TMI Blog1999 (6) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner, in terms of the provisions of Rule 209A of the Central Excise Rules, 1944. 2. The second set consists of Appeal Nos. E-289/97 to 293/97 which are against another Order of the Commissioner being Order No. 15/COMMR/97 dated 17-7-1997 vide which the duty of Rs. 2,77,81,048.00 has been confirmed and a penalty of Rs. 2.00 crores has been imposed on M/s. TELCO under Rule 173Q of Central Excise Rules, 1944. Apart from this, penalties of Rs. 50,000.00, Rs. 40,000.00, 30,000.00 and 20,000.00 have been imposed on Mr. S.M. Khorana, Mr. R.S. Thakur, Mr. C.G. Verghese and Mr. P.K. Ray, respectively, by the Commissioner in terms of Rule 209A of the Central Excise Rules, 1944. All these appeals are being disposed of by a common Order as the facts leading to passing of the two impugned orders are same. 3. Briefly stated the facts of the case are as under : 3.1 The appellants are engaged in the manufacture of motor vehicles along with its parts and accessories. Some of the parts and accessories so manufactured by the appellants are used by them in the manufacture of the motor vehicles in their own factory. There is no dispute in respect of these parts and accessories captively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmittedly, the parts and accessories of motor vehicles were declared as final products in the declaration dated 4-3-1986, but were not so declared in the subsequent declaration dated 31-3-1986, whereas the Department contends that the earlier declaration dated 4-3-1986 cannot be considered to be a proper and valid declaration under Rule 57G(1), inasmuch as the same was not accepted by the Department and the appellants were not directed to submit a revised and a fresh declaration giving more details, which was filed by them only on 31-3-1986. As such, as per the Department s contention, the declaration filed on 31-3-1986 is the only valid declaration. As the said declaration does not contain parts and accessories of motor vehicles as final products, the Modvat credit availed by the appellants on the inputs used by them in the manufacture of the said final products during the period from 1-4-1990 to 28-2-1995 in the first set of appeals and from 2-1-1995 to 4-2-1995 in the second set of appeals, was not proper and as such was inadmissible to them. 3.3 It may be noted here that although the appellants were availing the Modvat credit of duty on the inputs received by them and used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 19-3-1987 vide which Modvat credit was sought to be denied on steel sheets, argon, oxygen gas and D.A. Gas on the alleged ground that the same have not been included in the list of the inputs declared in the declaration filed under Rule 57G. In reply, M/s. TELCO took a stand that these inputs have been duly declared in their earlier declaration dated 4-3-1986. In his Order dated 16-9-1987, the Assistant Commissioner held the items in question not to be inputs under Rule 57G, but observed - The assessee s contention that the items are declared under Rule 57G is accepted. The said Order was set aside by the Commissioner (Appeals) on merits and the Revenue s appeal against the same before the Tribunal was dismissed. From this, learned Advocate concluded that the Department had accepted the declaration dated 4-3-1986 and it does not lie to them at a belated stage to contend that the declaration dated 4-3-1986 was not a valid declaration. He also referred to a subsequent declaration dated 16-4-1988 in which they have mentioned - We take it that the declaration as called for by you would not in any way prejudice the declaration submitted to Assistant Collector in the first week of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arts and accessories under Heading 87.08 have been mentioned as an output. If the Department is not treating their earlier declaration dated 4-3-1986 as a valid declaration, this letter dated 6-3-1986 copy of which was marked to the Assistant Commissioner as also to the Superintendent, should be treated as a declaration. In this view, the Modvat credit denied by the Commissioner on the ground of non-declaration of final product, would be without any basis. 4.2 Learned Advocate further submitted that presuming that the final product was not declared by them in their declaration, Revenue cannot have any grievance inasmuch as the non-declaration of the final product can prohibit the utilisation of the Modvat credit towards the payment of duty on that final product, but cannot debar the appellants from taking the credit on inputs ab initio. In this connection, he relied upon the Tribunal s decision in the case of Mahindra Manhidra Ltd. v. Collector of Central Excise, Bombay reported in 1995 (79) E.L.T. 151. He also relied upon the following decisions :- (i) 1996 (84) E.L.T. 467 (T) in the case of Plastichemix Industries v. Commissioner of Central Excise Customs, Vadodara; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 2-11-1993, laying down the provision for condonation of delay of six months retrospectively for filing declaration. Therefore, he submitted that the declaration filed on 22-12-1994 will date back to 22-6-1994. As such, he submitted that the credit having been utilised by them for payment of duty on parts and accessories only after December, 1994 and the declaration declaring the parts and accessories as final product, having been filed on 22-12-1994, the denial of Modvat credit availed upto the period of 1990 and onwards, was not justified. 4.4 Arguing further, learned Advocate submitted that during the period from 1-1-1995 to 5-2-1995, the appellants had effected clearance of parts of motor vehicles on payment of duty from the Modvat account amounting to Rs. 2.95 crores and during the period from 6-2-1995 to 15-3-1995, they had effected clearance of motor vehicles, by paying duty from P.L.A. equivalent to Rs. 3.04 crores. As the motor vehicles are declared as final products, even according to the Department, in the declaration dated 31-3-1986, the appellants were entitled to use the Modvat credit towards the payment of duty on motor vehicles. He submitted that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained the terms and conditions for availing the Modvat credit and if the assessee is not adhering to the same, the substantive benefit cannot be allowed to them. Credit on the inputs can be used only by payment of duty on the declared final product and if the appellants have failed to declare the parts and accessories as one of their final products, Modvat credit cannot be allowed to them. 5.1 Opposing the strong reliance of the appellants on the Tribunal s judgment in the case of Mahindra Mahindra Ltd., learned Solicitor General submitted that the findings in that case do not apply to the instant cases inasmuch as the appellants are lacking in their bona fides. The parts were declared as final product in their declaration dated 4-3-1986 and the same were omitted in the subsequent declaration filed on 31-3-1986 and as such that declaration cannot be considered to be a good declaration. He argued that Rule 57A as it stood at the relevant time, used the expression, the said final . Emphasising the expression, said , he submitted that the same refers to the declared or specified final product. Similarly, Rules 57F(1) 57F(3) are to the effect that credit can be utilised toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir final product in their declaration, the longer period was justifiably invoked by the adjudicating authority inasmuch as the credit was availed without declaring the product in their declaration. 5.3 Learned Counsel also supported the penalties imposed on the manufacturers as also on its employees on the ground that the Modvat credit has been availed and used by the appellants fraudulently and by misleading the Department. 6. In his rejoinder, Shri Sridharan submitted that in the show cause notices, it is an admitted case of the Department that the inputs were indeed used by them in the manufacture of the final product. As such the principles of Indian Aluminium case referred to by the learned Counsel for the Department, does not apply. 6.1 As regards the Department s contention that the Taxing Statute has to be construed strictly, he submitted that it has to be done only when it involves the interpretation of the charging section and not the requirements which are procedural. He has submitted that the Mahindra Mahindra s case the facts of which are similar to the facts of the instant case, is not a strange judgment. There are another six judgments following the line. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and accessories were being cleared on payment of duty till this date. Even if the Revenue s contention that parts and accessories were not declared as final products, is accepted, the result of the same would be that the credit was not available towards the duty-payment on these undeclared parts and accessories, which the appellant company was not utilising in any case. The non-declaration of the final product cannot result in denial of availment of credit on the inputs and as the appellants have not utilised the credit for payment of duty on undeclared final product till December, 1994, following the ratio of the various judgments relied upon by the learned Advocate, we hold that the credit was not to be disallowed. 7.1 As explained by the appellants, after December, 1994, the duty was paid in January, 1995 from the RG-23A Part-II in respect of parts and accessories whereas the duty during this period, on motor vehicles was paid from P.L.A. As we have already held that the appellants, in any case, entitled to utilise the credit towards the payment of duty on motor vehicles, taking into consideration the quantum of duty paid from P.L.A. and from RG-23A, the same gets neutralise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he use in (declared) final product for which such inputs were brought. This position becomes further clear when sub-rule (3) of Rule 57F emphasises that credit so allowed on any inputs shall be utilised, inter alia, towards payment of duty on any final product in, or in relation to, the manufacture of which such inputs are intended to be used in accordance with the declaration filed under sub-rule (1) of Rule 57G. (emphasis supplied). 10.4 Declaration of a final product as well as all inputs used therein is a mandatory and a substantive condition for taking credit and utilising it. In my view, liability to make a declaration of a final product and its inputs and taking acknowledgement thereof is strict and an assessee cannot escape from this liability, if he has to avail of the Modvat credit facility. That was the legal position during the relevant period with which we are concerned in these appeals. 10.5 A final product is one which an assessee intends to remove on payment of duty. There can be no manner of doubt and nor it is an averment of the first appellant herein that it was not clearing/removing before introduction of Modvat scheme and after, both motor vehicles and Ps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d manufacture at all the non-declared final product. Such is not the situation in the present case. Even if it is so, it is the mandate of the Modvat scheme, as discussed earlier, that credit can be taken only in respect of inputs which are brought for use in declared final product. If the inputs are used otherwise, then credit to that extent has to be reversed. If a manufacturer, as the first appellant in this case, knows fully well that a portion of his inputs alone is going to be used in the manufacture of his declared final product and the remaining portion in a non-declared final product, having regard to his previous practice and the future manufacturing programme for the two products, yet he takes credit on all the inputs brought by him, enabling him to utilise the said credit for payment of duty on the declared final product, this is nothing short of a financial accommodation to the extent of credit taken by him on inputs not going to be utilised in the declared final product. Had that credit not been available to the appellants, the appellant would have paid duty, by making deposits in PLA from his pocket to the extent of wrong credit taken, for discharging duty on the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee did not furnish these along with RT-12 returns for the said parts. Though maintenance of consolidated RG 23A Part-II was permitted during the relevant period, in such a case, the assessee was required to submit a statement in the prescribed format at the end of every month, stating name of the common inputs, quantity used in the manufacture of final products, credit involved, name of the Final product, amount of credit utilised for payment of duty on the final product, excess/less credit utilised and Entry No. of PLA/RG 23A Pt. II under which excess credit debited. It may be true as contended by the assessee that at the point of receipt of the inputs, it was not possible to segregate an input to be used as an intermediate product in the manufacture of Motor Vehicle or used in the manufacture of final product MVP A but certainly for submitting the above consolidated statement on credits taken and credits utilised in respect of the Final Products i.e. MVP A and Motor Vehicle Chassis, the same could have been complied without any difficulty. Thus the assessee did not observe the procedure to claim benefit under consolidated RG 23A Account. The garb of innocence being put on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on AA of the Central Excise Rules, 1944 applies. 13.1 Yet another plea of the learned Advocate for the appellants is that the inputs being common for the declared and non-declared final products and there being no provision for one-to-one correlation between the input and the final product, there was nothing wrong in taking ab initio credit and utilising it for the declared final product. I have already dealt with the effect of common input in earlier paras while dealing with the underlying assumption in Tribunal s judgment in M M s case and the peculiar procedure adopted by the appellant, as held by the adjudicating Commissioner while dealing with the plea against invoking larger limitation of five years. Plea of lack of one-to-one correlation in Modvat scheme in the facts and circumstances of this case is misconceived. It is true that there is no one-to-one correlation between inputs and the corresponding final product. But it does not mean that inputs brought for use for a particular final product are used for another final product which is not declared at all. This is plainly against the Modvat scheme, as discussed in various sub-paras of Para 10. 14.1 Another plea ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pring assemblies. These are also parts of motor vehicles though these may fall under different Chapter of CETA. When the appellants could declare some of the parts of motor vehicles, it does not stand to reason that their failure to declare other parts and accessories is just a bona fide omission on their part. 15.1 Next plea of the learned Advocate is that the appellants made a declaration dated 22-12-1994. This was rejected by the Central Excise authorities vide their letter dated 28/29-12-1994 because the said letter in an admittedly summarised manner gave description merely of the final products and not of an inputs. It was not a declaration at all in terms of Rule 57G. The appellant s stand on this letter dated 22-12-1994 has been rightly rejected. 16.1 In view of the foregoing discussion, I uphold Commissioner s order disallowing taking of Modvat credit on inputs used in manufacture of Ps As to the tune of Rs. 27,40,67,190.06 for the period 1-3-1990 to 28-2-1995. His further order for recovering the same or part of it is also upheld, if the total amount or part thereof cannot be reversed from RG 23A Part-II. 17.1 Further plea of the appellants is that once the Modvat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, penalties on individual employees of the appellant company are set aside in both sets of appeals. 21.1 In short, two appeals of the appellant company i.e. E/284/97 and E/289/97 are rejected. Appeals of the individual employees namely of S/Shri S.M. Khorana, R.S. Thakur, C.G. Verghese and P.K. Ray in both sets of appeals are allowed. Sd/- (P.C. Jain), Member (T) POINT OF DIFFERENCE (1) Whether the appeals of the appellant company M/s. TELCO are required to be rejected as held by Technical Member or allowed as held by Judicial Member. Sd/- (Archana Wadhwa) Member (J) Sd/- (P.C. Jain) Member (T) 22. [Order per : C.N.B. Nair, Member (T) Third Member on Reference agreeing with Member (J)]. - Arguments on the above reference were heard by me on 23-3-1999 and 25-3-1999. At the outset, the learned Additional Solicitor General, Shri A.K. Mitra mentioned that the reference does not spell out the difference of opinion between the two Members as appeals themselves have been referred. He explained that the scope of reference to third Member is limited to the point of difference and the third Member is to consider only th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. He submitted that in regard to points on which only one Member has given findings, it should be held that on those points there is no difference of opinion and as points on which there is agreement. Shri Sridharan submitted that this is not the correct approach. Points on which both the Members have not given findings should be held to be points not considered by both and the findings of one Member cannot be held to be the undisputed findings on those points. 23. I have perused both the orders and the submissions made by both the Counsels in order to ascertain the difference of opinion in the instant case. I find that the learned Judicial Member has come to the conclusion that appeals can be disposed of in the light of the Tribunal s decision in the case of Mahindra and Mahindra Ltd. and others. This line of approach is clear from Para 7 of her order. The learned Member Technical has not agreed with this approach and has given his order based on an a priori examination of the relevant Modvat Rules. Herein lies the difference of opinion. Accordingly, I have considered the records and the arguments of both the sides with regard to the applicability of Mahindra and Mahindra L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue involved in the present appeals, the Bench which considered the appeals was bound to follow these judgments. He submitted that the learned Member Technical overlooked the fact that these judgments related to common inputs being used for declared and non-declared final products and that the Division Bench was required to follow the earlier decisions. By not following these judgments, and by giving his own decision on the issue on his appreciation of the Modvat provisions, the learned Member Technical has virtually overruled all these judgments, which he could not have done. Shri Sridharan also submitted that the appellants had a strong case on merits also. They had declared parts also as an output in their first declaration filed on 4-3-1986. This declaration was returned for resubmission after incorporating more details by the jurisdictional authorities. The appellants did not specifically mention parts as an output while resubmitting the declaration. This was, thus, merely a case of omission and was made good by the subsequent inclusion of this item on 22-12-1994. The appellants had not withdrawn the first declaration nor had anything happened for them to exclude parts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sides, we find that there is no dispute that the inputs received under the Modvat scheme go into the manufacture of the declared final product namely Motor vehicle. Hence no objection can be taken for utilisation of the credit earned by these inputs in regard to the duty payable on these declared final product namely Motor vehicle. We agree that when I.C. engines and motor vehicle parts are not declared as final products, they cannot utilise the credit towards the duty payable on these items. But then, even if credit is denied and clearance of these items is ordered to be made against debit in PLA, the credit accrued on these inputs has to be made available for duty payment in respect of motor vehicles. In this view, it boils down to a question of adjustment in RG 23A and PLA. The net effect would not result in total extinction of the disputed credit. Only in this view, we had granted stay of recovery. Our view gets further strengthened because of the following factors. The appellants continue to clear the motor vehicles on payment of duty and hence the credit earned on inputs is even now available towards payment of duty on motor vehicles - the declared final product. We find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objection raised by the Dept. there could have been an order to make payment of duty involved on I.C. Engines and Motor Vehicle parts through PLA but it has to be simultaneously with restoration of an equivalent amount in RG 23A Part II for utilisation towards the duty on the declared final product namely Motor vehicles. Such an order is not passed by us in this case, firstly on account of the time bar of the demand and secondly because this exercise has no revenue implication otherwise. 27. In Friends Wire Industries v. Collector of Central Excise, Chandigarh, the Tribunal held that utilisation of credit on undeclared final product is not permissible and is to be paid from PLA or in cash. The Tribunal further held that the denied Modvat credit should be restored to RG 23A account (Modvat account) for utilisation to pay duty on eligible final product. This case also related to common input being utilised in declared and undeclared final products. In Mukesh Engineering Industries v. Collector of Central Excise, Bombay-I, the Tribunal took the view that Modvat credit if denied, duty may be payable from PLA, whereas Modvat credit already availed is to be restored back in RG 23A, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducts. The Tribunal held in all these cases that Modvat credit could not be utilised to pay duty on undeclared final products and that duty should be paid on such undeclared final products from PLA or in cash. The Tribunal further held that when such payment is made from PLA or through cash, an equivalent amount should be recredited into the Modvat account so that the same could be used to discharge duty on declared final products. Alternatively, the Tribunal held that as such payment from PLA and recredit into RG 23A Part II account would be a Revenue neutral activity, no action is called for. The facts involved in the present appeals of TELCO are also the same. They had a common input for both declared and undeclared final products. Therefore, the decisions in these cases squarely cover their case also. As observed by the Tribunal in Mahindra and Mahindra Ltd. case, the objection of the Department is technical. There could be an order to make payment of duty involved on undeclared motor vehicle parts through PLA, but it has to be simultaneously with the restoration of an equal amount in RG-23A Part II for utilisation towards the duty on the declared final product, namely, motor v ..... 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