Customs, Excise and Gold Tribunal - Tamil Nadu
Dunlop India Ltd. vs Collector Of Central Excise on 22 July, 1995
Equivalent citations: 1995(80)ELT671(TRI-CHENNAI)
ORDER S. Kalyanam, Vice President 1. This appeal is directed against the order of the Collector of Central Excise, Madras dated 28-5-1990. Shri Vijayaraghavan, the learned Consultant for the appellant submitted that the issue arising for determination in the appeal is with reference to the appellant's eligibility to take Modvat credit on the inputs used in the intermediate product viz. dipped tyre cord fabrics which was removed from the appellant's factory at Madras to the appellant's factory at Calcutta in terms of Notification No. 217/86 without availing the Chapter X procedure. It was urged that the appellant purchased duty paid tyre cord fabrics and other chemicals and the same was dipped in a solution and the dipped tyre cord fabrics were cleared to the appellant's factory at Calcutta for use in the end-[product], viz. tyres, which were cleared on payment of duty. The learned Consultant submitted that Notification 217/86 is mainly intended to avert payment of duty at each intermediate stage and take credit of such duty at stage starting from the basic materials ending with the final product. Such a vertical integration of production line can be in one and the same factory or spread over two or more factories of the same manufacturer. This position is obvious from the plain reading of Notification 217/86. It was urged that by a harmonious construction of Rule 57D and the wording of Notification 217/86 dated 2-4-1986 and also on the basis of the ratio of the ruling of West Regional Bench in the case of Bajaj Tempo Ltd. v. Collector of Central Excise, Pune, reported in 1994 (69) E.L.T. 122 (Tribunal) and also the ruling of the North Regional Bench in the case of Lupin Laboratories Ltd. v. Collector of Central Excise, Indore reported in 1994 (71) E.L.T. 914, the appellant would become eligible to Modvat credit. 2. Shri Jeyaseelan, the learned D.R. contended that inasmuch as the appellant did not follow Chapter X procedure the appellant would not be eligible to the benefit of Notification 217/86. The learned D.R. further submitted that the rulings now placed were also not cited before the adjudicating authority. 3. We have considered the submissions made before us. On going through the records we find that [from] a plain reading of Notification 217/86 it is clear that in respect of goods coming within the mischief "description of inputs" under the said notification if the same is to be used in the final product mentioned therein, the input manufactured in a factory housed within the factory of production or in any other factory of the same manufacturer in or in relation to the manufacture of the final products specified in Column (3) of the said notification would stand exempted from the duty of excise. No doubt observance of Chapter X procedure is one of the conditions stipulated in the Notification. In similar circumstances, similar issues have been dealt with by the West Regional Bench and the North Regional Bench in the cases cited supra. The West Regional Bench has taken the following view : "Notification 217/86 is mainly intended to avert payment of each intermediate stage and take credit of such duty at each subsequent stage, starting from the basic materials, turning out components and finally ending with the ultimate final product. Such a vertical integration of production line can be in one and the same factory or spread over 'two or more factories of the same manufacturer. In such cases Notification 217/86 can be availed. They can also take Modvat credit on primary inputs used in the manufacture of secondary inputs (M.V. Parts, I.C. engine) so long as the final product namely motor vehicle pays duty. Hence, Notification 217/86 stands on a different footing, when it comes for consideration for purposes of applying Rule 57C. It is not like any other exemption, where intention is to forego the levy on the products cleared from the factory. Hence, the scope of Rule 57C in a situation like the present one, is to be construed in the context of the Modvat Scheme and not to destroy that concept. Any interpretation in such a situation has to be given effect to Notification 217/86 and not to take away the benefit of averting payment at each stage in the line of production. Hence, a mechanical application of Rule 57C, is to be avoided, since it destroys the very benefit, which is otherwise available under the scheme right from stage one to the final stage. In case of vertically integrated production units the benefit is sought to be conferred by averting payment of duty at each stage and postponing the availment of credit to the final stage of manufacture. This is how the provisions of Rule 57C can be interpreted in the context of Notification 217/86. Therefore Modvat credit is available on the inputs." The view taken by the North Regional Bench is as under : "It is well settled by a series of decisions of the Hon'ble Supreme Court, various High Courts and the Tribunal that what is relevant is substantial compliance with the provisions of law and as long as a manufacturer has substantially complied with the law, the benefit in accordance with law cannot be denied for non-observance of technical requirement. In the case of Maschmeijer Aromatics reported in 1990 (46) E.L.T. 395, the Tribunal has held that the scheme of Modvat has been introduced with a view to lessen the burden on assessees by allowing credit of duty on inputs and so long as such credit was available and the inputs have actually been used for the declared finished product, benefit of concession should not be denied and to deny benefit for procedural lapse would be to defeat the purpose of the rule providing for substantive relief by way of provisions of credit of duty on inputs to reduce the financial burden on a manufacturer. In the case of M.R.F. Ltd. v. Collector of Central Excise, reported in 1990 (50) E.L.T. 546 the Tribunal has held that the benefit cannot be denied when procedural requirements have been substantially complied with. In the case of Mangalore Chemicals and Fertilizers -1991 (55) E.L.T. 437 the Hon'ble Supreme Court has held that non-observance of a procedural condition of a technical nature can be condoned. In the present case, substantive relief of Modvat credit is sought to be denied on a technical ground, viz. that permission of the Assistant Collector was not specifically sought for removing raw materials directly to Ankleshwar". It would be seen that in the present case it is not the case of the Department that there is any dispute with reference to entitlement of the goods in question for Modvat credit nor there is any revenue implication so far as the Department is concerned. It would be further seen that even the learned adjudicating authority did not deny the benefit of the notification cited supra on the ground that the appellant did not follow the Chapter X procedure, but on the ground that inputs were removed out of the appellant's Madras factory to their Calcutta factory, which view is unsupportable on the wording of the Notification cited supra. The rulings cited before us were also not available before him. Keeping all these circumstances in mind we are inclined to think that in the interests of justice the matter should be remanded to the original authority for reconsideration of the issue in the light of the various pleas advanced by the learned Consultant for the appellant and the ratio of the rulings cited supra and the principles governing the applicability of Modvat Scheme in general and to the facts of the case relating to the appellant in particular and it is open to the appellant to put forth all the pleas that are open to it under the law. In the result the impugned order is set aside and the appeal is remanded to the original authority for consideration of the issue afresh in accordance with law and after affording the appellant a reasonable opportunity of being heard. Sd/- (S. Kalyanam) Vice President 28-7-1994 V.P. Gulati, Member (T)
4. I have carefully gone through the order recorded by my learned Brother and I am not able to agree with him that the matter needs to be remanded for de novo adjudication for consideration of the appellant's plea for benefit of Notification No. 217/86. I observe that the thrust of the learned Consultant's plea before us is that appellants had been ruled out for the benefit of this notification for the simple reason that they had not followed Chapter X procedure. I observe that before the learned lower authority no such plea for benefit under Notification No. 217/86 was taken that the appellants were eligible for the benefit of the Notification No. 217/86 notwithstanding the fact that Chapter X procedure had not been followed by them and that on facts the appellants satisfied the requirements of Chapter X procedure. Before the learned lower authority the only plea taken was that the appellants had made a mistake in having availed of the Modvat credit in respect of the goods in question when the same were exempted from payment of duty and were removed from their factory to another factory. It was the authorities who on check of consignment found that the appellants were removing the goods, namely, dipped tyre cord fabrics without payment of duty without reversing the Modvat Credit in respect of the inputs used in the manufacture of these goods. A further probe by the authority showed that the appellants had been clearing the goods so from the year 1986 onwards and before the learned lower authority they admitted that they had been doing so by mistake and undertook to reverse the Modvat credit taken in respect of these exempted finished products cleared by them. The only explanation that the appellants have given before the learned lower authority is as under :-
" A portion of the dipped tyre cord fabric is sent by us regularly to our sister factory at Sahaganj who use the same for manufacture of tyres. This is necessary because heat stretching and dipping plant is not available at our Sahaganj factory and they have to obtain dipped tyre cord fabric from Ambattur in order to maintain production of truck tyres. We had not filed classification list for transfer of dipped tyre cord fabric to our Sahaganj factory only because we were under the impression that it was not necessary to do so since the material was fully exempted. However, immediately this omission was pointed out to us by the Superintendent of Central Excise, we took action to file necessary classification list and also voluntarily expunged the entire input duty amounting to Rs. 24,82,795.95 in respect of dipped tyre cord fabric transferred to our Sahaganj factory during the period from 1-3-1986 to 31-3-1989. From this date we also commenced expunging input duty before despatch of this material to our Sahaganj factory.
The fact that we expunged the entire input duty for three years immediately on being advised by the Superintendent of Central Excise will go to prove our 'bona fides' in the matter. Omission to file the classification list is sincerely regretted and we shall ensure in future full compliance with all the relevant excise rules."
5. I observe that a fresh legal plea can be considered on appeal as such provided appellants are able to show that they could not take the plea in question for bona fide reasons and that no new facts have to be gone into in respect of the said plea. The appellants have not given any reason as to why they could not take this plea before the learned lower authority. Appellants are a well organised set up, and at the time when the demand was raised and the proceedings were drawn before the learned lower authority they certainly would have consulted their legal officers or a Counsel and obviously took a conscious decision to pay up the amount as demanded by reversal of the Modvat credit. In fact before the learned lower authority they did not even choose to appeal for a personal hearing and all that they pleaded was for a lenient view in view of their having already complied with the demand as issued in the show cause notice. No facts regarding compliance with requirements of Chapter X as such were brought on record nor it is shown before us that in fact they satisfy the requirements of Chapter X. It will be fraught with danger from Revenue's point of view if reliance is placed on records which required contemporaneous verification for the purposes of Chapter X. The Hon'ble Supreme Court in the case, of Indian Aluminium Co. Ltd. v. Thane Municipal Corporation reported in 1991 (55) E.L.T. 454 (S.C.) have held that the requirement of filing a declaration though procedural if not complied with did not entitle the appellants to the rebate of the concession as regard to payment of octroi was concerned, as the authorities had no opportunity to verify the correctness or otherwise of the declaration. The Hon'ble Supreme Court further observed as under here :-
"having failed to file necessary declaration the Company cannot turn around and ask the authorities to make verification of some records. The verification at the time when the raw material was still there is entirely different from verification at a belated stage after the article has ceased to be there."
This judgment of the Hon'ble Supreme Court has been relied upon by the Tribunal in their judgment in the case of Chemo Search Laboratories (P) Ltd. v. Collector of Customs, Bombay reported in 1994 (24) ETR 266. The Tribunal in the said order following the ratio of the Hon'ble Supreme Court and also the ratio of the Hon'ble Gujarat High Court in the case of Navsari Oil Products Ltd. v. Collector of Central Excise reported in 1992 (60) E.L.T. 550 have approved the order of the learned Collector (Appeals) which is the subject matter of the appeal before them and in respect of which the learned Collector (Appeals) had given the following findings :-
"The condition (b), is a very important condition, i.e. a person wanting to avail of the concession under the aforementioned notification must maintain an account in a manner specified by the Assistant Collector of Customs. Therefore, only an importer, who is an actual user, who wants to avail of the concession under the aforementioned notification must move the Assistant Collector of Customs claiming the concession under the notification. Once, he does so, the Assistant Collector of Customs has to design the methodology of accounting for purposes of this notification. This is a pre-condition of the notification."
6. In view of the above, we hold that no indulgence can be shown to the appellant for urging a fresh plea which will require going into the facts regarding the compliance with the requirement of Chapter X from 1986 onwards. In the absence of any other plea and the admission of the appellants before the learned lower authority that Modvat credit in respect of the inputs used for the goods cleared under the benefit of exemption at nil rate of duty was not available and also that for subsequent period also they were not taking the Modvat credit for the inputs in question as seen from their submissions before the learned lower authority, we hold that learned lower authority's order is maintainable in law. Before parting with the case, we observe that the appellants expunged the Modvat credit on 10-5-1989, although it is recorded in the order of learned lower authority that they did so under protest. Consequent upon a letter addressed to them by the Superintendent dated 19-4-1989, the appellant replied on the very same day informing him that they would be reversing the Modvat credit as pointed out and they would be also expunging the Modvat credit in resect of the inputs used in the dipped tyre cord without payment of duty in future and they finally expunged this credit on 10-5-1989. There was not even a whisper of protest in this letter. Having done so without inviting an order from the authorities, the course open to them was by way of filing application for restoration of this credit within a period of six months and which was not done. There is apparently no provision under the Modvat Rules for reversing the Modvat credit under protest which in this case was not filed and was only endorsed in the RG 23-II register and only course open to them was to file an application for restoration giving reasons for the plea. Not having done so the question would be whether any restoration of credit can at all be considered. However, since the issue before the learned lower authority has not been dealt with in this context, we refrain from giving any conclusions on this aspect. In view of the above discussions and the admitted liability before the learned lower authority to reverse the Modvat credit taken in respect of the inputs contained in the goods which were cleared from the factory free of duty and in the absence of any other legal plea, we uphold the order of the learned lower authority. The appeal is, therefore, dismissed.
Sd/-
(V.P. Gulati) Member (T) POINT OF DIFFERENCE Whether in the facts and circumstances of the case the learned lower authority's order has to be set aside and the matter remanded for consideration of the appellants' plea for benefit under Notification 217/86, for the detailed reasons given in the order of Member (J) in the light of the pleas and case laws cited by the appellant, as held by Member (Judicial).
or no indulgence can be shown to the appellants for urging a fresh plea before the Tribunal, which will require going into the facts regarding compliance with the requirement of Chapter X procedure from 1986 onwards and also for the reason that no bona fide reasons have been given by the appellant for not claiming the benefit of Notification 217/86 before the lower authority and that on their own volition they came forward to reverse the Modvat credit and in the light of the rulings of the judgments of the Hon'ble Supreme Court, Gujarat High Court and the Tribunal as held by Member (Technical).
Sd/- Sd/-
(S. Kalyanam) (V.R Gulati)
Vice President Member (J)
27-9-1994
T.P. Nambiar, Member (J)
8. The point of difference referred to me by the President is to the effect that :
"Whether in the facts and circumstances of the case the learned lower authority's order has to be set aside and the matter remanded for consideration of the appellants' plea for benefit under Notification 217/86 for the detailed reasons given in the order of the Member (]) in the light of the pleas and the case laws cited by the appellants, as held by Member (Judicial).
or no indulgence can be shown to the appellants for a fresh plea before the Tribunal, which will require going into the facts regarding compliance with the requirement of Chapter X procedure from 1986 onwards and also for the reason that no bona fide reasons have been given by the appellants for not claiming the benefit of Notification 217/86 before the lower authority and that on their own volition they came forward to reverse the Modvat Credit and in the light of the rulings of the judgments of the Hon'ble Supreme Court, Gujarat High Court and the Tribunal as held by Member (Technical).
9. The learned Vice President held that a plain reading of Notification 217/86 goes to show that in respect of the goods coming within the mischief of "description of goods" under the said Notification if the same to be used in the final product mentioned therein, the input manufactured in a factory housed within the factory of production or in any other factory of the same manufacturer in or in relation to the manufacture of final product specified in column (3) of the said Notification would stand exempted from the duty of excise but it was also mentioned by the learned Vice President that Chapter X procedure is a condition precedent. The decision of the West Regional Bench in the case of Bajaj Tempo Ltd. v. Collector of Central Excise, Pune reported in 1994 (69) E.L.T. 122 was also taken into consideration. Therefore, the learned Vice President was of the view that the case has to be remanded back. But the learned Member (T) held that this plea for the benefit of Notification 217/86 was not taken before the adjudicating authority. In such circumstances, when facts are in dispute and when new plea requires investigation into the facts, same need not be remanded.
10. Shri A. Vijayaraghavan, the learned Consultant for the appellants contended before me that similar issue has been decided by the West Regional Bench mentioned supra. He also relied upon the decision of the North Regional Bench in the case of Lupin Laboratories Ltd. v. CCE, Indore, reported in 1994 (71) E.L.T. 914. He stated that when this case was decided the appellant did not have the benefit of this decision which was rendered later. In such circumstances when those decisions were noticed by the appellants, this is a fit case for remand of the matter. He also pointed out that the facts are not required to be investigated in this case as the plea taken by the appellants is only a legal plea. Even otherwise he stated that mere procedural irregularities will not come in the way of the appellants and in that view of the matter stated that the view taken by the learned Vice President may be agreed to.
11. Shri Arulsamy, the learned DR placed reliance on the observation of the learned Member (T) that the appellants have not made out a case for remand.
12. I have considered the submissions made before me. It is now seen that the facts of this case placed by the adjudicating authority were that they had made a mistake in having availed the Modvat Credit in respect of the inputs in question when the same were exempted from payment of duty and removed the inputs from the factory to another factory. The appellants also stated that it was the authorities who had checked the consignments and found that the appellants removed the goods i.e. dipped tyre cord fabrics without payment of duty and without reversing the Modvat Credit in respect of the inputs used in the manufacture of these goods. Further probe by the authority also showed that the appellants had been clearing the goods from 1986 onwards and they admitted before the adjudicating authority that they had been doing the same by mistake and undertook to reverse the Modvat Credit taken in respect of this exempted final product, cleared by them. Thereafter the appellants were given an opportunity of personal hearing which they did not avail of before the adjudicating authority. There was also nothing on record to show that they have complied with the requirements of Chapter X procedure. The learned Consultant stated that there was investigation and after that show cause notice was issued and therefore no fresh facts are required to be gone into to find out the legal plea taken by the appellants. I find that it is no doubt true that legal plea can be taken for the first time in appeal. But in this case the plea taken by the appellants can only be assessed after investigation into the facts. Therefore, in order to appreciate the legal plea which is taken by the appellants investigation into the facts is required. The plea of the learned Consultant that such investigation has already taken place is not substantiated on the available evidence on record. Therefore when the appellants themselves admitted their fault and had already agreed for reversal of the Modvat Credit, the question of taking this plea at this stage does not arise. The appellants have not even cared to appear before the adjudicating authority for personal hearing in spite of the notice issued in this behalf. In the circumstances I agree with the view taken by learned Member (T), that no indulgence can be shown for urging this fresh plea which requires fresh investigation into the facts. Therefore in the absence of this plea and as well as the admission of the appellants before the authority that Modvat Credit in respect of the inputs used for manufacture of the goods cleared which is exempted from payment of duty, is not available to them the question of again remanding the matter does not arise. In view of the above, I agree with the finding given by learned Member (T) that the order of the learned lower authority should be upheld and the appeal dismissed.
13. The file may now be placed before the Regular Bench for passing necessary orders.
Sd/-
(T.P. Nambiar) Member (J) 3-7-1995 FINAL ORDER In view of the majority decision, the appeal is dismissed.
Sd/- Sd/-
(S. Kalyanam) (V.P. Gulati)
President Member (T)
24-7-1995