TMI Blog2001 (4) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... his common order. 2. M/s. SIL were availing of the benefit of Modvat credit in respect of re-rolled non-alloy steel products, bars, flats, angles etc. classifiable under sub-heading No. 7214.90 of the Central Excise Tariff, manufactured in their re-rolling mills, when used in the manufacture of their final products -agricultural implements i.e. pickaxe, pawarah, railway beaters etc., classifiable under Chapters 82 and 84 of the Central Excise Tariff, in their forging division. They had filed declaration for availing of the benefit of Modvat credit in respect of the above inputs and final products on 17-3-1994. With effect from 1-8-1997 Section 3A was inserted by Section 81 of the Finance Act, 1997 (26 of 1997), providing for charging excise duty on the basis of the capacity of production in respect of the hot re-rolled products. The benefit of the deemed Modvat credit @ 12% of the price of the inputs available under Notification No. 58/97-C.E. was sought to be denied by the Department to M/s. SIL on the ground that they did not fulfil the conditions subject to which the benefit of deemed Modvat credit was available under the aforesaid Notification. The Commissioner of Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same person. (5) Mangalore Chemicals Fertilizers Ltd. v. Deputy Commissioner, 1991 (55) E.L.T. 437 (S.C.) - Subsequent notification should not undo the benefit conferred under earlier notification. The learned advocate submitted that a distinction has to be made between a procedural condition of a technical nature, and a substantive condition. While the non-observance of a procedural condition was condonable, the latter may not be so condonable. It was his submission that in the present case the condition for the violation of which the benefit of Modvat credit had been denied to the appellants, was a procedural condition and the substantive benefit of Modvat credit could not be denied on this ground alone. In reply, Shri A.K. Jain, JDR, referred to the provisions of Notification No. 58/97-C.E. and submitted that from the express and unambiguous language of the notification, it was clear that the same manufacturer who was manufacturing both the inputs and the final products was not covered by the scheme of Modvat credit under this notification. It was his submission that the notification has to be construed strictly and that a correct view has been taken by the learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise Tariff, by virtue of Explanation I under Section 3A of the Act. 5. Under Notification No. 58/97-C.E. the inputs classifiable under sub-heading No. 7214.90, and the final products falling under any of the heading/sub-heading in the Tariff, were declared to be eligible inputs and eligible final products under sub-rule (6) of Rule 57A. In other words, in terms of this Notification No. 58/97-C.E., the inputs manufactured by M/s. SIL on which the duty of excise had been paid under Section 3A of the Act, were eligible inputs for allowing the credit of duty under Rule 57A at such rate or equivalent to such amount as may be specified in the notification issued under sub-rule (6) of Rule 57A, aforesaid. In para 2 of the aforesaid Notification No. 58/97-C.E., it was declared that the duty of excise for the above purpose shall be deemed to have been paid on the said inputs @ 12% of the declared price in the invoice accompanying the said inputs, and the credit of such duty deemed to have been paid shall be allowable to the manufacturer of the final products. Full context of Notification No. 58/97-C.E. is given below - Iron and steel - Goods notified for purposes of credit of duty und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factory of the manufacturer of the said inputs under the cover of an invoice declaring that the appropriate duty of excise has been paid on such inputs under the provisions of section 3A of the said Act. 5. The provisions of this notification shall not apply to inputs where the manufacturer of the said inputs has not declared the invoice price of the said inputs correctly in the documents issued at the time of their clearance from his factory. 6. This notification shall come into effect on and from the 1st day of September, 1997. Explanation. - For the purpose of this notification, invoice price means the price charged by the manufacturer of inputs and indicated in the invoice accompanying the said inputs, the payment for which is made directly by the manufacturer of the final products to the manufacturer of the said inputs by cheque drawn on his own bank account. [Notification No. 58/97-C.E., dated 30-8-1997 as amended by Notification No. 2/98-C.E., dated 10-3-1998.] 6. Before the insertion of Section 3A in the Act, M/s. SIL were availing of the benefit of Modvat credit for their inputs - re-rolled non-alloy steel products manufactured in their re-rolling mill, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riff. Duty under Section 3A was leviable on the basis of capacity of production and had no relationship with the quantum of excisable goods manufactured. Therefore, a deeming fiction was created in para 2 of the aforesaid Notification to the effect that the duty in such a case was deemed to have been paid on the inputs @ 12% of the declared price in the invoice of the manufacturer, and the credit of such deemed duty, so determined, was to be allowed to the manufacturer of the final products. In the present case, the duty had been paid on the inputs by M/s. SIL. Those duty paid inputs had also been used by M/s. SIL themselves. The question for consideration is, whether in such a case deeming fiction of calculating the rate of duty at 12% of the price and availment of credit of such deemed duty when such inputs were used by the same manufacturer in the manufacture of final products, was allowable or not. The view taken by the learned Commissioner of Central Excise (Appeals) is that the benefit of such credit was not applicable to captive use. 8. On the face of it, it may appear incongrous as to how the same manufacturer could issue an invoice to his own self and take credit calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emoval for captive use. 10. It is an admitted position in the present case that prior to the introduction of Section 3A of the Act, the appellants were availing of the Modvat benefit with regard to their own manufactured inputs when used captively. As is clear from the language of Section 3A, among other considerations for introducing the scheme of charging excise duty on the basis of capacity of production, the extent of evasion of duty in regard to the notified goods was the one such consideration and the scheme was formulated to safeguard the interests of revenue. While thus fixing the rate of duty with such considerations, there was nothing in the scheme to provide that the benefit of Modvat credit will not be available when the manufacturers of the inputs were liable to pay the revised rates fixed in the above manner. In fact, para 1 of Notification No. 58/97-C.E. extends the provisions of Modvat credit to the specified inputs when used in any of the goods falling within the Tariff Schedule. Thus, operational and substantive part of the Notification does not in any way indicate that the benefit so provided was not available in respect of the duty paid inputs used captively i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in view of the fact that they were availing of the Modvat benefit prior to introduction of Section 3A and had duly filed a declaration, no further declaration was required to be filed by them. Reliance has been placed on the following decisions of the Tribunal - (1) Wox Coolers Pvt. Ltd. v. CCE, 1993 (63) E.L.T. 637 (T); and (2) Suresafe Glass Works (P) Ltd. v. CCE, Calcutta-I, 1996 (83) E.L.T. 328 (T). He has also observed that there was no justification for imposing any penalty. 14. Even with regard to the benefit of Notification on the goods captively consumed, after noting down the submissions of the appellants, he had observed that these submissions at the first blush appears to be convincing . 15. We have analysed the provisions from different angles and we do not find anything in the Notification to justify the exclusion of the inputs in dispute for the benefit of Modvat credit when used by the appellants in the manufacture of specified final products, on the sole ground that the inputs were captively consumed. The case law cited by the learned advocate for the appellants also confirms this view. 16. We have already noted that Notification No. 58/9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Formica India Division v. CCE, 1995 (77) E.L.T. 511 (S.C.), wherein the Apex Court had taken a view that the benefit of the proforma credit could not be denied on the technical ground that the point of time when the manufacturer could not avail of the benefit of proforma credit had elapsed and that they could not be permitted to comply with the provisions of Rule 56A after that stage has passed. Para 2 from that decision is extracted below - 2. The High Court, however, took note of the fact that no contention had been raised before the Tribunal that the appellants should be permitted to meet the requirements of Rule 56A of the Central Excise Rules and, therefore, they cannot be permitted to avail of that benefit in a Writ Petition brought under Article 226 of the Constitution. That indeed was a technical view to take because if the appellants were entitled to the benefit of the Notification No. 71/71-C.E., dated 29th May, 1971, to deny that benefit on the technical ground of non-compliance with Rule 56A would tantamount to permitting recovery of double duty on the intermediary product. The circumstances in which the appellants did not pay the duty on the intermediary product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parliament..........and then he must supplement the written word so as to give force and life to the intention of the legislature............. A Judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out? He must then do as they would have done. A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases. The Supreme Court has taken clue from these observations as found from the reported decision in State of Bihar v. A. K. Mukherjee. These obser vations of Denning, L.J., are quite pertinent to the facts of the present case and, therefore, instead of putting a literal meaning to the words, if the offence had not been committed , leading to an obvious absurdity, what we seek to do is to iron out the creases which appear on account of bad drafting. 18. The appellate authority had noted the submissions of the appellants that they had satisfied the basic conditions of the Notification as under - (1) Inputs have to be received directly by the manufacturer of the final products from the factory of the manufacturer of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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