TMI Blog2001 (2) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... 7C of the Central Excise Rules provided that Modvat credit of duty paid on inputs used in the manufacture of final products cleared at nil rate of duty is not admissible if the provisions of Rule 57CC ibid are not followed, and the assessees did not follow the provisions of 57CC. Hence a show cause notice dated 2-2-1998 was issued to the assessees proposing recovery of Modvat credit of Rs. 36,45,107/- availed during the period July to December, 1998 and proposing imposition of penalty. A second show cause notice was issued on 25-8-1999 proposing recovery of credit of Rs. 8,46,221/- availed during the period January and February, 1999 and also proposing penal action. The adjudicating authority upheld the charge in the notices and disallowed total credit of Rs. 44,91,828/- under Rule 57-I of the Central Excise Rules, imposed a penalty of equal amount under Rule 57-I(4) and Rule 173Q, and levied interest under Rule 57-I(5) at the rate of 18%. Hence this appeal. 2. The contention of the assessees firstly is that removal of the polyester chips without payment of duty was in terms of Rule 57F(4) itself which is a self-contained provision enabling them to remove polyester chips without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification is not to be accepted. Learned SDR seeks to distinguish the decision of the Tribunal in the case of Bajaj Tempo Ltd., relied upon by the assessees on the ground that Notification 214/86 which was relevant in that case, is different from Notification 214/86 and, therefore, the ratio of the Bajaj Tempo decision cannot be applied to the facts of the present cases. He cites the Tribunal's decision in the case of M/s. Orissa Extrusions Ltd. v. Collector of Central Excise reported in 1996 (83) E.L.T. 308 to support his plea that Modvat credit is not admissible on inputs used in the manufacture of final products cleared free of duty in terms of exemption notification. 4. We have carefully considered the rival submissions. We find that the appellants have not categorically denied the filing of a declaration under Notification 214/86. We, therefore, proceed on the basis that the appellants were operating under the notification. Notification 214/86 exempts specified goods manufactured in a factory as job work and used in or in relation to the manufacture of specified final products (on which duty of excise is leviable whether in whole or in part) from the whole of excise duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is to forego levy on the products cleared from the factory. The Tribunal further held that the scope of Rule 57C is to be construed in the context of Modvat scheme and not to destroy that concept and that in the cases of disintegrated production, such credit is available by paying duty at each finished stage and taking credit of such duty in the other units down the line, whereas in the case of vertically integrated production units, the same benefit is sought to be conferred by averting payment of duty at each stage and postponing the availment of credit to the final stage of manufacture. The Tribunal allowed the appeals of the assessees with direction to restore credit to them. The relevant paragraphs of the Bajaj Tempo order are reproduced below : "6.1 Having set out the undisputed factual position and the main tenets of equally attractive arguments from both the sides, we now proceed to examine the issue by an independent analysis of the provisions of Rule 57C vis-a-vis Notification 217/86. 6.2 Notification No. 217/86 grants exemption to products specified as inputs in Col. 2 of the Schedule to this notification used in the further manufacture of final products specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of clearance of exempted motor vehicle. This is what Notification 217/86 envisages. As regards Modvat credit taken on steel materials, if Rule 57C is applied at the stage of clearance of motor vehicle parts or I.C. engines on the ground that they are exempted, it would amount to denial of Modvat credit otherwise available on the steel materials used in the manufacture of motor vehicles, since the steel materials also are eligible inputs for the motor vehicle. Whether such a denial is permissible? This is the hot question debated before us, which is to be considered. 7.1 First we consider this question from the pleadings made by the ld. JDR and the objections taken by the department. Going by these objections, if we order reversal of credit taken on basic input materials in terms of Rule 57C, then they have the choice to clear the M.V. parts or I.C. engines or copper wires/rods etc. on payment of duty, in which case they can take credit of the duty paid on these items in the other factory and utilise the same for payment of duty on Motor vehicles or wire mesh as the case may be. No objection can be taken on this, as agreed to by the ld. JDR. Thus, by sending the same inputs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilised only in assembly of dutiable I.C. engines. In the circumstances, the present issues were never before us for consideration in that case. The main point pleaded in that case was that they had taken credit on inputs and utilised the inputs in the manufacture of I.C. engine parts as per declaration filed and hence subsequent reversal of credit is not permissible under Rule 57C read with Rule 57-I. Apart from the fact that the case of Kirloskar Oil Engines is clearly distinguishable on facts, even as a proposition of law. Exemption Notification 217/85 is not on par with Notification 217/86 the latter notification is esoteric to Modvat scheme and is entirely based on the concept, whereas Notification 217/85 is a notification foregoing revenue on I.C. engine parts used in I.C. Engines irrespective of whether they are dutiable or exempted. 7.6 Hence, the scope of Rule 57C in a situation like the present one, is to be construed in the context of the Modvat scheme and not to destroy that concept. Any interpretation in such a situation has to be to give effect to Notification 217/86 and not to take away the benefit of averting duty payment at each stage in the line of production. He ..... X X X X Extracts X X X X X X X X Extracts X X X X
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