1989 (12) TMI 205 - AT - Central Excise

Tribunal grants modvat credit to appellants, extends benefit despite goods from exempt manufacturer.

The Tribunal allowed all four appeals, holding that deemed modvat credit at the specified rate prescribed in the Government of India's order dated ... MODVAT Credit - Deemed Credit on Iron and Steel Issues Involved:1. Interpretation of Notification No. 208/83 regarding exemption from duty.2. Onus of proving the non-duty paid character of inputs.3. Legality and propriety of disallowing deemed credit under the circumstances.Detailed Analysis:1. Interpretation of Notification No. 208/83 regarding exemption from duty:The appellants, manufacturers of springs of iron or steel, received steel flats exceeding 5 mm in thickness as inputs and applied for modvat credit. The Government of India issued an order on 7-4-1986 allowing deemed credit for inputs purchased from outside and lying in stock on or after 1-3-1986. However, the department issued show cause notices alleging that the inputs were purchased from a manufacturer who cleared the flats without payment of duty under Notification No. 208/83, making the inputs clearly recognizable as non-duty paid or exempted from Central Excise duty. The Asstt. Collector confirmed the demands, and the Collector (Appeals) rejected the appeals.The appellants argued that the deemed credit should be denied only if the inputs are clearly recognizable as non-duty paid or charged to nil rate of duty. They contended that the flats were exempted under Notification No. 208/83, which is a conditional exemption available only if the inputs used for the manufacture of flats are duty paid and no credit of duty paid on inputs has been taken under Rule 56-A or 57A. The flats were legally cleared availing of the exemption and should not be construed as non-duty paid or charged to nil rate of duty.2. Onus of proving the non-duty paid character of inputs:The appellants argued that the onus lies on the department to prove the non-duty paid character of the inputs. They produced evidence from the suppliers showing that they were not availing of modvat credit or any credit under Rule 56-A in respect of purchases of duty paid ingots for the manufacture of steel flats. The Asstt. Collector's findings based on an enquiry with the Superintendent, Central Excise, Faridabad, indicating that the inputs were purchased from a manufacturer availing of exemption under Notification No. 208/83, were not revealed to the appellants, making the Collector's order non-speaking and lacking application of mind.3. Legality and propriety of disallowing deemed credit under the circumstances:The main issue was whether steel flats purchased from a manufacturer availing of exemption under Notification No. 208/83 would be eligible for modvat credit as per the Government of India's order dated 7-4-1986. The order allowed deemed credit for specified inputs purchased from outside without production of duty payment documents, unless the inputs were clearly recognizable as non-duty paid or charged to nil rate of duty. The flats were exempted under Notification No. 208/83, which is a conditional exemption, and the duty paid on inputs used in the manufacture of flats was stuck up to the flats received by the appellants as inputs.The Tribunal found that the goods cleared availing of exemption under Notification No. 208/83 cannot be construed as non-duty paid. The words 'charged to nil rate of duty' refer to goods leviable at nil rate as per the First Schedule, not goods exempted by an exemption notification. The Government of India's later order dated 20-5-1988 specifically barred deemed credit for inputs wholly exempted from duty, but this did not apply to the period 1986-87. The Tribunal held that deemed credit in terms of the order dated 7-4-1986 should be extended to the appellants, even if the goods were received from a manufacturer availing of exemption under Notification No. 208/83.Conclusion:The Tribunal allowed all four appeals with consequential relief, holding that deemed modvat credit at the specified rate prescribed in the Government of India's order dated 7-4-1986 is required to be extended to the appellants.