Customs, Excise and Gold Tribunal - Delhi
Man Industries Corporation Ltd. vs Commissioner Of C. Ex. on 30 May, 1996
Equivalent citations: 1996(88)ELT178(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. The appellants manufacture articles of iron and steel and had opted for availing of Modvat credit of duty on inputs for payment of duty on their final products. This appeal arises out of the order of the Assistant Commissioner of Central Excise, Jaipur, dated 16-12-1988, as confirmed by the Commissioner of Central Excise (Appeals), New Delhi in the impugned order dated 6-6-1991, whereby Modvat credit of Rs. 4,68,622.93 was held to be wrongly availed credit, and its recovery was ordered from the appellants under Rule 57-1 of Central Excise Rules, besides penalty of Rs. 5,000/- being imposed on this on the ground that scrap on which deemed Modvat credit was availed by the appellants was clearly recognisable as non-duty paid since the same was in the form of broken pieces of old and used machinery parts, and iron steel articles like Cycle parts, tin containers, etc. It may be mentioned that the fundamental requirement for earning Modvat credit of duty paid on inputs is that such inputs should be received accompanied by document evidencing payment of duty thereon. But the Government of India is empowered to waive this requirement under certain circumstances in terms of Rule 57G(2) of Central Excise Rules. But the order in respect of scrap issued laid down that such deemed credit will not be available to scrap which is clearly recognisable as non-duty paid. Rule 57-1 of Central Excise Rules empowers recovery of wrongly available Modvat credit. Upto 6-10-1988 this Rule did not prescribe any period of limitation for the recovery. After 6-10-1988 Rule 57-1 was amended wherein a period of six months time limit was prescribed alongwith a longer period of five years wherever the irregular availment of Modvat credit is due to suppression, wilful mis-statement, collusion, etc.
2. Learned Counsel Shri K.K. Anand appeared for the appellants and Shri Jangir Singh learned Departmental Representative for Revenue. Both the parties submitted that the issue on merits now stands settled by the Larger Bench decision reported in 1996 (12) RLT 817 in the case of Machine Builders and Ors. v. Collector of Central Excise, Bolpur and Ors. It has been held that input material, such as the scrap in this case, which need not pay any duty and also has not paid any such duty, will be scrap clearly recognisable as non-duty paid. As such, on merits, it is held that the demand is sustainable, applying the ratio of the Larger Bench decision.
3. The main thrust of the learned Counsel's arguments is on limitation. The show cause notice, it is urged, has been issued on 1-2-1988 for the period March, 1986 to November, 1986. There is no charge of suppression on mis-statement of facts. Hence the demand, being beyond six months time limit, is time barred. It has also been urged that remarks by the Superintendent of Central Excise in the assessment memorandum of monthly Return RTJ2 submitted by the appellants asking them to reverse the Modvat credit will not serve the purpose and cannot take the place of formal show cause notice which came to be issued only on 1-2-1988.
4. Examining these contentions, it is seen that under the self removal procedure, the Department gets the opportunity of critical scrutiny of clearance and of details of Modvat credit availed only on finalising the monthly assessment Return RT12. The records show that when the RT12 for June 1986 was finalised remarks had been made thereon regarding irregular availment of Modvat credit since deemed Modvat credit has been taken on scrap purchased from in market which is clearly recognisable as non-duty paid. Then followed correspondence in which the Department kept urging the appellants to reverse the credit. Apparently in response to appellants' request, the issue was examined and re-examined by the Superintendent who told them in the second of his letters to them on the subject dated 25-7-1986, "The matter has again been examined and it has been observed that the scrap like discarded articles of steel i.e. broken parts of machinery, old and broken tins, and other broken old articles of steel which are purchased by you from the open market are clearly recognisable as non-duty paid, as no Central Excise duty on such scrap has ever been paid as on scrap of steel hence no credit is allowed on such inputs which are clearly recognisable as being non-duty paid or chargeable to nil rate of duty.
In view of the above no Modvat facility is admissible to you on such inputs as already informed ... . You are, therefore, requested please deposit the amount of credit already taken ... ".
Therefore, the irregularity besides being pointed out in RT 12 assessment memorandum, which is the first occasion when Department could have detected it, had also been taken up in detailed letters explaining the grounds to the appellants and at their instance- and all this took place within the normal time limit under Rule 57-1. Hence it was not a case of demand simpliciter on RT 12 only. Moreover, the show cause notice when it came to be issued was only a culmination of the process started by the remarks on RT 12 Returns and the further correspondence that ensued. The show cause notice narrates the full background of Superintendent's letters, reminders and appellants' response, and, ultimately, the charge is only a repetition of what the appellants had already been put on notice about in the Superintendent's letters to them. So, it is not possible to accept the contention that the earlier correspondence does not amount to show cause notice. After all, the object of issue of show cause notice is to make the party concerned aware of the charges and also to furnish the grounds for the charges. It is seen from the appellants response to the Superintendent's letters that from the beginning they were fully aware of the grounds of the demand and took steps to resist it. Therefore, the contentions that the show cause notice is time barred and that the longer period has been invoked without jurisdiction are not tenable, as it is seen on the facts and in the circumstances of this case, that there is satisfactorily material on record to show that the demand had effectively been made within the normal time limit under Rule 57-1. In the result, there is no reason to interfere with the order passed by the lower authorities. However, considering that at the relevant time there was some grey area as to the interpretation of the deemed credit order, the penalty on the appellants appears harsh, and it is, therefore, set aside. The appeal is disposed of in the above terms.