Customs, Excise and Gold Tribunal - Mumbai
Vadilal Industries Ltd. vs Collector Of Central Excise on 4 February, 1998
Equivalent citations: 1998(99)ELT513(TRI-MUMBAI)
ORDER K.S. Venkataramani, Member (T)
1. The Appellants manufacture ice-cream falling under sub-heading 2105.00 of Central Excise Tariff Act, 1985. Ice-cream became dutiable from 20-3-1990. They had filed declaration for availing Modvat credit on inputs under Rule 57G of Central Excise Rules on 29-3-1990. The Department found on a scrutiny on RT 12 monthly returns filed by the Appellants that the inputs on which the Appellants had taken Modvat credit had not been received in their factory but were stored in various godowns located outside the factory. They had also applied for transitional Modvat credit under Rule 57H in respect of inputs lying in stock in their godown prior to filing declaration. Two show cause notices were issued under Rule 57-1 for recovery of Modvat credit as well as transitional credit wrongly availed. The jurisdictional Assistant Commissioner of Central Excise, Division IV, Ahmedabad considered their defense and dropped the demands for Rs. 4,35,233/- for transitional credit and for Rs. 5,24,554/- for Modvat credit taken during April to August, 1990 by passing two separate orders on 20-5-1991 and 14-6-1991. The Assistant Commissioner found that the inputs stored in the godown have been transferred to the factory and utilised as per stock registers and hence dropped the demand. The Department sought a review of the Assistant Commissioner's orders by filing review application before Commissioner (Appeals) who has reversed the Assistant Commissioner's orders by passing a common order captioned above which has been challenged now before the Tribunal.
2. Shri Uday Joshi, learned Counsel for the Appellants mainly contended that there has been substantial compliance with requirement of Modvat Rules in this case and referred to the Assistant Commissioner's finding that inputs received in the godown had in fact been taken to the factory and have gone into the manufacture of their final products. The learned Counsel also submitted that there have been Trade Notices issued by Commissionerates in 1996 for facilitating storage of inputs outside the user factory. Shri D. Gurnani, ld. DR contended that Rule 57G specifically stipulates that Modvat credit is to be taken only on inputs received in the factory and it is a substantive requirement for the availment of Modvat credit, and is not a mere procedural provision.
3. We have considered the rival contentions. Persual of Rule 57G makes it clear that no credit is to be taken unless the inputs are received in the factory under cover of prescribed duty paying documents. Same condition of receipt in the factory and lying in stock in the factory of inputs is contained in Rule 57H relating to transitional credit which the Assistant Commissioner is empowered to allow on inputs received and lying in stock in the factory prior to the date of filing declaration under Rule 57G. Admittedly the Appellants had taken Modvat credit on inputs received not in their factory but in their godowns located outside the factory. They have explained the circumstances leading to the situation as being due to the factors such as the levy of excise duty on ice-cream came into effect only from 20-3-1990 and prior to that date there was no statutory necessity of storing all inputs in the factory only. They purchase the main inputs milk powder and sugar in bulk quantities, store them in the various godowns and to bring them to their factory as required by their manufacturing programme. When excise duty was imposed on ice-cream for the first time on 20-3-1990 they had a huge quantity of inputs lying in the godowns and also since the peak season for ice-cream production had already started on March 15th, they had a large stock both in godowns and factory to meet the requirement of the new season. They have further explained that at the material time following the clamping of excise control, the Appellants were coping with compliance with all the excise formalities and at the same time there was the rush of inputs being the beginning of peak season. Therefore, they lost sight of the requirement under Rule 57G of taking Modvat credit only on inputs received in the factory and continued with the previous pre-excise practice. But they have also received some of the inputs directly in their factory also during the material period.
4. It is in the above factual back drop that the Assistant Commissioner's decision has to be evaluated. The Assistant Commissioner found :
"On examination of the records of the case I observe that the party has filed declaration as mentioned in 57G and obtained a dated acknowledgement of the said declaration. The inputs have been received under cover of proper documents, in their name.... All the inputs have been properly accounted for in the RG 23A register Part I & II and all the inputs have been utilised in the manufacture of the final product namely ice-cream declared by the party. All the above particulars were got checked and verified by deputing a Range Superintendent and Inspector from the divisional office who have reported the fact as mentioned above. The only lapse on the part of the assessee was that at material time when the inputs were accounted for in RG 23A, they have actually not been received in the factory but the major portion was received and stored in the assessee's godowns outside the factory and subsequently brought into the factory in piecemeal."
The Assistant Commissioner then concluded that there has thus been substantial compliance with Rule 57G by the Assistants and allowed Modvat credit.
5. The Commissioner (Appeals) has, however, held that Rule 57G(2) and its first proviso stipulate that no credit shall be taken unless the inputs are received in the factory under cover of proper duty paying documents, which, the Comissioner (Appeals) says, is a mandatory requirement under the Rule 57G, not a mere procedural provision. But we find that the Central Board of Excise and Customs has fond that relaxation can be given even in respect of such a fundamental requirement, and that too in 1996, after years of working the Modvat Credit Scheme. This was done in response to representation from the manufacturers that they have to forgo Modvat credit on inputs which are not received directly inside the factory premises but are required to be stored outside the factory premises for subsequent transhipment to factory for actual utilisation, due to shortage of storage space, hazardous nature of the goods or any other unforeseen/unavoidable circumstances. Recognising these circumstances the Board has permitted such initial storage of inputs in godowns out side the factory and its subsequent movement to factory for utilisation subject to following certain procedure and condition prescribed as contained in Ministry of Finance, Department of Revenue, Circular No. 206/40/96-CX, dated 1-5-1996. The jurisdictional Commissioner have been empowered to grant such permission treating the storage point as an extension of the factory premises.
6. Viewing the facts of the present case, in the above context the Appellants herein, it is clear, could not receive the whole of, the declared inputs due to shortage of space. The subsequent movement of the inputs from godown to factory it is stated are covered by their own challans bearing printed serial numbers. Further, as noted above, the Assistant Commissioner has already got the verification done regarding their receipt in factory and utilisation and has been satisfied about it. On these facts and in the circumstances of this case, therefore, we are inclined to agree with the decision of the Assistant Commissioner that there has been substantial compliance in this case with provisions of Rules 57G and 57H, Central Excise Rule by the Appellants.
7. The appeals are therefore allowed.