TMI Blog1989 (12) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the 2nd proviso to Rule 57G(2) of the Central Excise Rules, allowed deemed credit in respect of inputs purchased from outside and lying in stock on or after 1-3-1986 with the manufacturers of the final product. In their case the deemed credit in respect of the steel flats exceeding 5 mm thickness was taken at the rate of Rs. 365 per M.T. However, the department issued 4 show cause notices dated 2-9-1986; 30-3-1987; 23-7-1987 and 4-12-1987. The objection raised by the department in the aforesaid show cause notices is common viz. that the inputs - steel flats have been entirely purchased from M/s. G.D. Industrial Engineers, Faridabad, who are the manufacturers of the said flats and they have cleared the flats without payment of duty under Notification No. 208/83. It was, therefore, alleged in the show cause notices that the input was clearly recognisable as those cleared at Nil rate of duty or exempted from central excise duty. Hence availment of deemed credit on such flats is irregular in terms of the Government of India s order referred to above. In the adjudication proceedings initiated by the Asstt. Collector, he confirmed the demands issued through the aforesaid 4 show c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the market and they have maintained separate stores stock register for the steel flats purchased from the market and subsequently sold to various parties. In this context, the learned advocate produced a letter received from M/s. G.D. Industrial Engineers dated 21-5-1987. He also produced a photo copy of another letter received from the suppliers bearing the same date clarifying that they are not availing of modvat credit benefit and they are exempted from excise licence procedures under Notification No. 208/83 dated 1-8-1983 and they are not availing of any credit under Rule 56-A in respect of purchases of duty paid ingots for manufacture of steel flats. Shri Sheth argued that even taking that M/s. G.D. Industrial Engineers had supplied the flats out of their own production, it is clear from their letter aforesaid that they are not availing of modvat credit nor availing of any credit under Rule 56-A in respect of purchases of duty paid ingots for manufacture of steel flats. He also pointed out that the Asstt. Collr. in his findings referred to some enquiry done with the Superintendent, Central Excise, Faridabad by the Superintendent, Central Excise, Morvi, which indicated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir case, the inputs are exempted and cannot be construed to be inputs charged to Nil rate of duty. Even this exemption is not an unconditional exemption but is a conditional one available to the manufacturer only, if the flats are manufactured out of duty paid materials and that duty element has not been taken credit by way of modvat or Rule 56-A. In this context, he cited the decision of the North Regional Bench of the Tribunal reported in 1988 (37) E.L.T. 323 (Tri.) - Collector of C. Ex., v. Capsons Electro. In this case, it has been clearly held by the Tribunal that since the Notification No. 208/83 is a conditional exemption notification the burden is on the department to establish that the inputs received satisfy the condition of the said notification. He also contended that the Supreme Court has held in the case of Ahura Chemical Products Pvt. Ltd. reported in 1981 E.L.T. 613 (S.C.) that purchases made from another manufacturer is also to be taken as purchases from the open market and in this case merely because it has been purchased from a manufacturer availing exemption, it cannot be construed that it is not purchased from open market. He also cited the decision of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident from the duty paid documents. Exception is made in the case of market purchases, where the Government chooses to issue an order in terms of Rule 57G extending the deemed credit. If the deemed credit is to be taken, the conditions prescribed in the order issued by the Government in pursuance of Rule 57G are to be complied with. In this case since the purchase is from a manufacturer, who is exempted under Exemption Notification No. 208/83 and this fact is not disputed, credit cannot be extended. 8. After hearing both sides, we find that the main issue to be decided in these appeals is the question whether the steel flats purchased by the appellants from a manufacturer availing of exemption Notification No. 208/83 would be eligible for the benefit of modvat credit at the rate specified in the Government of India s order F.No. B. 22/5/86-TRU dated 7-4-1986. The following facts are undisputed :- In the case of appeal No. E/347/89, the credit is alleged to have been availed of during the period from 1-3-1987 to 30-6-1987. In the case of appeal No. E/123/89, the credit is alleged to have been availed of during the period from 1-12-1986 to 28-2-1987. In the case of appeal No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso to be construed as purchase from the open market. Since the Government of India s order dated 7-4-1986 does not refer to apply the bar in respect of the exempted product whereas in the subsequent Government of India s order dated 20-5-1988 the bar has been made specifically applicable for inputs exempted from duty, the benefit of deemed credit under Government of India s order dated 7-4-1986 is available to them. Shri Arya on the other hand contended that since the goods received from the suppliers are totally exempted from duty, they should be construed as non-duty paid or charged to nil rate of duty and hence the Government of India s order permitting deemed credit is not available to them. 10. The aforesaid arguments further narrow down the area of interpretation with regard to the following provisions in the order :- if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty . It is not the case of the department that the goods have been removed from Excise or Customs area without payment of duty and hence they are to be construed as non-duty paid. The department states that the goods have been supplied by a manufacturer, who is ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpted from duty vis-a-vis those goods charged to Nil rate of duty. In view of the fact that the inputs in respect of which deemed credit is sought to be denied during the period 1986-87 in terms of Government of India s order dated 7-4-1986, it has to be construed that the said order does not bar the deemed credit in respect of inputs wholly exempted from duty. It is not proper to construe the provisions made in the subsequent order dated 20-5-1988, that too issued in supersession of the earlier orders as holding the ground during the period 1986-87, when the deemed credit is to be construed only in terms of order dated 7-4-1986. We are also unable to take a view that the subsequent order could be a clarification of the earlier order, since the earlier orders have been superseded. In this view of the matter, we hold that even if the goods have been received from a manufacturer availing of exemption under Notification No. 208/83, deemed credit in terms of the Government of India s order dated 7-4-1986 would be available. This order only contemplates purchases from outside, which can even be from the manufacturer as has been held by the Supreme Court in the case of Ahura Chemical Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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