TaxTMI 
TaxTMI 
1997 (5) TMI 268
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....Scheme. 3. On gathering intelligence that TIDC were removing certain imported duty free DEEC materials to M/s. Rolmer Chain Division, Plot No. 1, Kazipally Village, Jinnaram Mandal, Medak District, Hyderabad (RCD for short) in order to reactivate the sick unit (RCD) taken over by TIL, by adopting an irregular procedure under Rule 57F(1)(ii), the Central Excise Officers visited the factory of TIDC on 11-12-1995 and conducted enquiries. Shri R. Narayanan, Senior Manager (Accounts), TIDC, informed that :- (a) TIDC are importing certain raw material from oversees suppliers under QBAL. (b) They have been issued with DEEC Books covering the same. (c) They generally consumed the imported duty free DEEC raw material in their factory. (d) A part of the imported duty free DEEC material was sent to RCD, Hyderabad, for conversion into chains, that such chains were brought back to their factory for greasing, testing and repacking and such repacked chains were exported in fulfilment of their (TIDC) export obligation and that such transfer of imported duty free DEEC material to RCD was under Rule 57F(1)(ii) procedure upon payment of Central Excise duty and ....
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....anan, Senior Manager (Accounts) and that he totally agreed with it. (iii) He reitrerated the points of despatch of inputs to RCD and their subsequent disposal, as given by Shri R. Narayanan. (iv) the total amount of Central Excise duty paid on the imported duty free DEEC materials transferred to RCD was Rs. 61,15,713, out of which Rs. 56,83,433 has been paid from Modvat account and the balance Rs. 4,32,280 from PLA account. (v) TIDC belong to `Murugappa Group' and that they do not have any intention to contravene provisions of law wantonly and that in case of omissions on their part, the same were due to inadvertence and requested for a lenient action. 6. A scrutiny of the documents revealed that the imported duty free DEEC inputs have been despatched to RCD on payment of duty. From the above, it came to light as follows :- (a) TIDC are manufacturers of chains and parts thereof falling under Chapter Heading 7315 of Central Excise Tariff Act, 1985. (b) TIDC belong to `Murugappa Group', to which TIL also belongs. TIL have taken over a sick company which is functioning under the name and style of RCD at Hyderabad. (c) TIDC obtain....
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....entral Excise Rules, 1944 and were accordingly, liable to a penalty under Rule 173Q of Central Excise Rules, 1944. 8. The Show Cause Notice No. 15/96, dated 7-3-1996 was, therefore, issued to TIDC, Shri K. Nadanasundaram, Vice President and Shri R. Narayanan, Senior Manager (Accounts) proposing to impose penalties on them separately under Rule 173Q of Central Excise Rules. 9. In their reply dated 19-4-1996, they have inter alia stated that :- (a) they had [not] deliberately paid the Central Excise duty on imported duty free DEEC material with an intent to enable RCD to avail of ineligible Modvat so as to revive their manufacturing activity; but that was only a case of mistaken impression of the law on their part. (b) The domestic inputs as also DEEC material were being cleared by them to RCD for manufacture of chains. (c) They followed the provisions of Rule 57F(1)(ii) as well in respect of clearance of DEEC material also by debiting of duty in respect of DEEC inputs when cleared to RCD in respect of which admittedly no duty was payable which resulted in their having to deposit an equivalent amount of cash in their PLA to meet the duty paymen....
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.... therefore, under the circumstances it cannot be alleged that they had entered any wrong or incorrect particulars in the invoices issued by them and that, therefore, there is no contravention envisaged in Clause (bbb) of sub-rule (1) of Rule 173Q as alleged in Paragraph 4 of the notice. Consequently, they are not liable for any penalty under Rule 173Q. 12. They reiterated that the payment of duty on imported DEEC inputs arose as a result of mistaken impression of law on our part and that there is no nexus between the payment of duty by them and the reactivation of the sick unit taken over by TIDC; that various officers of the department including the Range officials have been regularly visiting their factory and examining the records and that, no inputs as such have been cleared from their factory without fulfilling the legal requirements of the Modvat rules. The Range officials have also been inspecting the chains manufactured by RCD received by them for greasing, testing and repacking and the fact of such reprocessing being done in the presence of the said officials has been endorsed on the AR4 applications received from RCD during the period in question; that therefore, ....
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.... principal manufacturer. Therefore, the liability to pay the duty on the finished product that has been processed at Hyderabad was in any case on the noticee and not on the job worker. It is, therefore, not correct to assume that by paying duty on the imported inputs that were transferred to Hyderabad for job work purposes, money was transferred from the noticee to their sick sister unit in the form of Modvat credit that was accumulated. It was pointed out by the learned Consultant that in any case, no excess credit had accumulated at the end of the noticee as the duty liability on the end product viz chains was higher than the duty liability on the inputs. During the personal hearing, a statement of the total amount transferred to M/s. RCD for payment of duty and the details of conversion charges paid to RCD have been furnished, indicating that from May, 1993 to December, 1995 a total amount of Rs. 1.11 crore was transferred to M/s. RCD at Hyderabad for payment of duty, while, during the same period, a total of Rs. 9 crores approximately was paid to M/s. RCD on account of conversion charges. It is pleaded that had the noticee intended to transfer indirectly some money to their sic....
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....ot obviously arise. They supplied part of those imported inputs (non-duty paid) to their job worker M/s. RCD at Hyderabad which unit happened to be the sister unit of TIDC based under BIFR at the material time. At the time of the removal of the impugned goods, the noticee paid duty though admittedly no duty was payable on those imported inputs which were non-duty paid. Consequently, M/s. RCD at Hyderabad availed of Modvat Credit of the duty paid by the noticee and utilised the same in paying duty on the finished products viz Chains. The department has, therefore, alleged that by paying duty on non-dutiable goods, the noticee have indirectly passed on their excess Modvat credit to their sick sister unit to enable them to pay duty on the finished products. 23. It is now the case of the noticee as advanced by Shri S. Venkatrama Iyer, the learned Consultant, that in the first place, M/s. RCD at Hyderabad were none but a job worker and as per the agreement, between M/s. RCD and the noticee, the duty on the finished products produced at Hyderabad on job work basis was payable by the noticee themselves. M/s. RCD were entitled to recover, conversion charges only from the noticee. T....
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....e job worker to enable them to pay the duty on the finished product on its clearance. In the instant case, the duty was paid on non-dutiable inputs on their removal, which was obviously not required to be paid. It is a fact that substantial portion of the duty paid was from Modvat account of the noticee. In any case, once duty is payable, an assessee is permitted to pay the duty from both PLA account as also Modvat account. 27. The next question that arises is, whether by paying duty from Modvat account, an attempt was made by the noticee to pass on their accumulated surplus Modvat credit to their sick sister unit. It is the case of the noticee that the only dutiable item manufactured by them is Chain and it is not the case of the department that the duty liability on the inputs of Chain was higher than the duty liability on the Chains manufactured by the assessee, thus resulting in accumulation of excess Modvat credit. In their reply to the show cause notice, it is pointed out that the noticee had deposited Rs. 530 lakhs in their PLA account which would clearly indicate that they did not have accumulated surplus credit. 28. From the statement furnished by the learn....