Customs, Excise and Gold Tribunal - Tamil Nadu
Mahadev Industries vs Commissioner Of Central Excise on 8 June, 1999
Equivalent citations: 2000ECR798(TRI.-CHENNAI), 2000(115)ELT452(TRI-CHENNAI)
ORDER V.K. Ashtana, Member (T)
1. The appellants have filed 18 appeals for different periods against five Orders-in-Appeal. However, issue in each of these appeals is the same and therefore, by common consent of both sides, the same are being considered in this common order.
2. Briefly, the issue concerns availability of Modvat credit on duty paid MCI Inserts received by the appellants free-of-cost from the South Central Railway, which are then used in the manufacture of R.C.C. Sleepers. These Sleepers are then purchased back by the said Railways. These transactions are covered by a written agreement between the two parties.
3. Heard Shri Rajesh Chander Kumar, ld. Advocate for the appellants and Shri S. Kannan, ld. DR for the department.
4. Ld. Advocate submits that the following facts in this respect are not under dispute :-
(a) That the appellants as manufacturers of the Sleepers are governed by a contract with the South Central Railway wherein it is provided that the Railway shall supply free-of-cost MCI Inserts to the appellants for the manufacture of R.C.C. Sleepers which are then sold to the Railways. Amongst the terms of this contract, it has clearly been agreed upon by both sides that the cost of the MCI Inserts shall be borne by the Railways, the Modvat credit on the duty incidence suffered by these Inserts shall be passed on to the appellants as it was the appellants who were using the said input in the final product. Ld. Advocate took us through the relevant paras which have delineated the quantum of duty incidence which would flow to the appellants in this behalf.
(b) After the said R.C.C. Sleepers are manufactured, they are cleared on payment of duty to the said South Central Railways.
(c) That when the said MCI Inserts are received at the manufacturing premises, they are accompanied by an Excise Invoice. This Invoice clearly shows the quantum of duty suffered by these Inserts.
5. Ld. Advocate submits that the dispute has arisen on the question of the appellants availing the said Modvat credit so received and used in the manufacture of the said Sleepers even though such receipt and use is not disputed on facts. This dispute is because initially the Invoices were consigned to the Senior Inspector Railways (Civil), South Central Railways, C/o Mahadev Industries, Hospet for the period from 30-4-1994 to November, 1994. Thereafter, also for certain periods similar invoices were involved, particularly for the period from December, 1994 to January, 1995. For rest of the period, the consignments were received on invoices wherein the consignee's name was described in the reverse manner, i.e. M/s. Mahadev Industries, Account, Senior Inspector (Civil), South Central Railway, etc. Ld. Advocate submits that both the Orders-in-Original as well as the Orders-in-Appeal impugned have held that since the owners of these Inserts were Railways, and therefore the duty thereon were paid by the Railways, Modvat credit cannot be taken by the appellants, the Inserts not being their property. The second ground on which Modvat credit has been denied is that Invoices bearing such names and addresses of consignees as noted above were not proper documents on which Modvat credit was available.
6. Ld. Advocate submits that as far as the question of ownership of Inserts is concerned, the same is not relevant to the issue of eligibility and availability of Modvat credit as nowhere in the rules from Rule 57A onwards there is any mention that the manufacturer who is availing of the Modvat credit should also be the owner of the input. In this connection, he submits that if these were to be so, then the very concept of manufacture on job-work-basis would be held redundant. As against this, vide Circular No. 146/57/95-CX, dated 12-9-1995. the Central Board of Excise and Customs itself, in consideration of representations received from the manufacturers and Traders on this issue, have clarified that when any duty paid goods are delivered directly to a job worker, the Modvat credit can be availed by the end user in such cases on the duplicate copy of the manufacturer's Invoice as long as the name and address of the end user is indicated thereon. Ld. Advocate submits that this circular concedes the legal position explained above that ownership of the inputs is irrelevant to the issue of Modvat credit.
7. On the second issue of whether such invoices qualify as proper documents for availability of Modvat credit, ld. Advocate submits that a parallel instance would be one of transit sales where the manufacturer clears the inputs through the medium of a dealer to the end user, where the goods are normally used in the manufacture of final product under the Modvat scheme, need not be registered and that the invoices so issued to the original manufacturer will be a valid document for availing Modvat credit even though the transaction has been through the dealer in the form of a transit sale. Ld. Advocate submits that in this case, the same principle can be applied vis-a-vis the receipt of the Inserts through the Railways. He further submits that since the appellants' name and the address has always been mentioned in some manner or the other in conjunction with that of the South Central Railway on the body of the invoices, therefore, such invoices should not be held as being improper documents for the availability of Modvat credit, particularly when there was no dispute that the items had paid duty and were otherwise qualifying for Modvat credit. In this connection he cited the following case laws :-
(i) Larsen & Toubro Ltd. as in 1994 (72) E.L.T. 948 (Tribunal), wherein the Tribunal had considered the question of duty paying documents on account of third party and held that duty paid documents in favour of one party but also indicating the name of the unit receiving the inputs would qualify for availing Modvat credit. He submits that in this case, the invoices were following the name of both Railways as purchasers of the Inserts as well as the appellants who are the end users thereof. Therefore, the ratio of this decision would apply.
(ii) Case of Inder Poly Fabs (P) Ltd. as in 1998 (99) E.L.T. 420 (Tribunal), wherein the facts considered were receipt of inputs by appellants who are job workers but not buyers thereof. It was held that since the name of the appellants were shown in the documents, it would establish the link between the goods and the ultimate consignee and therefore, Modvat credit would not be denied.
(iii) C.C.E. v. Carborundum Universal Ltd. as in 1997 (93) E.L.T. 357 (Tribunal) which considered a case where the invoices even did not show consignee's name and address, but still since the fact of receipt of these goods and use in the final product was verifiable, the credit was to be admissible even though the order was placed from the headquarters unit of the appellants. Ld. Advocate submits that in his case, the name of the appellant as well as their address has always been clearly shown on each invoice.
(iv) C.C.E. v. S.S.P.E. Cotton Mills (P) Ltd. as in 1999 (106) E.L.T. 102 (Tribunal) wherein a Single-Member bench of this Tribunal considered a position where the invoice contained both the dealers' name as well as the assessee's factory's name though the goods were supplied directly to the factory and used therein, it was held that since it was not disputed that the duty paid goods actually reached the factory and were used therein, therefore Modvat credit was not to be denied.
8. Heard Shri S. Kannan, ld. DR who submits that the facts in these cases do not conform to the normal pattern of transactions between a owner and a job-worker in as much as that the Railways have supplied only one of the ingredients of these Sleepers namely "Inserts" free-of-cost to the appellants, whereas the appellants have themselves procured all other ingredients including cement, iron & steel, etc. Therefore, it cannot be said that the appellants were job workers of the Railways and to that extent, the Board's circular would not apply to the facts of this case. Ld. DR also strenuously submits that since the Railways are the owners of the Inserts and as such, the duty incidence thereon was borne by the Railways, therefore, any Modvat thereon could only be availed of by the Railways as buyers thereof and not the appellants. However, since it is nobody's case that the Railways themselves are manufacturers, therefore in this case nobody .could avail of the Modvat credit. Thirdly, ld. DR submits that since the agreement between the appellants and the Railways is undisputedly one on principal-to-principal basis, therefore, such a transport of goods from the Railways to the appellants is not a direct one, but involves trading by the Railways and since the Railways have not obtained any registration under the Modvat scheme as a dealer thereof, the invoice become tainted and Modvat credit would not be available thereon.
9. We have carefully considered the rival submissions as well as the records of the case. We find that there is no dispute on the following facts :-
(a) That the "Inserts" are supplied free-of-cost by the Railways who purchased them on payment of duty from the manufacturer thereof and that this manufacturer has been directed by the Railways to despatch it directly to the appellants' manufacturing premises.
(b) That amongst the terms of the agreement between the Railways and the appellants, which is on a principal-to-principal basis, there are clearly worded clauses which entitle the appellants to enjoy the benefit of Modvat credit specified therein on the duty borne by the Railways on the Inserts and to that extent, the total price which would be paid by the Railways to the appellants has been accordingly adjusted.
(c) That all the Inserts cleared on the said invoices actually reached the appellants and were so utilised in the manufacture of Sleepers which were then cleared on payment of duty to the Railways.
(d) That each invoice contained the names and addresses of both the Railways as buyers thereof as well as the appellants to whom the goods were directed to be despatched and who were to use them.
(e) That otherwise, Inserts are eligible inputs under the Modvat scheme for the manufacture of Railway Sleepers which were also cleared on payment of duty.
10. We now go to examine the contentious issues in the matter. The first is that since the Railways are the owners of the Inserts and as such, have borne the incidence of duty thereon, therefore the appellants cannot avail of Modvat credit of that duty incidence. We are not able to subscribe to this line of argument for the simple reason that the agreement between the Railways and the appellants are on principal-to-principal basis, clearly shows that the ultimate price which the Railways will pay to the appellants for the Sleepers so manufactured and delivered has been mutually adjusted to account for the incidence of duty element on the Inserts. In other words, the manufacturers have been legally bound to supply the Sleepers at a low price in view of the fact that the Modvat credit on the Inserts would be available to them. Secondly, in the entire Modvat scheme, none of the rules provides that it would be necessary for the assessee receiving inputs to be owners thereof before it can take Modvat credit thereon. If that had been so, the entire concept of job workers entitled to Modvat credit where the inputs are totally supplied free-of-cost would be held as an illegal activity. We are of the clear view that ownership of inputs is divorced under the Modvat scheme from the question of use thereof in the final product under this scheme. The question is also one of who is the manufacturer of the Sleepers and it is not disputed in this case that the appellants are the manufacturers, the agreement between them and the Railways being on a principal-to-principal basis. Therefore, in view of these considerations, we find that simply because the Railways were the owners of the Inserts and it was they who had placed the order, purchase and supply thereof, on these grounds alone, the credit to the appellants cannot be denied under the Modvat scheme.
11. The next issue required to be considered by us is whether the invoices were improper documents vis-a-vis availability of Modvat credit on the inputs which were cleared and transported under their cover. In this respect, we are of the view that since it is not disputed that the name and address of the appellants were clearly written on each of these invoices, merely because the name and address of the purchaser of these Inserts was also written thereon, it does not necessarily follow that this double sets of name and address on such invoices would render the invoices ineligible for Modvat credit. The basic nature of the invoice as a Central Excise duty paying document is (a) to describe the product cleared; (b) to record the amount of duty paid thereon at the time of clearance by the manufacturers & (c) to record to whom these goods have been despatched. We find that whether these invoices were to the appellants on account of Railways or vice-versa is not in any way clouding the aforesaid three facts. When it is read in conjunction with the agreement between the appellants and the Railways, it is crystal clear that the Railways ordered for the purchase of the Inserts and directed the manufacturer thereof to supply to the appellants for further use in the manufacture of the Sleepers. That it was so received and used in the appellants' factory is also not under dispute. Therefore, we find that the principle involved in the decisions cited by the ld. Advocate on this issue as noted above would also apply in this case. In the case of S.S.P.E. Cotton Mills (P) Ltd. supra, there was similarly no dispute that duty paid goods actually received in the factory and were used therein and that the invoices contained the dealer's name as well as the recipient assessee's name as the goods were purchased through the dealer but directly supplied to the assessee's factory. The only difference between this fact and the fact in the present case is that here the goods were received not through a dealer, but through a buyer, namely the Railways, but that the goods in both the cases were directly despatched by the manufacturing factory to the end user. As long as this linkage is clearly established by the documents, mere technical considerations, in our considered view, should not be held as a ground to deny Modvat credit. Because such a situation does not involve any clear and distinct violation of a substantive nature which seriously affects the substantive right of the recipient thereof to avail Modvat credit under law. The law on this issue is well settled that mere procedural minor infractions should not be allowed to come in the way of eligibility of Modvat credit. Similar views have been taken in the case of C.C.E. v. Carborundum Universal Ltd. 1997 (93) E.L.T. 357 (Tri.) where it was the assessee's headquarters which placed the order for inputs and the invoices showed only that name and address and not of the recipient factory. Yet, the Tribunal had held that since it was verified that the inputs had been received and used by the factory, Modvat credit had not been denied. In the present set of facts, the linkage is even more clearly established because the invoice did contain the name and address of the appellants as well. In the case of Inder Poly Fabs (P) Ltd. supra, it has been held that since the name of the appellants were shown in the documents, it would establish the link between the goods and the ultimate consignee, i.e. appellants. This exactly is the situation in this case as in each document, the appellants' factory address has been specified. Therefore, on this count also, we are of the clearly considered view that Modvat credit cannot be denied to the appellants.
12. The third and last submission made by the ld. DR is that since Railways did not fulfil the procedures prescribed for dealers where goods are first purchased by such dealers and then supplied to the ultimate user, therefore these invoices would be invalid for Modvat credit. We are not in a position to subscribe to this view for the simple reason that while a dealer trades in such excisable goods, by no stretch of imagination, the Railways were trading in the Inserts. Trading involves the change of ownership whereas the Railways were merely buying the Inserts and then desired that these Inserts were used for the manufacture of Sleepers which again were going to be their own property, on sale from the appellants. Purchase of raw materials on their account by Railways and supply thereof free-of-cost to the manufacturer does not amount to trading. Therefore, the provisions regarding registration of dealers and that the invoice of such registered dealers be the only proper documents for availing Modvat credit is just not applicable to the facts of this case.
13. In view of the aforesaid findings and analyses, we find that all the Orders-in-Appeal impugned are not upholding correct position in law and are therefore ordered to be set aside. The appeals are allowed with consequential relief, as per law.