Tribunal Ruling: Pre-Deposits for Modvat Credit Eligibility Appeals Stress Procedural Compliance

MARUTI UDYOG LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NEW DELHI

MARUTI UDYOG LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NEW DELHI - 1999 (110) E.L.T. 540 (Tribunal) Issues Involved:
1. Eligibility of Modvat credit for M/s. Maruti Udyog Ltd. (MUL) and M/s. Bharat Seats Ltd. (BSL).
2. Compliance with Rule 57G(2) of the Central Excise Rules.
3. Applicability of Notification 80/90 and Rule 57C of the Central Excise Rules.
4. Procedural adherence for sending inputs directly to job workers.
5. Requirement of pre-deposit for hearing the appeals.

Detailed Analysis:

1. Eligibility of Modvat Credit for M/s. Maruti Udyog Ltd. (MUL) and M/s. Bharat Seats Ltd. (BSL):
The primary issue revolves around the eligibility of Modvat credit availed by MUL and BSL. The Commissioner of Central Excise demanded a reversal of Modvat credit and imposed penalties on both companies for allegedly availing wrong Modvat credit. MUL manufactures motor vehicles and uses seats as inputs, which are supplied by BSL. The controversy arises from the fact that after 21-1-1989, there was no physical movement of parts between the factories of MUL and BSL, although Central Excise duty was paid, and Modvat credit was availed based on gate passes.

2. Compliance with Rule 57G(2) of the Central Excise Rules:
The Commissioner's order against MUL is based on Rule 57G(2), which states that no credit shall be taken unless the inputs are received in the factory under cover of a gate pass. Although the inputs were not physically received in MUL's factory, all other documentation was completed. The Tribunal noted that the legislative development of Rule 57G indicates the necessity of receiving inputs under cover of a gate pass for taking credit. The Tribunal found the Commissioner's conclusion prima facie justified, as MUL took credit without actual receipt of inputs.

3. Applicability of Notification 80/90 and Rule 57C of the Central Excise Rules:
For BSL, the department argued that parts of seats manufactured by them are exempt under Notification 80/90, and therefore, Modvat credit is barred under Rule 57C. However, BSL contended that Notification 80/90 does not cover automobile seats as steel furniture. They cited the Tribunal's decision in Everest Converters v. C.C.E., which supports the view that Modvat credit cannot be denied if the assessee opts to pay duty without claiming exemption. The Tribunal found that BSL's contention is prima facie supported by previous decisions and the Commissioner (Appeals) order, which held that automobile seats are eligible for a concessional duty rate under Serial No. 4 of Notification 80/90.

4. Procedural Adherence for Sending Inputs Directly to Job Workers:
MUL argued that their procedure of sending inputs directly to job workers without first bringing them to their factory was in line with the facility provided by the Modvat Scheme. However, the Tribunal noted that MUL did not formally inform the department about this arrangement and adopted the procedure on their own. The department discovered this lapse during a factory visit. The Tribunal found that MUL failed to adhere to the prescribed procedure, making the issues arguable.

5. Requirement of Pre-deposit for Hearing the Appeals:
The Tribunal directed MUL to deposit Rs. 20 crore by 15-10-1996 for the hearing of their appeal, considering the Commissioner's decision to drop the demand for the period before 21-1-1989. For BSL, the Tribunal directed a pre-deposit of Rs. 5 crore by 15-10-1996, considering the support from previous Tribunal decisions and the Commissioner (Appeals) order. The Tribunal noted that both companies had issued gate passes without actual clearance of goods, necessitating pre-deposits under Section 35F for hearing their appeals.

Conclusion:
The Tribunal found that both MUL and BSL had arguable issues regarding their eligibility for Modvat credit and compliance with procedural requirements. The Tribunal directed significant pre-deposits for both companies to proceed with their appeals, highlighting the necessity of adhering to prescribed procedures and the evolving interpretation of relevant rules and notifications.