Customs, Excise and Gold Tribunal - Tamil Nadu
Salzer Controls Ltd. vs Commissioner Of C. Ex. on 22 December, 2000
Equivalent citations: 2001(75)ECC67, 2003(160)ELT1169(TRI-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. All these three appeals arise from a common Order-in-Original No. 6/99, dated 30-6-99 passed by the Commissioner of Central Excise, Coimbatore confirming duty demands on M/s. Salzer Controls Ltd. (hereinafter called as SCL) under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, 1944 to an extent of Rs. 30,88,999/- in adjustment Rs. 7,50,000/- has been and appropriated and adjusted towards the above liability and balance amount of Rs. 23,38,999/- has been confirmed. There is an order of confiscation of 2405 kgs. reprocessable scrap valued at Rs. 60,245/-; 10200 kgs. of reprocessable slag valued at Rs. 2,24,000/- and 5000 kgs. of channels scrap valued at Rs. 1,00,000/- under Rule 173Q and 226 of the Central Excise Rules, 1944. The same has been ordered to be released on imposition of fine of Rs. 1,00,000/- under Section 125 of the Customs Act read with Central Excise Notification No. 68/63 as has been amended. There is a penalty of Rs. 31.00 lakhs on M/s. SCL under Rule 173Q of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Rules. On the other two appellants namely M/s. Salzar Exports Pvt. Ltd. (hereinafter called as SEPL) and M/s. Salzar Electronics Ltd. (hereinafter referred to as SEL) penalty of Rs. 1,00,000/- on each has been imposed under Rule 173Q and 209A of the Central Excise Rules, 1944.
2. Briefly stated the facts are that M/s. SCL are job workers to receive raw materials under challans issued under 57F(4) read with Notification No. 214/86 from the ledger accounts of M/s. SEPL. The investigating authorities noticed that job charges for operations were shown in the records to the extent of Rs. 2.2 lakhs only and for the rest of the amount M/s. SCL had raised labour charges/delivery challans. On a perusal of their raw materials, receipt issued for production and the quantity that went into the manufacture of finished product i.e. channels during the period 4/97 to 12/97, it was noticed that there was weight gap between the raw materials received and the raw materials, issued. It was also noticed that compared to the quantity of raw materials issued for the manufacture of channels i.e. finished product namely PVC channels cleared on payment of duty was found to be much less. On a reasonable belief the assessee might have clandestinely removed the channels which were manufactured out of unaccounted portion of raw materials, simultaneous searches were conducted at the premises of M/s. SCL, SCPL and SEL on 27-1-98. After due investigation and recording of statements, the charges were summarised in the following manner :-
(i) duty on the removal of components, whose weight is excess when compared to the weight of material received for moulding;
(ii) duty on the removal of finished excisable goods viz. LBS, TC, PX etc. in the guise of return of processed goods for which raw materials were not received under any challan;
(iii) duty on the removal of finished excisable goods viz. conduit tubings under the guise of return of processed goods for which raw materials were not received/part received; and
(iv) duty on the removal of finished goods under the cover of non-returnable delivery challans.
3. The show-cause notice delineated the details of liability and as to how the duty was chargeable on the clearances of raw materials made by M/s. SEPL under the challans issued under Rule 57F(4) to the first appellant M/s. SCL and how the partly processed goods were received back by M/s. SCL without payment of duty after availing the Modvat credit by M/s. SCL M/s. SEL and SEPL were working under bond and relevant Notification and goods so manufactured fully by M/s. SEPL were exported. M/s. SEPL claimed drawback benefits and therefore, the department proceeded to raise demands on the semi-finished goods which were cleared by M/s. SCL to M/s. SEPL without payment of duty on the ground that M/s. SEPL had drawn the drawback on the exports which were not admissible. The appellants contention was that no demands can be raised on all the items which were manufactured by M/s. SCL on job work basis as they had received the raw materials under Rule 57F(4) under challans and all the items has been accounted in the registers of M/s. SEPL. The goods were received back by M/s. SEPL and that had been fully processed and thereafter they were all exported through the shipping bills. Thereafter they had applied drawback in terms of law and taken the drawback only on the Customs duty and not on CVD or Excise duty. M/s. SCL, who had processed the goods on job work basis were fully entitled to take Modvat credit on goods so received and which was in order. The goods were meant for exports and there was a clear provision under Rule 57F(4)(iii) to avail Modvat credit. Although they had not executed bond, however, it was only a procedural lapse and for not following such procedure, substantive benefit of Modvat credit cannot be denied. As regards certain other discrepancies, they had admitted the liability only to the extent of Rs. 2,11,893/- which was proposed to be demanded on certain goods cleared as samples without payment of duty. The appellants admitted this amount and stated that they have already pre-deposited an excess amount of Rs. 7,50,000/- and after realizing this amount of Rs. 2,11,893/- the department has to refund them the balance amount. The appellants further contended that there is no allegation of any of the goods manufactured by the first appellant and the other appellants having been cleared to domestic market or cleared clandestinely. They contended that the Order-in-Original has confirmed the duty demand merely on the ground that the other two appellants M/s. SEPL and SEL had not sent the required raw materials in accordance with the said Notification.
4. Learned Advocate Sri Lakshmikumaran argued for the appellants relied upon the large number of judgments which according to him settle the issue and therefore, no demands can be raised except the demand portion of clearances of samples. He also contends that demands are barred by time as all the clearances had been made under Rule 57F(4) in bond and the exporter had cleared it giving duty reference and declaring about W taking the benefit of Modvat credit wherever it had been taken and also declared wherever it had not been taken. All the documents were correctable and there was nothing suppressed in the matter and hence the entire demands are barred by time. Summary of his arguments is noted herein below :-
(i) that appellants M/s. SEL and SEPL followed the procedure under Rule 57F and sent inputs i.e. raw materials to the appellant M/s, SCL for job work. M/s. SCL after completing the job work, returned the said semi-finished items to the appellants M/s. SEL and SEPL where the goods were further readied for export. As the goods never left the registered premises of the appellants M/s. SEL & SEPL till they were cleared under AR 4 Procedure for export by Merchant Exporters who purchased the goods from these appellants, therefore, there is no procedural infringement of the rules involved.
(ii) Since the goods were ultimately exported as has been accepted by the Commissioner in the order impugned on the basis of certain verifications got carried out by the Commissioner and since duty is not chargeable on goods exported, therefore, the entire demand is incorrect as the goods have ultimately been exported,
(iii) He further submits that the entire exercise is Revenue neutral because the goods have ultimately been exported and this fact of export is not disputed.
(iv) He also submits that Commissioner has for the first time considered the fact that both drawback at all industries rate as well as Mod vat was availed of by various persons with respect to these goods exported. He submits that this charge was not enunciated in the show cause notice at all and to this extent the order impugned has traversed beyond the scope of the show cause notice. Since this is also one of the factors leading to the confirmation of duty demand, therefore, it has been arrived at behind their back.
(v) He also submits that the said verification report was not supplied to them by the department despite request at the original stage. Therefore, there is a miscarriage of natural justice in these proceedings.
(vi) He, therefore, submits that apart from the demands for Rs. 98,878/- for PVS conduit pipes against which they are not desiring to press the appeal at this stage. The rest of the demands for duty are not established by law.
5. Learned DR Sri S. Kannan submits that the order impugned is a detailed order and has exhaustively dealt with all the issues for each category for each financial year. He submits that the order has contested that goods manufactured by the first appellant M/s. SCL were complete in all respects and therefore the procedure under Rule 57F(4) would not be applicable to the appellants as the goods should have been cleared on payment of duty from the premises of M/s. SCL He also submits that since the appellants themselves had contended that the goods have been exported and this contention has been accepted by the Commissioner, therefore, there was no need to supply them with the copy of verification report. He further submits that since the export was made by Third Party Merchant Exporters, the appropriate procedure would have been for the first appellant to pay duty on the goods as manufacturers thereof and the Merchant Exporters who has claimed rebate of duty involved after showing proof for export. He further submits that the procedure followed by the appellants was designed to claim double benefit of Modvat credit and drawback. He also reiterates the arguments in the impugned order.
6. We have carefully considered the submissions and perused the entire documents and have gone through the impugned order. The relevant portion of the finding in the present case is found in paras 133 to 137, which are noted hereinbelow :-
"133. From the perusal of the exhibit-3, I find that particulars regarding the DCs D001 to D006 with corresponding export details and proof of export in respect of them were only furnished. M/s. 5CL had not denied the contention of the department that without receipt of raw materials from M/s. SEPL, SCL had produced final products out of Modvat availed raw materials and cleared final products to M/s. SEPL The value aspect which had been admitted by Sri R. Duraisamy had not been retracted at any point of time. Even the replies and written submissions did not dispute the above allegations. The only submission on this score was that the above goods received from M/s. SCL were all exported. In the absence of any proof to show that goods despatched under DC No. D007 to D009 were exported by M/s. SEPL, I am unable to consider that the goods sent under D007 to D009 were all exported ultimately. Further the contention that since the final products were exported by M/s. SEPL, there is no requirement of law to discharge duty liability is also not acceptable. I find that M/s. SCL had relied on the two case laws viz. M/s. AMERICAN DRY FRUIT STORES and M/s. ALPHA GARMENTS. In the above case laws, I find that M/s. American Dry Fruit Stores, the assessee had exported entire Custard Powder manufactured by them for the period from December, 1988 to March, 1989 and had approached the department for certificate to the fact of non Modvat availment for the purpose of claiming drawback. The custard powder manufactured by them was all exported by themselves. In the case of M/s. Alpha Garments, unlike M/s. American Dry Fruit Stores, they were not assessees, but they were clearing huge percentage of their products for export and a negligible quantity for home consumption. When compared with these cases, I find that the facts in the present case of M/s. SCL are different. Like M/s. American Dry Fruit Stores, M/s. SCL are also registered manufacturer but the difference is that M/s. SCL had not exported the goods directly. M/s. SCL had cleared them to their sister units from where these goods were reported to have been exported. M/s. SCL had availed Modvat on the inputs and cleared the final products without payment of duty from their factory to their sister nits. Hence, I find the case laws cited by the assessees are not relevant to the present issue. From the records produced, I find that M/s. SEPL & SEL had exported the goods through third party i.e. M/s. L & T, M/s. Crompton Greaves etc. In the respective AR4s, a declaration to the effect that Modvat had not been claimed in respect of inputs used in exported goods have been appended by M/s. SEL and M/s. SEPL so as to enable the third party exporters to claim the duty drawback. This tantamounts to misdeclaration inasmuch as M/s. SCL had availed Modvat credit on these inputs for the goods exported, which fact had not been disputed at any point of time. Further had M/s. SCL paid duty and cleared the goods to M/s. SEL and M/s. SEPL, in accordance with law, M/s. SEPL and M/s. SEL could be considered as merchant-exporters and they would be eligible only for the rebate claim and not any duty drawback. Thus, by clearing for export under bond, Modvat on inputs was availed by SCL, the duty was not paid and at the same time drawback had also been claimed. This clearly brings out the double benefits availed and their planned/organised move to have the benefits against law. So, I find that there had been clear cut intention to evade payment of duty. Further inasmuch as final products made out of their own Modvat availed raw materials were cleared by M/s. SCL in the guise of doing job work, I find there had been deliberate violation of Central Excise Rules and procedures with an intention to evade payment of duty. The duty should have been paid at the time of clearance from the factory of M/s. SCL and this point is specifically covered by Rule 9(1) of C.E. Rules, 1944. While explaining the provisions of Rule 9(1), the Supreme Court in the case of CCE. v. Kohinoor Mills reported in 1995 (77) E.L.T. 42 in para 6 had categorically stated that "it therefore becomes obvious that the duty becomes payable on manufactured item, once it is removed from the place of manufacture for home consumption, export or manufacture of any other commodity in or outside such place."
134. Further, I find relevant to refer to the decision of Hon'ble CEGAT in deciding the value of clearances effected for N home consumption in the case of CCE v. Nirmal Electric Industries - 1996 (88) E.L.T. 115, wherein it was held that goods initially cleared for home consumption and subsequently exported by other party ..... such value of clearances not treatable as exports and had to be compute as the value of clearance for home consumption. Thus, I find even if the goods were cleared for export by M/s. SEL & SEPL through their merchant-exporters, the duty should have been discharged at the time of clearance by M/s. SCL and rebate of duty should have been claimed instead of method followed by M/s. SEL & SEPL i.e. removal of goods without payment of duty by M/s. SCL, export of the same by M/s. SEPL & SEL under bond and also leaving scope for claim of duty drawback by the merchant-exporters. Thus the method followed by the above units was designed to claim double benefits which they were not entitled to and the clearances without paying duty effected by M/s. SCL were in the nature of intentional evasion of duty and the duty demand of Rs. 1,35,002/- is sustainable.
135. Regarding the demand of duty of Rs. 1,10,218/-, M/s. SCL submitted that the goods under DC No. 764/23/3/96 to SEPL were sold by SEPL under invoice No. M126, 125, 127 all dated 25-3-96 and hence it could be evident that goods had been exported. Since the above goods were accounted in the R.6.1 register and actually exported, they had no intention to evade duty and since transactions were genuine and TDS had been paid for this, the allegation of clandestine transaction would not be sustainable.
136. I find that M/s. SCL had not disputed that these goods were manufactured without receipt of raw material from SEPL, they had not put forth any evidence to prove that the goods underwent any process at SEPL and the invoice values for exports were the same as were quoted in the non-returnable Dos. All the above factors clearly show that there was no process at SEPL which contributed to value addition. Further Sri Rajesh in his statement dated 28-1-98 had admitted that they adopted the full value of components manufactured using Modvat availed inputs as labour charges. This aspect had not been retracted at any point of time and therefore, I find no substance in their argument. Further as discussed in respect of 1995-96 category (ii), the finished goods when removed from SCL should have been effected only on payment of duty so that the ultimate exporter could claim rebate of duty instead, I find exports were made under bond, and ultimate merchant-exporter had claimed duty drawback which they were not eligible and hence I hold the demand is sustainable.
137. Further M/s. SCL contended that only a quantity of 6911.975 kgs. of components were moulded out of Modvat availed inputs, which had been cleared by SCL under the cover of DC cum Invoices and the duty demanded under 1995-96 category (i) should be restricted to the value of Rs. 7,92,288/-
As already discussed, Sri Rajesh in his statement had admitted that the above value represents the total value of the products/components and not of the labour charges. M/s. SCL had contended at one stage that the value amount is additional labour charges raised in the form of invoices instead of debit notes. Anyhow, the above amount represents additional value/additional consideration that had flown to SCL from SEPL in respect of finished components and hence the duty on the additional amount is recoverable even otherwise. M/s. SEPL had not produced any evidence to prove that they had only received unfinished goods from M/s. SCL and they had undertaken some process to finish them."
In all other paragraphs, the Commissioner has taken up the clearances for respective years categorywise and has come to a conclusion that with regard to the demands confirmable for those periods in the light of the findings recorded in the above paragraphs.
Therefore, the crux of the whole issue is -
(a) as to whether the first appellants M/s. SCL are required to pay duty on all the clearances made by them under documentation to M/s. SEL and SEPL?
(b) As to whether the demands are barred by time? (c) As to whether any portion of duty is required to be confirmed including penalty in the matter?
7. On a careful consideration of all the material on record, we are of the considered opinion that -
(i) that there is no dispute on the fact that the entire raw materials were supplied by M/s. SEPL and M/s. SEL to the first appellant M/s. SCL under the cover of challans and documentation made under Rule 57F(4)/Notification No. 214/86 as amended. The first appellant M/s. SCL processed the materials and manufactured the necessary items like LB Switches, Terminal connectors and other accessories falling under Chapter 85 of CETA as well as PVC conduit tubings falling under Chapter 39 ibid.
(ii) that there is no dispute that M/s. SEPL & SEL were working under bond under the relevant notification and the entire goods so manufactured and received by them after due further processing were all exported.
(iii) that there was no dispute on M/s. SCL having applied for drawback for customs duty only and having received the same.
8. The question that arises for our consideration is as to whether M/s. SCL, who had received the goods under the cover of documents issued under Rule 57F(4) are required to pay duty, when the clearances were made to M/s. SEPL & M/s. SEL, who were working under bond for export. It is seen from Rule 13(1) of the Central Excise Rules that the Central Government may from time to time, by Notification in the Official Gazette -
(a) permit export of specified excisable goods in bond without payment of duty from a factory of manufacture or warehouse [or any other premises as may be approved by the Commissioner of Central Excise];
(b) specify materials, removal of which without payment of duty from the place of manufacture or storage for use in the manufacture (in bond) of export goods, may be permitted by the Commissioner of Central Excise; and
(c) allow removal of excisable material without payment of duty for the manufacture of export goods, as may be specified to be exported in execution of one or more export orders; or for replenishment of duty paid materials used in the manufacture of such export goods already exported for the execution of such orders, or both, subject to such safeguards, conditions and limitations as regards the class or description of goods, class or description of materials used for manufacture thereof, destination, mode of transport and other allied matters as may be specified in the Notification which the exporter undertakes to abide by entering into a bond in the proper form with such surety or sufficient security and under such conditions as the (Commissioner) approves.
Rule 13(2) - deleted as not relevant.
Explanation I defines the expression "manufacture" includes the process of blending of any goods or making alterations or any other operation thereon. Explanation II defines the term "materials" shall include raw materials, consumables, components, semi-finished goods, assemblies, sub-assemblies, intermediate goods, accessories, parts and packaging materials used in the manufacture of export goods but does not include capital goods used in the factory in or in relation to manufacture of export goods.
9. In terms of the above Rule, the Government has issued the Notification in question which is reproduced hereinbelow :-
NOTIFICATIONS UNDER RULE 13 [1] Exports under bond without payment of duty -- Exemption to inputs used in the manufacture of such goods. -- In exercise of the powers conferred by Rule 13 of the Central Excise Rules, 1944, the Central Government hereby permits for the purpose of export outside India, the manufacture in bond of the export products specified in column (2) of the Table hereto annexed from the excisable goods specified in column (3) thereof provided that the provisions of Chapter X of the said rules are followed.
2. The manufacturer shall file a declaration with the Commissioner of Central Excise having jurisdiction over the factory of manufacture describing the finished goods proposed to be manufactured along with their rates of duty leviable and manufacturing formula with particular reference to quantity or proportion in which the materials are actually used as well as quality, tariff classification, [rate of duty payable] on the materials so used, both in words and figures in relation to the finished goods to be exported.
3. The Commissioner of Central Excise may call for sample of finished goods or may inspect them in the factory of manufacture to satisfy himself about the correctness of the ratio of input and output mentioned in the declaration filed before the [commencement of export] of such goods.
4. The Commissioner of Central Excise may permit a manufacturer to remove the materials as such or after the said materials have been partially processed during the course of manufacture of [finished goods] to a place outside the factory -
(a) for the purpose of test, repairs, refining, reconditioning or carrying out any other operation) necessary for the manufacture of the [finished goods] and return the same to his factory without payment of duty for further use in the manufacture of [finished goods] or remove the same without payment of duty in bond for export, provided that the waste, if any, arising in the course of such operation is also returned to the said factory 2[xxx];
(b) for the purpose of manufacture of intermediate products necessary for the manufacture of finished goods and return the said intermediate products to his factory for further use in the manufacture of finished goods without payment of duty, or remove the same, without payment of duty in bond for export provided that the waste if any, arising in the course of such operation is also returned to the said factory]
5. Any waste arising from the processing of materials may -
(a) be removed on payment of duty as if such waste is manufactured in the factory of the manufacturer;
(b) be removed without payment of duty, where it belongs to such class or category of waste as the Central Government may from time to time by order specify for the purpose for being used in the manufacture of the class or categories of goods as may be specified in the said order, subject to the procedure under Chapter X being followed; or
(c) be destroyed in the presence of proper officer on the application made by the manufacturer, and if found unfit for further use, or not worth the duty payable thereon, the duty payable thereon be remitted :
Provided that such waste may be destroyed by the manufacturer in accordance with the provisions of Chapter VIIA - of the Central Excise Rules, 1944.
In terms of the above Notification, the Merchant-Exporters and suppliers of raw materials i.e. M/s. SEPL and M/s. SEL have supplied the raw materials and documents to M/s. SCL and M/s. SCL have manufactured and sent back the goods to M/s. SEPL, who were working under bond of this Notification. Therefore, in terms of a combine reading of Rule 13 and the said Notification, the goods which are manufactured in India are exempt from payment of Excise duty and therefore, the clearances of goods made by M/s. SCL, all the manufactured items to M/s. SEPL d M/s. SEL are in terms of the Notification under Rule 13 and therefore, they are not liable to pay any duty as raised by the department in the matter. The reason being that goods are clearly exempt from duty and raw materials had been received by M/s. SCL from a manufacturer in bond of the export products and all the products had been exported. There is not dispute regarding this and when this being the case, the question of levy of duty, on goods received in bond for export, does not arise. The Commissioner had not dealt with this aspect of the matter and has merely gone on to hold that as M/s. SEPL & SEL have claimed duty drawback, therefore, the goods manufactured and cleared by the job worker i.e. M/s. SCI to them are required to pay duty. There is no such Rule or any provision of law stating that legitimate claim for duty drawback will disentitle the job worker working under Rule 57F(4) on receipt of materials from in bond exporter to pay duty. The Commissioner has totally misdirected himself in his findings in para 133 and has not adverted to the Customs Notification under Rule 13, which is extracted above. The manufacturer in bond of the export product under the Notification is permitted to remove the raw materials for the purpose of carrying out intermediate products and get back the same for further use in the manufacture of finished goods without payment of duty in bond for export. Therefore, there was no violation of the terms of the notification or provisions of drawback. Learned counsel filed before us the relevant table of rates effective from 16-6-95 in respect of duty drawback and pointed out to serial number 8511 which deals with switchgears, control gears, all sorts rectifiers, power capacitors and lighting arresters. This refers only to 5% rate of FOB value on All Customs. Therefore, the Merchant-Exporter had claimed only drawback customs duty and not on CVD and CVD is equivalent to Excise duty and the said Excise duty is totally exempt from payment in terms of the Notification. Hence the entire case made out by, the Revenue on the ground that Merchant-Exporter having drawn drawback will disentitle to claim exemption and he is required to pay the entire duty is not in terms of the Notification and in light of the following judgments.
10. In the case of M/s. Affan Shoes (P) Ltd. the SZB vide final order No. 1019/2000, dated 1-8-2000 [2000 (122) E.L.T. 868 (T)] has considered the same identical situation and noted the judgment of Mirza Tanners Ltd. v. CCE as reported in 1999 (114) E.L.T. 1032 (T) = 2000 (37) RLT 46 and held that the said judgment of Mirza Tanners Ltd. would clearly apply to the facts and circumstances like this. Para 4 of the said judgment is re-produced herein below :-
4. We have considered the rival submissions and since the matter has come for stay, we grant waiver of pre-deposit with the consent of both sides and take up the appeal itself for final decision and after considering the submissions we find -
(a) that para 10 of the order itself records "the duty involved on the remaining goods for which no Excise invoices has been produced works out to Rs. 4,14,425/-". For which the ld. Advocate submitted a statement and therefore it would be apparent that a major part of the impugned goods out of the total demand of Rs. 32 lacs or so have been satisfactorily explained to have been used for export shipments;
(b) we find that the facts of this case are covered by the decision of Mirza Tanners Ltd. as reported in 1999 (114) E.L.T. 1032 (T) = 2000 (37) RLT 46 (CEGAT) and we respectfully follow the same. A major portion of the goods have been shown to have been eventually exported. We find that leather tanneries operators were working on an assumption of liberalised system of exports and there has been no clear finding arrived at of the goods having entered the Indian domestic market so that the levy of Excise duty would be attracted; we are aware that Excise levy is on production and manufacture, but its recovery has been deferred by law up to the stage they enter the area of domestic consumption. Therefore, it is imperative and necessary for Revenue to establish for even goods for which procedures have not been followed that the goods entered the domestic market. Since the same has not been done, the demand cannot be upheld, we would find that the appeal in this case should be allowed;
(c) we have considered the submissions regarding the marketability of 'shoe uppers'. We are of the view that since there is no finding on the subject by the Commissioner, no finding need be arrived at this stage by this Bench;
(d) since the appellants are covered by exemption from Registration Control by Notification 12/92, and it is an admitted position that they have complied with this notification, we do not find any reason to justify any penalty in the facts of this case.
The above judgment is fully applicable to the facts of the present case.
11. The other question that arises for consideration is as to whether the appellant M/s. SCL having taken Modvat credit under Rule 57F(4)(iii) would render them to pay duty on the goods manufactured and removed by them to the Merchant-Exporter. In this regard, learned DR points out that first appellant M/s. SCL had not executed a bond and therefore, they were not eligible for obtaining Modvat credit and as they had taken Modvat credit without executing a bond in terms of Rule 57F(4)(iii). We are of the considered opinion that execution of bond is only a procedural lapse and its violation will not disentitle the appellant M/s. SCL from taking Modvat credit. This view was expressed by the Hon'ble Apex Court in the case of Termax Pvt. Ltd. as reported in 1992 (61) E.L.T. 352, wherein the Apex Court has noted the Board's Circular issued in this regard (F. No. 332/65/86/TRU dated 27-7-87), which had laid down that mere procedural violation of Chapter X of the Central Excise Rules should not be a cause for denying the benefit of Notification, which is eligible. The Hon'ble Apex Court after noting this Board's Circular held that the benefit of exemption or concession should be granted wherever intended use of material can be established by the importer or by other evidence and that merely because there is a procedural violation, that by itself will not disentitle them from taking the benefit. This ratio of the Hon'ble Apex Court rendered in Theremax Pvt. Ltd, has since been followed by the Larger Bench of [FIVE MEMBERS] the Tribunal in the case of Breach Candy Hospital & Research Centre v. CCE as reported in 2000 (118) E.L.T. 271 (T-LB) and have held that so long as intended use of Air-conditioners was in hospital establishment and it had been so satisfied, then violation of Chapter X procedure should not be a cause for denying the benefit. In view of this settled position of law, we have to hold that merely because the first appellant have not executed the bond, by that reason alone, the Modvat credit eligible to them and utilised by them should not be a cause for directing them to pay Excise duty, when they cleared the goods received from in bond export manufacturer and the same having been sent back under the relevant challans issued under Rule 57F(4). Therefore, the findings arrived at by the Commissioner in para 133 on this issue is not in keeping with the law laid down and he has not justified in not applying the ratio of the judgments rendered in the cases of M/s. American Dry Fruit Stores as reported in 1992 (61) E.L.T. 709 and that of M/s. Alpha Garments as reported in 1996 (86) E.L.T. 600. The ratio of both these judgments are clearly applicable to the facts of the present case. The Commissioner's attempt to distinguish both the judgments is not correct, although the Revenue has not proceeded to recover the Modvat credit on the ground of irregular availment without executing of duty and also has not made this as a ground for directing the first appellant M/s. SCL to pay duty on the goods removed by them to the Merchant-Exporters. However, the Commissioner has taken up this ground and learned DR has argued the very plea, we are of the considered opinion that there is no merit in the argument of DR and findings of the Commissioner and we negative the same on the basis of the reasoning adopted by us and on our reading of Rule 13 and Notification therein arid the judgments noted supra. Therefore, the claim of duty on the goods manufactured and cleared is required to be set aside. Ordered accordingly.
12. Further, we are of the considered opinion that even the demands claimed for the period are barred by time. We have examined all the documents and noticed that there is a clear declaration made by the appellants in their AR 4 declarations about availing of Modvat credit. There is no holding of any information or suppression. The relevant shipping bills were also verified by us and we notice that there is clear records to corresponding AR4 in all the shipping bills. There is no suppression of facts or withholding of information in the matter, hence we are not in a position to appreciate the fact that the demands can be confirmed for larger period in the matter. Hence the demands for the large extent beyond six months are not to be confirmed in the matter and therefore, we allow the appeal on this ground also.
13. As regards the period within six months, there is an argument that they had indicated to the Commissioner in the personal hearing that ratio had been rightly adopted and there was no excess clearances than the raw materials received. The Commissioner had got this fact verified and had scaled down the amounts and he has given the calculation sheet only after the hearing was concluded. There is an argument that there is a clear violation of principles of natural justice in not hearing the appellants on the calculations. The appellants stated that they could have been able to demonstrate this matter and even on merits there is no duty claim on this ground. We notice that appellants have been able to demonstrate that they have manufactured and cleared the quantity in terms of the inputs received and that calculation arrived at is not correct, hence on this ground also the appellant succeeds.
14. The only amounts which are not contested is on the clearances of samples made. The appellants have admitted the amount of Rs. 2,11,893/-and we are not in a position to say as to whether this amount is correctly calculated by the appellants and that they are entitled to refund of the balance amount. Therefore, we are of the considered opinion that this aspect of the matter requires to be re-adjudicated, after granting an opportunity of hearing to the appellants.
15. The Commissioner has also imposed penalty on all the three appellants and also confiscated the goods. In this regard, we are of the considered opinion that so far as main case of levy of Excise duty is not imposable, as we have held that no duty to be charged on goods manufactured for export, - therefore, the penalty on all the three appellants is not sustainable and hence we set aside the same.
16. However, as regards the admitted clearance of samples without payment of duty, some penalty is required to be imposed, hence the same shall be re-adjudicated.
17. As regards the confiscation of inputs and levy of fine, we are of the considered opinion that the same is not confiscate, as the appellants have succeeded on merits and hence the order of confiscation and imposition of fine is set aside.
18. The appeals are disposed of in the above terms.