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TMI Blog2001 (7) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance Industries into PSF to the extent of the rated capacity of the appellants' plant. The arrangements/agreements between the three parties mentioned above were made in the year 1993. In the year 1995 the Audit Wing of the department exchanged correspondence with the appellants. The letters were dated 1-2-1995, 27-6-1995, 24-8-1995, 27-10-1995, 30-11-1995, 30-10-1996, 20-11-1996 and 11-8-1997. The appellants in respect of the items of the capital goods purchased by Reliance Industries which were delivered to the appellants for toning the inputs (PTA & MEG) supplied by Reliance Industries took Modvat credit under Rule 57Q. This was objected to by the department by issuing a show cause notice dated 30-4-1998. The appellants objected to the show cause notice proposing to deny the credit that the appellants were not the owners of the inputs by filing a reply dated 5-8-1998. In the said reply the appellants contended inter alia that during the relevant period of the proceedings there was no requirement that the manufacturer who availed Modvat credit should be the owner of the goods and that the manufacturer should have borne the expenditure of duty. It was also contended further tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of the Madras High Court in the case of Pandiri Sarveswara Rao v. Maturi Umamaheswara Rao and Ors. - AIR 1941 Madras 152 at page 153. (We are not dealing with this argument as this order will reveal). 5. Shri Deepak Kumar, learned DR, adopts the reasoning of the adjudicating authority. 6. We have considered the rival submissions. The facts of the case are that under an agreement between ICI Ltd. and the appellants in the year 1993 the manufacturing facility of ICI Ltd. was transferred to the appellants and the appellants are the owners of the plant. An agreement dated 2-9-1993 was entered into between Reliance Industries Ltd. and the appellants. In the said agreement it is stated inter alia as under : "TFI undertakes to convert the necessary raw materials and other inputs including DMT and MEG (hereinafter referred to as inputs) to be supplied by RIL into PSF to the extent of the rated capacity of the plant. Clause 8 - TFI will keep an account of the raw material as well as packing material supplied by RIL and will provide a regular statement as laid down by RIL. Clause 10 - TFI shall at the request and the cost and expense of RIL make necessary improvements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st. 4. As stated in para 1 above M/s. TFIL avail Modvat credit of duty paid on the input supplied by M/s. RIL as well as on the spares, components and accessories, also supplied by M/s. RIL under the provisions of Rule 57A and Rule 57Q of Central Ex. Rules, 1944 respectively. For this purpose spares, components and accessories are received by M/s. TFIL under the cover of duty paying documents wherein M/s. TFIL are either shown as buyer as well as consignee or the consignee of the said goods on account of M/s. RIL and after filing the declaration under rule 57T of C. Ex. Rules 1944, the credit is availed. 5. Statement of Shri B.V. Parikh, the Assistant Manager Excise of M/s. TFI was recorded on 6-10-1997 under the provisions of Section 14 of C. Ex. Act, 1944 wherein he stated that in view of the agreement dt. 2nd Sept., 1993 M/s. TFIL are in control/possession of both the plants i.e. batch plant and CP plant in the abovesaid manufacturing and that CP plant is owned upto May/June 97 by M/s. ICI and batch plant is owned by M/s. TFIL; that spares, components and accessories are supplied free of cost by M/s. RIL in terms of toll conversion agreement dt. 2-9-1993 and that nei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of clause 15 of the agreement it remains a property of the RIL. Now the question would be whether under the circumstances the appellants should be entitled to Modvat credit. 8. For purpose of understanding this, it is useful to refer to the provisions of Rule 57R(3) and 57Q : Rule 57R(3) as inserted by Notification No. 4/94 dated 1-3-1994 : "(3) No credit of the specified duty paid on the capital goods shall be allowed if such capital goods are acquired by a manufacturer on lease, hire-purchase, loan or by any other transaction other than direct purchase, whereby the property in the said capital goods is not transferred to such manufacturer." Rule 57Q as continued from 17-6-1994 : (1) The provisions of this section shall apply to finished excisable goods of the description specified in the Annexure below (hereinafter referred to as the "final products") for the purpose of allowing credit of specified duty paid on the capital goods used by the manufacturer in his factory and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, or as the case may be, on such capital goods, if such capital goods have been permitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the duty is leviable. It is on the assessee to prove that he is entitled to the exemption. It is not the bounded duty on the department to go out of the way to thrust the exemption. No doubt it is true that Modvat is not an exemption clause as notification is not issued under Section 5A of the Act. We are aware of the fact that Article 265 of the Constitution which says that no tax can be levied without parity of law where a person is entitled to exemption or not it is such person to claim such exemption. By reading Rule 57R(3) as contained in Notification 4/94 we are clearly of the view that the rule making authority has mentioned the words other than purchase. It means the ownership is implied when the words are read with the term acquisition. For sake of repetition it is stated that a person may acquire the property in the goods either absolutely or to a limited extent and the person who gets absolutely certain benefit are derived by him under Rule 57R(3). A person who gets limited title or put it in leasehold acquisition of the goods in a limited way is not entitled to the benefit of Modvat. 9. In this case another peculiar feature emerges. The duty amount involved is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty is made by the manufacturer he cannot claim the credit. The credit of duty if it is not borne by the manufacturer would be taken by such manufacturer without payment of duty on the capital goods. The words credit of duty paid on the capital goods in Rule 57Q is very crucial namely without payment of duty by the manufacturer it cannot be given credit to that manufacturer. Supposing the manufacturer does not pay duty as in this case and somebody else pays the duty and how could credit come? The debit and credit should go together. Unless a person increased the expenditure the whole system of accounting in the company accounts would crumble without double entry book keeping which is being followed in company accounts to our knowledge. The concept of allowing others to take credit on one's behalf to our mind is not contemplated in Rule 57Q. Reading Rules 57Q and 57R(3) we are of the view that the contentions made by the appellants cannot be accepted. 13. One more point needs to be mentioned. The goods come to the factory of the appellants on account RIL. Supposing the inputs are not fit for use or the inputs get damaged the plant what happens? Can the appellants file a claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, of the view that the penalty levied is perfectly valid in the facts and circumstances of the case as this is a case of an assessee trying to get the benefit in an unjust way and with all intention to make gain in an unlawful way. Appeal stands dismissed. Sd/- (G.N. Srinivasan) Member (J) [Order per : J.H. Joglekar, Member (T)]. - I have read the order drafted by my learned brother and my findings are as under: 16. The single issue for consideration is whether during the relevant period, the interpretation of Rule 57R permitted the appellants to avail of the Modvat credit facility on the capital goods supplied by RIL. 17. During the arguments, Shri Bhatt placed on record a photo-copy of the agreement for toll conversion dated 2-9-1993 between RIL and M/s. Terene Fabrics India Pvt. Ltd., the present appellants. Some of the clauses have been extracted in my brother's order. Two clauses which are most relevant read as Clause 2 and Clause 10 which are as follows: Clause - 2 RIL shall make available the said inputs, packing materials labels and also additional capital goods including any machinery, tools and any/or spares to TFI in advance at the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturer (by a transaction) whereby the property in the said capital goods is not transferred to such manufacturer." 21. The toll conversion agreement very clearly showed that the property in the capital goods continued to vest in RIL. Even if the RIL had claimed no ownership of "improvements" to the plant, since the property did not transfer to TFIL during this period, they had no claim for the Modvat credit. 22. The 2nd phase was from 17-6-1994 to 28-2-1997. Rule 57R(3) read as follows:- "The credit of the specified duty paid on the capital goods shall be allowed if such capital goods are acquired by a manufacturer on lease, hire-purchase or loan agreement, subject to such conditions and restrictions that may be specified in the Notification issued by the Central Government." This made for a departure from the earlier stand, specifically permitting availment by a lessee or a person who had hired the machinery for ultimate purchase or had some machinery loaned to him. Shri Bhatt taking advantage of the insistence of the Commissioner to the effect that ownership was the prime requirement for availment of credit submitted that in the light of this provision, the ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s orders. The events which occurred during the period of dispute would have to be examined. 30. The supply of capital goods made in terms of the toll agreement was first noticed in the Audit Report No. 134/95 dated 1-2-1995 (D). In the report, it was voiced that in terms of Rule 57R(3) as it then stood, Modvat credit could not be claimed by TFIL. This finding was conveyed to the appellants on 27-6-1995. In reply, the appellants made the following claim: "You have also quoted all the relevant paragraphs of the agreement between RIL and us for job work undertaken by us. As per Clause (2) of the agreement, capital goods were required to be made available by RIL to us for the manufacture of the goods. By this clause it was intended that the property of the capital goods have been passed on/transferred to us. The ownership rest with us as is evident with clause 10 of the agreement which is also referred in your letter. Prior to issue of Notification No. 26/94-CE(NT) dated 17-6-1994, Rule 57R(3) did not permit credit of duty on the capital goods if the same were acquired on lease, hire purchase, loaned or by any transaction other than direct purchase whereby property of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been taken on account of wilful mis-statement, collusion or suppression of facts. Annexure 'A' to the Notice shows, the period of demand as April, 1994 to June, 1997. The Show-cause-Notice is dated 30-4-1998. Therefore, it would appear that the demand is in terms of the proviso to sub-rule (1) of Rule 57U. The show cause notice details the statement of Shri Parekh, an employee of TFIL and of Shri Bhansali, an employee of RIL. The gist of the statement as detailed in the body of the Show-cause-Notice does not indicate any wilful mis-statement or suppression of facts. In para 7 of the show-cause-notice, the statement is made that during the relevant period, the ownership was a criterian for availment of Modvat credit. The further statement is made that by the virtue of Notification Nos. 26/94-C.E.(N.T.) and 27/94-C.E. (N.T.) exceptions have been made to this criterion. As I have observed earlier, only in the first phase of the transition of Rule 57R, ownership is suggested whereas in the next two phases, it might be a disqualification. A Notification cannot make for an exception to the Rule. These 2 Notifications merely provide the operational procedure to carry out the mandate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n various dictionaries unless the course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression." The belief that where the facts are known to the Department, the extended period cannot be applied has been established in the following judgements: (i) H. Guru Instruments (North India) Pvt. Ltd. - 1995 (80) E.L.T. 846 (Tribunal). (ii) Udaipur Cement Works - 1995 (80) E.L.T. 465. (iii) Polychem Ltd. - 1997 (90) E.L.T. 156. (iv) Shroff Textile Ltd. - 1997 (89) E.L.T. 516 (T). 41. Learned brother (J) in his judgement referred to the Tribunal's judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the show cause notice dated 30-4-1998 proposed recovery of credit taken on goods received between 1-4-1994 and 30-6-1997 and invoked the extended period contained in the proviso under sub-section (1) of Section 11A by alleging that the assessee "did not disclose the facts to the department". This fact evidently relates to the ownership of the capital goods did not vest with the assessee but with Reliance Industries Ltd. (Reliance for short) for which it supplied the goods. 46. On these facts the Member (Judicial) has held that the extended period of limitation would not apply. He says (in paragraph 14) "Without bearing the duty incident how a person can get the benefit of the same as mentioned by the earlier portion of the order without a debit if person claims to earn credit it would amount to unjust enrichment." In paragraph 15 he says "As observed by us earlier, not mentioning the schedule to the inputs supplied by RIL would show that person has certain intention to evade duty and we are of the view that the claim of the appellants that they are barred by limitation cannot be accepted hence the larger period of limitation cannot be invoked in the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of the extended period. Three letters were written to the assessee starting from the first one dated 27-6-1995, asking that credit could not be taken on the equipments which it received since it was not their owner. These letters went unheeded and it continued to take credit. Therefore, there has been contravention of the rules justifying invoking the extended period. He cited the decision of the Tribunal in Jalani Tools (I) Ltd. v. CCE - 1994 (70) E.L.T. 788. 50. The answer from the Counsel for the appellant is as follows. On the basis of the toll agreement with Reliance, the assessee believed that it was the owner of the goods. Clause 10 of this agreement provides that "The assessee shall at the request and cost and expense of RIL make necessary improvements to the plants through appropriate arrangements in order to improve the quality and quantity of production of the plants. Provided, however, that RIL shall not have any claim for ownership of such improvements." On this basis it believed that it was the owner. He contends that the decision of Jalani Tools (I) Ltd. v. CCE does not give a reasoned finding that the extended period of limitation would be available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io that where a manufacturer, despite the request of the jurisdictional officers continue to take credit, the extended period would be available. The question that is required to be dealt with is, whether the direction of the jurisdictional officer can be equated with the provisions of the Central Excises and Salt Act, 1944 or the Rules made thereunder. It does not appear to be that a direction of an officer can be equated with the provisions of the Act and the Rules. However, these are merely incidental observations. 54. The notice to show cause issued to the assessee alleged suppression of fact of ownership. It did not allege contravention of the rules. Even if it is accepted that Jalani Tools (I) Ltd. v. CCE has held that in a situation before it, the extended period would be applicable, applying that ratio to the facts before me would in effect amount to giving a finding on limitation on considerations that were not even made known to the assessee in the show cause notice. This is another reason for not accepting the departmental representative's argument. 55. As to the ground on which the notice did invoke the extended period, Mr. Mondal's contention is that the S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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