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TMI Blog2003 (2) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... om. E/RA-157/97-Bom. Usha Rolling Mills E/114/96-Bom. E/CO-136/96-Bom. Vijay Steels E/115/96-Bom. E/CO-137/96-Bom. Laxmi Steel Rolling Mills E/116/96-Bom. Laxmi Steel Rolling Mills E/117/96-Bom. Gujarat Steel Rolling Mills E/118/96-Bom. Saraswati Steel Industries E/119/96-Bom. E/CO-117/96-Bom. Ajay Re-Rolling P. Ltd. E/120/96-Bom. Sonthalia Steel Rolling Mills E/121/96-Bom. E/CO-138/96-Bom. Sonthalia Steel Rolling Mills E/122/96-Bom. Jai Bharat Steel Industires E/123/96-Bom. R.K. Industries E/124/96-Bom. E/CO-123/96-Bom. Aggarwal Industries E/125/96-Bom. L. G. Industries E/127/96-Bom. E/CO-140/96-Bom. Kiran Ispat Udyog E/128/96-Bom. E/CO-141/96-Bom. Kiran Ispat Udyog E/129/96-Bom. Jain Steels E/130/96-Bom. E/CO-142/96-Bom. Standard Steel Re-rolling Mills E/131/96-Bom. E/CO-131/96-Bom. D.P. Mehta Eng. Pvt. Ltd., E/132/96-Bom. Jain Steels E/133/96-Bom. Triveni Iron & Steel Industries E/134/96-Bom. Lucky Steel Industries E/135/96-Bom. Navyug Steel Industries E/136/96-Bom. E/CO-118/96-Bom. Laxmi Steel Traders E/137/96-Bom. E/RA-155/97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid on the input is available for discharging duty on the final products and goods made therefrom. To ensure revenue neutrality the scheme does not permit taking of such credit where the final products are not dutiable. The manufacturer has to file declaration showing the description of the inputs and of the final goods. He can take credit of the duty paid only when he is in receipt of specified documents showing that the inputs had suffered duty. A notable exception has been made to this cardinal principle vide Rule 57G (2) (2nd Proviso) in the following words. "Provided further that having regard to the period that has elapsed since the duty of excise was imposed on any inputs, the position of demand and supply of the said inputs in the country and any other relevant considerations, the Central Government may direct that with effect from a specified date, all stocks of the said inputs in the country, except such stocks lying in a factory, customs area (as defined in the Customs Act, 1962 (52 of 1962) or a warehouse as are clearly recognisable as being non-duty paid, may be deemed to be duty-paid and credit of duty in respect of the said inputs may be allowed at such rate and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order did not contain any exclusion clause and that such exclusion clause could not be imported from the provisions of Rule 57G(2). The contention in the show cause notice was that although the order of the Government under the said rule permitted availment of the deemed credit without producing documents evidencing payment of duty; the existence of such document was a pre-condition which was not waived by the order. This claim in the show cause notice was contested by all noticees. It was claimed that ship-breaking areas were not Customs areas but that the ships were taken for breaking up only after being cleared from Customs on payment of duty. The prohibition in the parent rule of goods lying in the customs area therefore is not attached to scrap being obtained on breaking of the ships. It was claimed that the tariff items specifically relating to goods obtained by breaking of the ships having been deleted from the tariff would not result in the denial of deemed credit inasmuch as the resultant goods would merit classification against the general entries in the relevant chapter heading in the tariff. It was claimed that the penalties under Rule 173Q(1) were not leviable. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent rule would apply in spite of this omission. As regards the plea that some of the inputs were received from the traders, he noted that the ship breaking origin was obvious even in such cases. In view of this analysis he held that even where declarations were filed under Rule 57H they were liable to be dismissed. In all cases he held the credit was wrongly availed and confirmed the demands denying the plea of limitation. He also imposed penalties upon the noticees. 11.The noticees then filed 40 appeals which were disposed off by the Commissioner (Appeals) in a single order. The Commissioner (Appeals) referred to the relevant provision and enumerated the conditions to be fulfilled for availing of the deemed credit benefit. He noted that the order No. TS/36/94/TRU, dated 01-03-1994 did not specifically exclude ship breaking scrap from the benefit of the notification although it was common knowledge that bulk re-rollable scrap was available from the activity of ship breaking. 12.He further held that deemed credit order did not exclude goods which were subject to "nil" rate of duty relying upon the judgment in case of Arun Auto [1990 (48) E.L.T. 543]. He held that even where the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even in the absence of a specific clause in an order issued pursuant to this Rule, the ship breaking material would stand excluded from the benefit. In support of his claim he relied upon the following judgments : (1) Rapsri Engineering Industries Pvt. Ltd. v. CCE - 1989 (43) E.L.T. 577 (2) Achal Alloys (P) Ltd. v. Collector Of Central Excise - 1994 (73) E.L.T. 718 16.He also referred to the Tribunal judgment in the case of Ma Tara Rope Works - 1991 (54) E.L.T. 360 where it is held that goods cleared at nil rate of duty stood exempted from the benefit of the notification. He claimed that by virtue of exclusion of tariff entries 7230 and 7323 and by virtue of exemption Notification No. 45/94-CE ship breaking scrap was established as non duty paid. He relied upon the instruction No. 77/77/94-CE dated 10-11-1994 in support of this. 17.Shri Parelkar submitted that the correct interpretation of the deemed credit order was that the availment could be taken by the re-rollers only up to the point where their value of clearances had not exceeded Rs. 75 lakhs. In other words after the unit had crossed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second proviso to Rule 51G(2) seeks to confer the status of "duty paid" on all stocks of the specified inputs in the country. The rationale was that at some point of time these goods had suffered duty, but due to the passage of time the factum of payment could not be readily established. Exception to this presumption is made only of goods lying in factory, in a customs area or in a warehouse. 22.Section 2(e) of the Central Excise Act, 1944 defines 'factory' as any premises wherein excisable goods are manufactured. 23.Rules 9 and 49 of the Central Excise Rules, 1944 as they existed at the material time prohibited removal of any excisable goods without payment of duty. Once duty had been paid such goods could not be retained in the factory in terms of Rule 51A of the said Rules. Therefore there could exist no doubt that the goods inside the factory as defined in the Central Excise Act had never suffered the burden of duty. 24.Customs Area is defined in Section 2(11) of the Customs Act, 1962 as an area in which imported goods kept before clearance by the customs authorities. Section 45 of the Act prescribes that the goods in the customs area would not be removed from that area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the duty, it would not be correct to allow deemed credit on such scrap. "2. Suitable instructions may be issued to the field formations accordingly." 28.It is difficult to make any meaning out of this cryptic dictate of the Board. The interpretation does not arise out of the parent rule at all. The interpretation as made is entirely illogical and cannot be allowed to become the basis of denial of credit. 29.The order dated 01-03-1994 which is the centre of controversy in these appeals does not have any additional exclusion clause. In other orders issued by the Government under the authority of Rule 57G(2) additional exclusions had been made. Thus in order No. B-22/5/86-DRU dated 07-04-1986, those inputs which were exempted under any rule or the notification, and those inputs which had suffered "nil" rate of duty did not qualify for the credit. Whether the enabling rule empower the Government to put additional restrictions is not an issue before us in this set of proceedings but it is very clear that where such extra exclusions are not part of an order issued under this rule, such exclusions cannot be read into an order simply because such exclusions exist in some other orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretation was put on the said notification would affect the availment of the benefit of this notification. Therefore the claim that the issue was not specifically raised in the show cause notice has no force. 34.The very order of the Ministry which has been cited in the present proceedings was before the larger bench in the cited case of the Digamber Foundary. In the judgment the Tribunal distinguished between the eligibility for and the extent of exemption of Notification 1/93-CE. The Tribunal held that the benefit of deemed Modvat credit would cease where an assessee operating under the benefit of Notification 1/93-CE had crossed the value of clearance limit of Rs. 75 lakhs per annum. The ratio of this judgment squarely apply this batch of appeals. 35.On the basis of the discussion above we hold as under : (1) The assessees in this batch of appeals were entitled to take the Modvat credit in terms of the order dated 1-3-1994 at the specified rates on the inputs obtained by them from the breaking of ships. (2) Such benefit was available to such assessees up to the time their value of clearan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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