. We therefore in the facts and circumstances of the case, remand the matter to the lower authorities for de-novo examination and decision.
43. In this case, the allegation against the appellants is that they have utilised the credit on input of one finished product namely Rin Detergent Cake for payment of duty on another finished product namely Surf powder and Lifebouy Soaps manufactured and cleared by them during the years 1986-89. This allegation is sustainable and the assssee is not entitled to utilise the credit on input of one final product against the payment of duty on another final product. However, in this particular case, the appellants have taken a stand that they have maintained a consolidated RG 23A Part II register in respect of all the inputs and kept on paying duties through the same in respect of the finished excisable goods in terms of the Trade Notices and the clarification issued by the CBEC as both the final products come within the same Chapter Heading 34 of CET Act, 1985. This assertion of the assessee with regard to the cross utilisation cannot be sustained on the basis of permission granted to maintain a consolidated RG 23A Part II register. The Trade notice issued by Delhi Collectorate has already been extracted in the order written by Member (Technical). However, I find that the Trade notice No 62/90 of Bombay Collectorate is also on record and the same is also reproduced below:
Sub-Maintenance of Single RG 23 Part II-Permission-Reg.
Attention of the Trade is invited to this Collectorate Trade notice No. 29/87, dated 1.5.1987 wherein manufacturers were permitted to maintain a consolidated RG 23A Part II register Chapterwise.
2. The instructions contained in the above mentioned Trade Notice were issued with a view to facilitate utilisation of Modvat credit without indicating the details of input credit separately for each final product in RG 23A Part II during the currency of the month subject to the condition that a statement was submitted by the assessee showing input credit availed for each final productwise RT-12 return and excess credit availed, if any, was suitably adjusted. This was only a procedural relaxation and this did not overrule the basic principle of the Modvat Scheme that the credit of duty paid on the inputs should be utilised for payment of duty only on those products for the manufacture of which such duty paid inputs had actually been brought or in the manufacture of which they would be used.
(Emphasis supplied).
3. It has been observed that certain manufacturers of winding wires of copper and aluminium are being permitted to maintain a single RG 23A Part II for both the inputs and are allowed to utilise credit of duty paid on both the copper and aluminium wire rods for paying duty on any of the winding wires without insisting on submission of statement indicating each final productwise input taken and utilised, which results in availment of excess credit earned on aluminium inputs for payment of duty on copper wire which is irregular.
4. Rule S7A does not permit credit of duty paid on input to be utilised for paying duty on a final product in the manufacture of which the said duty paid input has not been utilised. While maintenance of consolidated RG 23A Part II can be permitted in such a case the assessee is required to submit a statement at the end of the month, showing credit taken on inputs such as copperwire rods and actually utilised on final products such as copper winding wires and similarly for aluminium wire rods and aluminium wires etc. Any credit utilised for paving duty on different final products has to be adjusted suitably and differential duty will be recovered if need be from PLA.
5. The assessees who are maintaining consolidated RG 23A Part II are, therefore, required to submit a statement in the proforma enclosed at the end of each month along with copies of RG 23 A Part II.
6. All the associations are requested to bring the contents of this trade notice to the notice of their member manufacturers in particular and trade in general.
From the reading of this Trade Notice and the underlined portion, it is very clear that the Trade Notice has clearly stated that it is only a procedural relaxation and did not over-rule the basic principle of Modvat Scheme that the credit of duty paid on the inputs should be utilised for payment of duty only on those products for the manufacture of which such duty paid inputs had actually been brought or in the manufacture of which they would be used.
44. The question now is as to whether the appellants having cross utilised the credit are liable to pay the duty amount demanded from them. In this context, the assessee has taken a stand that had they maintained 3 different RG 23 Part II accounts i.e. for Soaps, Surfs and Rins, all falling under Chapter 34, they will still have to pay through PLA after utilising the full Modvat credit against each of these products. They have contended that they would not be required to debit the amount of Rs. 69.87 lakhs in PLA and take corresponding credit thereof in their RG 23 Part II account. This has been the stand taken by them in their letter dated 12th June, 1989. They have urged the same grounds in reply to the Show Cause Notice and have forcefully contended throughout that even if they are to take the Modvat Credit against the respective inputs for the final products viz. a viz. the duty paid on the final products, still there will be no revenue liability. In this context, they have produced several working sheets which have been certified by the Chartered Accountant. The learned Collector in his brief findings has not gone into this aspect of the matter but has held that as there has been cross utilisation, they will not be entitled to the Modvat benefit and hence the duty amount would be payable. This finding of the learned Collector will not be correct for the simple reason that on principle as stated earlier by me, no cross utilisation will be permissible but however, as the assessee has explained that they were misled in the understanding of maintaining a consolidated register, therefore, the credit has to be worked out again and seen as to whether there is any liability. The learned Collector ha not given any finding to the detailed submissions made by them in this context. It has also to be observed that there is no annexure to the Show Cause Notice detailing the cross utilisation and how the same could be recovered or proper credit could be given. During the course of the proceedings before us, the Assistant Collector has sent a detailed working and the assessee has also filed their detailed work-sheet and both the sides are contending each other with regard to the qualification. Therefore, the duty liability has to be worked out by granting the assessee the full benefit of credit in respect of the duty paid on the inputs which has been utilised in or in relation to the manufacture of the final product. The assessee cannot be denied the benefit solely because they had maintained a consolidated register and such consolidated register has resulted in cross utilisation. This duty liability can be confirmed subject only to the aspect pertaining to limitation and the time bar aspect which would be discussed by me in the paragraphs herein below.
45. The next question before me is as to the question of limitation. In this case, the assessee has filed declaration, registers and filed RT 12 returns which have been finalised from time to time. There is no dispute regarding the manner in which the registers have been maintained and checked by the department. The Show Cause Notice also does not spell out in great detail the aspect pertaining to the suppression, mis-declaration, mis-statement, collusion or fraud involved in duty evasion. The Show Cause Notice also does not allege any serious motive of mis-utilisation of Modvat Credit with a view to evade duty or to cause any revenue loss. The finding given by the learned Collector on this aspect is also very clear. As can be read from the extracted portion, the learned Collector has proceeded to conclude that the assessments were provisional and they have not been finalised till the issue of Show Cause Notice and hence the limitation is not applicable. The learned SDR has fairly conceded that the question of provisional assessment does not arise in the case of Modvat Scheme. ' It is well established that the assessments are finalised from the date of duty debit in the PLA and not the date of assessment of RT-12 returns. The view expressed by the Tribunal in the case of Indian Oil Corporation Ltd. v. Collector of Central Excise 1983 ELT 1050 (Cegat) : 1983 ECR 5839 D(Cegat WRB) in para 3 is reproduced below:
We have examined the submissions on both the sides. The only contention put forward by the appellants is that the date of payment of duty in terms of Rule 11 should be taken as the date of assessment of the RT-12 return. Scrutinising this contention, we find that the Central Excise duty is leviable under Section 3 of the Central Excises & Salt Act, 1944 and the duty is to be paid in accordance with the prescribed method. The Central Excise Rules prescribe the procedure for payment of duty and in this behalf Rules 9 and 49 are relevant. Rule 9 stipulates that no goods can be removed from a manufacturing premises without payment of duty. In this view, the payment of duty is actually the debit in the PLA and not the date of assessment under Rule 173-I. The appellants have confused the date of payment with the date of assessment. As regards the appellant's reliance on the two orders of the Government of India, we find that the decisions of the Government are not in keeping with provisions of the law as expounded above. We cannot therefore, agree with the decisions of the Government of India in the aforesaid two cases. As regards the decision of the Hon'ble Gujarat High Court and the Supreme Court, it is seen that the Courts were dealing with provisional assessments and going into the question of levy of duty and whether it constituted assessment. In the present case, the goods have not been assessed provisionally but finally and therefore, the judgments of the Courts would not be applicables to the appellant's case. As regards the Supreme Court's decision in the case of Madras Port Trust v. Hymanusu International, we find that Supreme Court was dealing with the provisions of Section 110 of the Madras Port Trust Act and hence the judgment of the Supreme Court cannot be said to be fully applicable to the present case. Besides, the Supreme Court examined the matter by virtue of the powers vested in it under article 136 of the Constitution and revoked the Special Leave granted to the appellant and directed Madras Port Trust to pay the cost to the respondent. Oh the other hand, when the Tribunal considers the application for refund in terms of old Rule 11, the Tribunal has to function within the Central Excise Act and the Rules and cannot go beyond these limitations. The provisions of the Central Excise law are quite explicit as discussed above. In view of the foregoing facts, we find that the Appellate Collector's order is quite legal and correct. The same is confirmed and the appeal is rejected.
46. The learned Collector in his order while confirming the issue of a larger period has held that the noticee had wrongly availed Modvat credit with an intention to evade payment of Central Excise duty and that they had availed Modvat Credit on account of wilful mis-statement. In this particular case, the department has not made out a case for extended period of limitation and what amounts to willful statement has not been spelled out that the Show Cause Notice. The learned Collector has not given any finding that there has been a suppression, fraud or collusion to attract the larger period of limitation. However, he has held that willful mis-statement would attract extended period of limitation as provided under Rule 57(I). The learned DR arguing on this point, had stated that misuse will come within the ambit of wilful mis-statement. This proposition cannot be accepted. There has been no misuse in this case but only cross utilisation due to mis-understanding of the provisions of the law as had been contended by the assessee. The department has to prove that there has been a wilful mis-statement and that wilful mis-statement, has to be spelled out in the show cause notice and evidence adduced to that effect. Apart from the allegation of cross utilisation, no allegation of wilful mis-statement is appearing in the Show Cause Notice, It will not be open for us to enlarge the scope of the interpretation of the term willful mis-statement and also to include mis-use within its ambit. We have to interpret the words in the Statute as they are and we cannot add words or extend the meaning of the words then in the context used in the Statute itself. This has been a well settled proposition. The question 14 (already extracted at para 16) in CBEC Guide to Modvat has given an illustration of misuse like ineligible inputs being taken for Modvat credit. In the event of such misuse, then it would amount to credit wrongly taken or utilised in irregular manner. Question 26 also deals with this aspect:
Question 26-What are the provisions regarding recovery of credit wrongly taken or utilised in irregular manner?
Answer-If the credit of duty paid on the inputs has been taken wrongly, the Central Excise Officer may disallow the same. The amount so disallowed, will have to be adjusted either in the credit account or in the PLA account. If these adjustments are not possible for any reason, the amount will be recovered in cash from the manufacturer.
If the manufacturer detects any wrong adjustment of credit, then he may make adjustment on his own, in the credit account or in his PLA account maintained by him under intimation to the Central Excise Officer.
Any contravention of the Modvat Rules resulting in irregular utilisation of credit will attract the penal provisions.
A reading of this question and answer clearly indicates that where there is such wrong utilised credit, the proper officer has to disallow and the amount will have to be adjusted in the credit account or in the PLA account. Such wrongly taken or utilised credit is short-levied and such short-levy has to be recovered in terms of Rule 57-I and within the purview of Section 11A. This is the finding given in several rulings of the Tribunal as well as by High Courts. The ruling given in the case of Collector of Central Excise, Bombay v. Zenith Dyes & Chemicals and 3 Ors. 1991 (17) ETR 609 in paras 5, 6 and 7 is reproduced below:
After considering the argument of both the sides, we find that there are no compelling reasons to have a second look at the decision already taken in this regard by this Bench. Even the department have not chosen to make a reference application in regard to the decision made by this Bench. It is also observed that a Reference application has been made in regard to the decision taken by the East Regional Bench, which has also been turned down by that Bench. In any case, while the position is like this, for the purpose of record, we set out the arguments made by the learned Sr. DR for disposal. It is not disputed by him that Rule 57-I providing for recovery of Modvat credit in respect of duty paid on inputs is part of the Central Excise Rules. Section 11A provides for recovery of duty not levied, not paid or has been short levied or short paid or erroneously refunded. When the credit is taken and duty debit in respect of final product is made from that credit, if the basis of that credit to be disturbed, it will in any case result in short levy or non-levy which is specifically provided for under Section 11A. There is no need to go to the general law of limitation for this purpose when the Central Excise enactment itself provides for recoveries in such a situation. Moreover, merely because by a subsequent amendment to Rule 57-I, provisions have been made prescribing the time limit in that rule itself, it cannot be construed that Rule 57-I has to be interpreted in isolation without recourse to Section 11A during the period when separate time limit has not been prescribed under Rule 57-I. Erroneous modvat credit always result in case the duty payment on the final product and if the erroneous Modvat Credit is to be recovered, it has to be done within the purview of the Section 11A even during the period when no time limit has been prescribed under Rule 57I.
Shri Mondal's argument citing the decision of the East Regional Bench in the case reported in Balaji Fasteners v. Collector of Central Excise [1990 (26) ECR 398] is not directly on the issue. It is with regard to the interpretation of time limit prescribed under Section 11B. Without expressing any opinion on this judgment of the East Regional Bench, we cannot but take note of the decision of the very same Bench on this very issue in the Telco case reported in 1990 (47) ELT 132 where the Bench has held the same decision as ours on the issue.
In view of the aforesaid position, the arguments of the learned SDR which have not been advanced have already been considered by us and we feel there are no compelling reasons to take a view different from the one already taken by us.
The same is the view expressed in the case of Collector of Customs and Central Excise, Rajkot & Baroada v. Modern Induction & Alloys (P) Ltd. and 3 Ors. 1990 (16) ETR 306 at para 3, reproduced below:
We have already taken the consistent view that the statutory provision laid down trader Section 11A of the Act cannot be overlooked and the demand for Modvat Credit even under Rule 57-I especially when there was no time limit prescribed, has to be read in the context of Section 11A and we have also held that the relevant date for this purpose when Rule 57-I was not self-contained prescribing the time limit should be the date of filing of RT-12 return as laid down in Section 11A. The argument of the department that the subsequent amendment of Rule 57-I did not adopt the time limit under Section 11A and hence when the time limit was not prescribed under Rule 57-I, there was no necessity to have recourse to Section 11A does not have merits, mainly because of the fact that Rule 57-I contemplates recovery of Modvat credit. The moment the credit is taken it would make inroad into the payment of duty on the final product by way of cash deposit because of the fact that the credit has to be utilised towards payment of duty. When the credit is allegedly taken irregularly, which would virtually result in short payment of duty on final product, the credit taken would come within the purview of Section 11A for purpose of applying time limit, even during the period when Rule 57-I does not prescribe time limit. Since we have taken this consistent view and disposed of many appeals, we have no reason to differ from the stand already taken by us. Accordingly we dismiss all these appeals filed by the department.
Again the view expressed in the case of Collector of Central Excise v. Memory Steel Pvt. Ltd. in para 4, is reproduced below-
This Bench has been taking a consistent view that even for demanding reversal of the credit already taken under Rule 57-I, the provisions of Section 11A would sand attracted and the demand has to be raised within the period of six months. Here that has not been done. The Show Cause Notice issued has not spelt out any suppression or any mis-representation. The notice was issued by the Superintendent and the adjudication was made by the Assistant Collector confirming the demand beyond six months. Considering all these grounds, we find no merit in the appeal filed by the department. Therefore, the appeal stands dismissed.
The ruling in the case of Collector of Central Excise v. Telco in para 3 is also reproduced below:
Shri V.R. Srinivas, Assistant Manager, Finance of the respondent company, appears on behalf of the respondent. He submitted that recently a trade notice has been issued by the Calcutta-II Collectorate which has been reproduced in a recent issue of the Excise Law Times. He handed over a zerox copy of the said publication. It is seen that the said extract of Trade Notice which is dated 18.7.1989 clarifies that Modvat Credit of duty paid on tool kits and jack assembly would be admissible provided such tool kits/jack assembly are supplied alongwith motor vehicles and their value is included in the assessable value of the motor vehicles. He also stated that the Range Superintendent of their own factory has fallen in line with this practice and presently they are permitted to avail of Modvat Credit in respect of tool ket/jack assembly. He handed over a copy of the letter of the said Superintendent dated 11th September, 1989 addressed to them permitting them to the said benefit. Another copy of a clarification issued by the Pune Central Excise Collectorate regarding the application of Section 11A in respect of Modvat Credit under Rule 57-I was also submitted by him. They have received this letter of the Pune Collectorate from the Association of Indian Automobile manufacturers. This letter is to he effect that the question of applicability of time limit for recovery of incorrect Modvat Credit taken in terms of Section 11A vis a vis Rule 57-I had been examined in the South Zone Collector's conference and that it had been decided that, for the recovery of wrong credit taken in terms of the provisions of Rule 57-I,the time limit prescribed in Section 11A could be applicable. This accords with out view. Actually when any credit taken under the Modvat Scheme in the RG 23-A Part II account is held to be inadmissible and is sought to be expunged, the same is regulated in terms of Rule 57-I itself, but the effect of that expunction would be if duty has already been recovered by debit to that account, duty has to be recovered afresh and that will come squarely within the scope of Section 11A. In view of the foregoing discussions, we are inclined to uphold the decision taken by the Collector (Appeals) applying the provisions of Section 11A in these cases. Accordingly, the three appeals filed by the Collector of Central Excise, Patna would fail. Accordingly, we dismiss the appeals.
The same is the view expressed in the case of Collector of Central Excise v. Ashim Paper Products (P) Ltd. in para 9 which is reproduced below-
The objection taken by the learned Counsel for the respondents that the facts urged in the appeal are different from those taken in the show cause notice and adjudication order has no merit. The Assistant Collector had held that the materials in question fall in the category of tools and appliances and accordingly do not qualify for Modvat benefit. As this view was set aside in the order-in-appeal by the Collector (Appeals), the appeal against that order has been filed incorporating the reasons why the order-in-appeal is-not acceptable and why it requires to be set aside. For the reasons discussed, this does not amount to adducing reasons different from what were alleged in the show cause notice and accepted in the adjudication order. I therefore, allow the appeal and set aside the order-in-appeal passed by the Collector (Appeals) and restore the Assistant Collector's order subject to the restriction that while working out the demand for the amount of credit availed of wrongly the demand can be confirmed for a period of only six months prior to the serving of the notice for duty short levied. This time limit of six months will be applicable even prior to the amendment of Rule 57-I with effect from 6.10.1988 since the elements of suppression, wilful statement or fraud were not involved nor were they alleged. When credit not due is availed of and is later on disallowed, the duty which becomes due has to be made good for which Section 11A comes into play. The Assistant. Collector should work out the amount of demand arising from wrong availment of credit to a period of six months from the serving of the demand as per the provisions of Section 11A of they Central Excises and Salt Act, 1944.
The Karnataka High Court in the case of Tungabhadra Steel Products Ltd. v. Superintendent of Central Excise and Anr. 1991 (33) ECC 140 (Kar.) : 1992 (40) ECR 87 (Karnataka) has also analysed this point in para 12 to 17 which is reproduced below:
Shri Chanderkumar's further submission was that the Central Govt. realising the infirmity pointed out by the CEGAT in its several orders, amended Rule 57-I with effect from 6.10.88. The Rule, as substituted by notification No. 28/88 reads thus-
Rule 57I Recovery of credit wrongly availed or ulitilised in an irregular manner - (1)(i) - Where credit of duty paid on inputs has been taken on account of an error, omission or misconstruction on the part of an officer or a manufacturer, or an assessee, the proper officer may, within six months from the date of such credit, serve notice on the manufacturer on the assessee who has taken such credit requiring him to show cause why he should not be disallowed to such credit and where the credit has already been ulitised, why the amount equivalent to such credit should not be recovered from him-
Provided that where such credit has been taken on account of wilful mis-statement, collusion or suppression of facts on the part of a manufacturer or an assessee, the provision of this clause shall have effect as if for the words six months the word five years were substituted.
The proper officer after considering the representation if any, made by the manufacturer or the assessee on whom notice is served under Clause (i) shall determine the amount of such credit to be disallowed (not being in excess of the amount specified in the show cause notice) and thereupon such manufacturer or assessee shall pay the amount equivalent to the credit disallowed, if the credit has been ulitised, or shall not ulitise the credit thus disallowed.
(2) If any inputs in respect of which credit has been taken are not fully accounted for as having been disposed of in the manner specified in this section the manufacturer shall upon a written demand being made by the Assistant Collector of Central Excise pay the duty leviable on such inputs within 10 days of the notice of demand.
The argument developed on the basis of this substitution is that any recovery after disallowing the Modvat credit even for the period prior to the amendment of Rule 57-I should be subject to the provisions of Rule 11-A as laid down by the CEGAT. It was also submitted that Rule 57-I is only procedural and the substantive provision for recovery under the Act is (Section) 11-A. Therefore, the argument against Rule 57-I as it stood before amendment is that the said rule does not provide for any procedure to adjudicate the dispute and confers arbitrary power on the department.
13. The learned Counsel has also relied upon the decision of the Supreme Court in J.K. Spinning and Weaving Mills Ltd. and Anr. v. Union of India and Ors. 1987 (14) ECC 239 (SC) and in particular the observations made in paras 30, 31 and 32 paras 31, 32 and 33 respectively of 1987 14 ECC 239. The Supreme Court was dealing with the scope of Rules 9 and 49 of the Central Excise Rules which were made retrospective by Notification No. 20/82. The Supreme Court held even though the Rules were made retrospective from 1944, no recovery could be made beyond the period of limitation prescribed under Rule 11A and he retrospective effect of the amendment must be subject to provisions of Section 11A.
Shri Chander Kumar also relied upon the decision of the Supreme Court in State of Bihar v. S.K. Roy which has laid down the following principle of construction of Statues in the context of subsequent legislation-
In our opinion the change in the language of Section 2(b) of the earlier Act brought about by the amending Act (Act 45 of 1955) was not meant to bring about a change of law in this respect but was meant to fix a proper interpretation upon the earlier Act. It is well recognised principle in dealing with matters of construction that subsequent legislation may be looked at in order to see what is the proper interpretation to be put upon the earlier Act where the earlier Act is obscure or ambiguous or readily capable of more than one interpretation.
The learned Counsel has also cited the following decision:
1. Agarwal Brothers v. Union of India 15 ELT 82
2. Government of India v. Citadel Fine Chemicals 42 ELT 515 SC
3. K. Epen Chacko v. Provident Investment Commissioner AIR 1976 SC 2610
4. Commissioner of Income-tax v. Nagappa 114ITR 707 Karnataka They have no direct bearing on the point that arises for decision in this case.
14. It was strenuously contended by the learned Counsel for the petitioner relying on these decisions that the action taken to reverse the credit availed of from the date of filing/approval of the classification list retrospectively relying on Rule 57I, would be illegal. The petitioner has also prayed for quashing Rule 57-I as ultra vires the Rule (Section) 11A or to read down the Rule and declare that it must be made subject to the provision of 11 A. I have carefully considered the arguments of both the sides, the relevant provision touching the point in issue and the case law.
15. At the outset, it must be noticed that the department appears to have accepted the decisions of the CEGAT rendered in a number of cases referred to earlier, which support the contentions of the petitioners. From the very fact that the Central Government decided to amend the Rule itself, which was done with effect from 6.10.1988 by inserting limitation in Rule 57I, it can be presumed that the intention of the legislature was to amend the Rule to bring it in conformity with the spirt and scope of Section 11A. The effect of the subsequent amendment to Rule 57I is a point in favour of the petitioner in the interpretation of Rule 57-I, before amendment as contended for by the petitioner.
16. Under the scheme of Modvat Credit in Chapter 56A, of the Rules, the assessee get a rebate on the duty payable on the final products to the extent the duty is paid on inputs. This is in addition to the proforma credit allowed under Rule 56A. Under Rule 56A, the proforma credit of the duty paid on the inputs, material or component parts is allowed provided the finished excisable goods and the material or component parts, are exigible to duty under the same Heading or Sub-heading of the schedule to the Central Excises & Salt Act. The additional benefit allowed under the Modvat Scheme is that such credit and the duty paid on inputs is allowed, whether the finished product an the inputs availed are under the same Heading or not. Thus, under both the Scheme, viz.- proforma credit and the Modvat Credit, the benefit or the rebate the manufacturer gets is the rebate in the duty payable on the manufactured goods under Section 3 of the Central Excise Act.
17. Therefore, having regard to the Scheme of Modvat Credit, if a proper officer finds that Modvat Credit had been wrongly availed or utilised in an irregular manner, he takes steps to recover the duty which was legitimately payable by the assessee under the Act in accordance with the procedure prescribed under the relevant Rules. The scheme provides for debiting the credit availed of to the PLA account which is a self removal facility provided under the scheme of the Modvat Credit. This credit will have to be reversed in accordance with law resulting in recovery of, the duty that becomes payable as a consequence of the reversal. Under Rule 57-E, the duty in respect of which credit is allowed, is adjusted in the credit account maintained by the assessee as prescribed under Rule 57G. Under 57G(4), the manufacturer not final product is required to submit monthly return indicating the particular inputs received during the month and the amount of duty taken as credit along with the extracts of Parts i & II of form RG-23A and also make available the documents evidencing the payment of duty on the inputs taken to the proper officer. Therefore, having regard to the scheme, any reversal of the credit availed of by the manufacture wrongly, results in withdrawal of the allowance of the credit and the proper officer proceeds to recover the amount equivalent to the disallowance in the manner prescribed in Rule 57I.
It therefore, stands to reason why restriction was placed by the Central Government in Rule 57I as amended with effect from 6.10.1988. This restriction is the time limit of six months for recovery of credit wrongly availed of, if it is an error on the part of the officer and the time limit of five years is allowed if such credit has been taken on account of, wilful mis-statement, collusion or suppression of facts on the part of the manufacturer or an assessee. This amendment brings about uniformity in the procedure prescribed under the Rules as are applicable to both the schemes under Rule 56A and 57A. The substantive law prescribed in the Central Excise Act for recovery of any duty payable short levy or erroneous refund is Section 11A of the Act which places restriction on the exercise of power in the manner provided therein.
Therefore, Rule 57I as it stood before amendment with effect from 6.10.1988 should receive the same interpretation as it should receive after amendment and should be made applicable to the facts of the present case as well. The earliest decision of the Cegat on this point was by the Bombay Bench in Collector of Central Excise v. Bharat Containers Pvt. Ltd. . The Tribunal held thus para 5- When the credit has been taken wrongly or it is in excess of the eligibility, it is a case of erroneous credit which can be recovered by a demand. Such a demand cannot go beyond the purview of the statutory provisions of Section 11A of the Central Excises & Salt Act, 1944. Even if Rule 57(1) is sought to be invoked, it is to be read with the provisions of Section 11 A, which is the statutory provision for recovery of any duty - either short levy or non-levy or duty taken erroneously as proforma or Modvat Credit.
I fully agree with the reasoning of the Tribunal.
47. It becomes amply clear from the reading of the above rulings that the wrong utilisation of credit has to be recovered as short levy and longer period limitation will be available only when the department can prove the ingredients of the proviso to Section 11A of the Act. In this particular case, the manner in which the records were maintained is within the knowledge of the department and that the assessee has been filing the RT 12 returns regularly. In the circumstances, it cannot be held that there has been willful mis-statement attracting larger period as held by the learned Collector nor the argument of he SDR that misuse is a wilful mis-statement, can be upheld. In the circumstances, I hold that the demands in the Show Cause Notice are barred by time. In the result, the appeal is allowed. The Cross appeal is dismissed.
Dt. 15.7.1992 Sd/- (S.L. Peeran) Member Judicial DIFFERENCE OF OPINION Following difference of opinion has arisen between the Members of the Bench:
(1) Whether the demands raised by the Department are barred by limitation and not recoverable as there are no ingredients of proviso to Section 11A of the Central Excises & Salt Act, 1944 and also as the Department had knowledge of the Scheme of utilising of credit by the assessee (as held by Member (Judicial):
OR The demand is not barred by limitation because of the specific allegation of misuse of credit in the Show Cause Notice. This arose out of wilful mis-statement of entries in the statutory records and returns (as held by Member (Technical) for reasons recorded in his order).
(2) If not, are the demands properly worked out and as to whether the appellants are entitled to full benefit of credit in respect of the duty paid on the inputs which has been utilised in or in relation to the manufacture of the final product [as held by Member (Judicial)]:
OR The appellants are not entitled to utilise credit of duty on inputs which were admittedly not used in or in relation to the manufacture of the final product and, in the absence of any contention on behalf of the appellants that the demands were not properly worked out, the demands are enforceable and the appeal merits rejection for reasons recorded in the order of Member (Technical).
In view of the above said Difference of Opinion, the President is requested to take appropriate action to have the Difference of Opinion resolved by the Third Member.
Sd/- (N.K. Bajpai) Dt. 16.7.1992 Sd/- (S.L. Peeran) Technical Member Judicial Member President:
The points of difference are referred to Shri K.S. Venkatarmani, Member (Technical).
Dt. 4.8.1992 Sd/- (Harish Chander) President.
Per Shri. K.S. Venkataramani.-Shri C.S. Lodha, learned Counsel appearing for the appellants submitted arguments on the points of difference. The learned Counsel submitted that the demand invoking the longer period was bad in law because of the fact that there was no malafides on the part of the appellants nor even any intention to evade payment of duty. In fact, it could be demonstrated that there was no short payment of duty at all. They have been regularly filing RT12 Returns enclosing extracts of RG 23A Part II Account which has been duly scrutinised by the Department and finalised. The learned Counsel, further, submitted that there was no allegation of suppression in the Show Cause Notice. It was also not correct, according to the appellants, to construe mis-use of Modvat Credit as amounting to mis-statement and suppression. The learned Counsel in this regard relied upon the following case law:
(i) S.M. Energy Teknik & Electronics Ltd. v. Collector of Central Excise and
(ii) Collector of Central Excise v. Ashim Paper Products (P) Ltd.
On the proposition that the Show Cause Notice must contain specific allegation of suppression, the learned Counsel relied upon the decision of the Calcutta High Court in the case of Birla Jute Industries Ltd. v. Union of India , in the case of Grasim Industries Ltd. v. Collector of Central Excise and in the case of Applied Industrial Products (Pvt.) Ltd. v. Collector of Central Excise . In this case, in the absence of charge in the Show Cause Notice bringing out suppression of facts by the appellants, the demand cannot extend to the longer period under Section 11A of the Central Excises & Salt Act. Moreover, the Collector, by a specific corrigendum of the Show Cause Notice has deleted Section 11A and Rule 9(2) therefrom. Having done so, the adjudicating authority was in error in invoking very same provision. Further, it cannot be stated that there was any suppression by the appellants who have disclosed all particulars to the Department and the learned Counsel pointed out that significantly, even the Show Cause Notice is based on the scrutiny of the appellants' registers only. Moreover, they had followed the procedure of consolidated maintenance of RG 23A Part II accounts for the inputs received and in such a context also, there cannot be any charge of suppression of facts with intention to evade payment of duty. The appellants had followed the procedure under the direction and within the knowledge of the Department. Referring to the various Departmental Trade Notices, cited and extracted in the orders of the two Members, the learned Counsel argued that the cross utilisation of Modvat Credit during a month was a recognised situation even by the Department an circulars have laid down procedure by which the cross utilisation are to be adjusted at the end of the month with the submissions and reconciliation of the RT 12 Returns. The learned Counsel urged that even today what the appellants have done with regard to the account will be as per the present existing instructions of the Department. The learned Counsel, further, pointed out that both the Members in their orders had found that RT 12 Returns with all the relevant enclosures have been regularly filed by the appellants. Hence, there could be, according to the appellants, no charge of suppression of facts. The learned Counsel relied upon he Tribunal's decision in the case of Goodlass Nerolac Paints Ltd. v. Collector of Central Excise to say that when RT 12 Returns are filed, the Department is bound to examine it and satisfy themselves about the proper use of credit. The learned Counsel, further, relied upon the Supreme Court decision in the case of Padmini Products v. Collector of Central Excise where there was bona fide action in terms of Department's instruction to the assessee, the demand cannot be extended to the longer period on charge of suppression and the learned Counsel, further, argued that there is no grounds for alleging suppression of facts by the very same assessee, there can be justification for imposing penalty on the appellants. The learned Counsel, further, argued that a perusal of the Hon'ble Member (Techinical's) order, at paras 13 and 14 would show that the Member had mistaken their representation to the Collector as their reply to the Show Cause Notice. The learned Counsel, further, submitted that even today the appellants are prepared to show by a detailed reference that the total utilisation of credit will be much less than the duty actually discharged by them for which they have produced a chart certified by the Chartered Accountant in respect of the RG 23A Part II for the three products credits taken in respect of input, duty liability, Debits in PLA and all this on a daily basis from 1.1.1987 to 31.1.1.989. It was submitted that form this, it can be demonstrated that ultimately the revenue implication will be nil for the department. The appellants are even today prepared. The learned Counsel submitted, to go through this exercise with the Departmental Officers. The learned Counsel pointed that this aspect of the eligibility to Modvat Credit which had been highlighted in the order of the Hon'ble Member (Judicial) deserves to be considered. The learned Counsel, further, contended that the Hon'ble Member (Technical) was in error in equating mis-use of Modvat Credit with mis-statement and by this, the learned Member was reading, in the provisions of Rule 57I, certain implications not apparent therein. Therefore, on both the points of difference, the appellants would support the order proposed by the Hon'ble Member (Judicial).
49. Shri V.C. Bhartia, learned SDR contended that the fundamental principle that the declared inputs for modvat purposes have to be utilised only for payment of duty on the products in which they are used has not been fulfilled by the appellants. This is a position which they are not denying. The department case arises out of this first principle relating to Modvat Credit. The learned D.R. pointed out that even as early as 4.3.1987, the letter of the jurisdictional Superintendent of Central Excise had pointed out that the cross utilisation of credit noticed by him to the appellants. This was even before the issue of he Show Cause Notice. But instead of correcting the situation, the appellants have continued to maintain the accounts on their own way. The learned D.R., further urged that for the matter of limitation, the Hon'ble Member (Technical) had highlighted the reasoning this regard to show that the appellants had suddenly on their own changed the pattern of maintenance of RG 23A Part II from 1.1.1987 which would indicate that they had wrongly availed of the Modvat Credit with intention to evade payment of duty. It has also been pointed out by the learned Member that appellants stood to gain by this method in as much as they utilised credit of certain inputs which were not used in the manufacture of the declared finished product. Hence, it is to be presumed that they were aware of the financial gains indicating willful Act on their part to evade duty. The learned DR also referred to the reasoning in the Member (Technical's) order that such mis-use of Modvat Credit would amount to mis-statement justifying invoking the longer period for recovery of the duty. In such a context, personal penalty on the appellants is also justified. It was also argued that for the purpose of limitation, finalisation of RT 12 date will be relevant even for purposes under Rule 57I and it was submitted that the criteria for computing limitation under Section 11A had to be necessarily applied to the Rule because the Rule, as subordinate legislation and the provisions of the statute, should prevail.
50. The submissions made by both the parties, have been carefully considered. On the question of whether the appellants are eligible to avail of the Modvat Credit on the inputs in the manner done by them, it is not admitted position that there can be no two opinions on the proposition that Rule 57A does not permit credit of duty paid on input to be utilised for paying duty on a final product in the manufacture of which the said duty paid input has not been utilised. The appellants also admit this position. But by maintaining /a consolidated RG 23A Part II, it has given rise to situations during a month when cross utilisation of credit for duty payment as between different finished products has occurred. At the same time, it is also not in dispute that there has been proper declaration of inputs for use in manufacture of finished products notified as eligible for Modvat. It is evident from the Department's Trade Notices extracted in Hon'ble Member (Technical's) order (para 43) that it has been recognised that there could be situations of cross utilisation of credit during a month. But what is prescribed as a corrective measure, is expressed as follows:
While maintenance of consolidated RG 23A Part II can be permitted in such a case the assessee is required to submit a statement at the end of the month, showing credit taken on inputs such as copper rods and actually used on final products such as copper winding wires.... Any credit utilised for paying duty on different final products has to be adjusted suitably and differential duty recovered if need be from PLA.
Though these instructions are subsequent to he period relevant to this case, yet the consistent claim of the appellants that if all the debits in PLA during the period are pooled and credits availed on all the inputs are taken together it will only lead to a result that is revenue neutral gains lot of force. In elaboration of the sub-missions in this regard made earlier, the appellants produced statements duly certified by Chartered Accountant of finished product-wise Modvat Credit taken, duty liability, and utilisation from PLA after exhausting available Modvat Credit for the period January, 1987 to January, 1989 date-wise. It was pleaded that these figures can be verified even now in he Collectorate for which they will render assistance and such an exercise would demonstrate that ultimately the result is only revenue-neutral. It is seen that Hon'ble Member (Judicial) has found that the Collector in the impugned order has not given any finding on this claim of the appellants and that, therefore, there is need to rework the duty liability if any on testing the above claim of revenue-neutrality subject to limitation. One is inclined to agree with this view expressed by the Hon'ble Member (Judicial). Point of difference No. 2 is answered, accordingly.
51. As regards point of difference No. 1 on limitation, Hon'ble Member (Technical) has observed in para 14 as follows:
Thus, the appellants did not take a categorical position and did not deny the allegation or provide their own calculations to contest the demand which had been worked out on the basic principle of the Modvat Scheme.
But it is seen that in their detailed reply dated 5.3.1990 to the Show Cause Notice addressed to the Collector, they had contested the demand with reference to the detailed working submitted earlier in their letter dated 12.6.1989 for urging that credit availed on inputs were far less than the duty payments on the final products and that duty payable on final products were capable of more than absorbing the total Modvat Credits availed on the inputs relatable to the said final products individually. It is, further, seen that the Hon'ble Member (Technical) has held that in this case there has been misuse of credit arising out of mis-statement of entries in the accounts in RG 23A Part II. However, it is found that there is an indication in the guide to Modvat issued by the Central Board of Excise & Customs at the time of introduction of ^the Scheme (and, therefore, having its own value as contemporaneous exposition) in the question No. 14 as to what would constitute misuse. It is stated therein, "However, to ensure that there is no mis-use of the Modvat Credit ( like ineligible inputs being taken for Modvat Credit) the manufacturers, would be required to submit a monthly statement alongwith RT 12 return...." (emphasis supplied). In the present case, however, there is no such mis-use in the sense of an undeclared input being taken for Modvat Credit but only a cross utilisation of declared inputs as among declared end products. The appellants had been filing RT 12 returns regularly and in such a context the ratio of the Tribunal's decision in the case of Goodlass Nerolac Paints v. Collector of Central Excise would apply wherein the Tribunal held that when the assessee had filed regular monthly RT 22 returns regarding availing of Set off of duty it was for the Department to check whether utilisation of input duty credit was proper, correct and permissible. Further, it does not also look from the records that the appellants had switched to maintaining consolidated RG 23A Part II on their own. There is a letter dated 7.8.1989 addressed to the Assistant Collector, Jabalpur they have inter alia, stated "We had been maintaining a separate RG 23A Part II for different products viz. Rin, Lifebuoy, a Surf till 31.12.1986. As per oral instructions of Mr. S.R.S. Rao, the Superintendent (Central Excise), Seoni, we have switched over to a consolidated RG 23A Part II effective from 1.1.11987. This has been instructed taking into consideration all our outputs are falling under one Chapter viz. Chapter 34." In these circumstances, it may not be appropriate to construe that in this case, there has been a mis-utilisation of Modvat Credit arising out of mis-statement of particulars by the appellants, herein, more so, when it is seen that even the basis of the charge in the Show Cause Notice is only based on a scrutiny of their own RG 23A Part II Register. The instructions issued by Central Board of Excise & Customs and the Trade Notices issued by various Collectorates based thereon referred to supra in respect of working of the Modvat Scheme, would indicate that these issues had all India ramifications and in that view of the matter, it cannot be said that in this case, it arose due to contumacious conduct of the appellants. Therefore, on point of difference No. 1 also the views expressed by the Hon'ble Member (Judicial) are concurred with.
Dt. 15.10.1993 Sd/- (K.S. Venkataramani)
Technical Member
MAJORITY ORDER
In terms of the majority order the demands are held as time barred and the appeal is thus allowed.
Sd/- (S.L. Peeran) Dt. 18.11.1993 Sd/- (P.C. Jain Judicial Member Technical Member