TaxTMI 
TaxTMI 
1999 (6) TMI 359
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....ance) and Rs. 20,000.00 on Mr. P.K. Ray, Sr. Manager (Finance), have been imposed by the Commissioner, in terms of the provisions of Rule 209A of the Central Excise Rules, 1944. 2. The second set consists of Appeal Nos. E-289/97 to 293/97 which are against another Order of the Commissioner being Order No. 15/COMMR/97 dated 17-7-1997 vide which the duty of Rs. 2,77,81,048.00 has been confirmed and a penalty of Rs. 2.00 crores has been imposed on M/s. TELCO under Rule 173Q of Central Excise Rules, 1944. Apart from this, penalties of Rs. 50,000.00, Rs. 40,000.00, 30,000.00 and 20,000.00 have been imposed on Mr. S.M. Khorana, Mr. R.S. Thakur, Mr. C.G. Verghese and Mr. P.K. Ray, respectively, by the Commissioner in terms of Rule 209A of the Central Excise Rules, 1944. All these appeals are being disposed of by a common Order as the facts leading to passing of the two impugned orders are same. 3. Briefly stated the facts of the case are as under : 3.1 The appellants are engaged in the manufacture of motor vehicles along with its parts and accessories. Some of the parts and accessories so manufactured by the appellants are used by them in the manufacture of the ....
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.... dispute revolves around these two declarations filed by the appellants - one on 4-3-1986 and another on 31-3-1986. Admittedly, the parts and accessories of motor vehicles were declared as final products in the declaration dated 4-3-1986, but were not so declared in the subsequent declaration dated 31-3-1986, whereas the Department contends that the earlier declaration dated 4-3-1986 cannot be considered to be a proper and valid declaration under Rule 57G(1), inasmuch as the same was not accepted by the Department and the appellants were not directed to submit a revised and a fresh declaration giving more details, which was filed by them only on 31-3-1986. As such, as per the Department's contention, the declaration filed on 31-3-1986 is the only valid declaration. As the said declaration does not contain parts and accessories of motor vehicles as final products, the Modvat credit availed by the appellants on the inputs used by them in the manufacture of the said final products during the period from 1-4-1990 to 28-2-1995 in the first set of appeals and from 2-1-1995 to 4-2-1995 in the second set of appeals, was not proper and as such was inadmissible to them. 3.3 It may be....
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.... the said declaration itself. Drawing attention to all these documents, learned Advocate drew our attention to the show cause notice dated 19-3-1987 vide which Modvat credit was sought to be denied on steel sheets, argon, oxygen gas and D.A. Gas on the alleged ground that the same have not been included in the list of the inputs declared in the declaration filed under Rule 57G. In reply, M/s. TELCO took a stand that these inputs have been duly declared in their earlier declaration dated 4-3-1986. In his Order dated 16-9-1987, the Assistant Commissioner held the items in question not to be inputs under Rule 57G, but observed - "The assessee's contention that the items are declared under Rule 57G is accepted." The said Order was set aside by the Commissioner (Appeals) on merits and the Revenue's appeal against the same before the Tribunal was dismissed. From this, learned Advocate concluded that the Department had accepted the declaration dated 4-3-1986 and it does not lie to them at a belated stage to contend that the declaration dated 4-3-1986 was not a valid declaration. He also referred to a subsequent declaration dated 16-4-1988 in which they have mentioned - "We take it that th....
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....-1986 to the Commissioner for permission to operate under Rule 57F(2) of the Central Excise Rules, 1944. In this application, motor vehicle parts and accessories under Heading 87.08 have been mentioned as an output. If the Department is not treating their earlier declaration dated 4-3-1986 as a valid declaration, this letter dated 6-3-1986 copy of which was marked to the Assistant Commissioner as also to the Superintendent, should be treated as a declaration. In this view, the Modvat credit denied by the Commissioner on the ground of non-declaration of final product, would be without any basis. 4.2 Learned Advocate further submitted that presuming that the final product was not declared by them in their declaration, Revenue cannot have any grievance inasmuch as the non-declaration of the final product can prohibit the utilisation of the Modvat credit towards the payment of duty on that final product, but cannot debar the appellants from taking the credit on inputs ab initio. In this connection, he relied upon the Tribunal's decision in the case of Mahindra & Manhidra Ltd. v. Collector of Central Excise, Bombay reported in 1995 (79) E.L.T. 151. He also relied upon the follow....
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....e Supreme Court in the case of Collector v. Haji Mastan, and by the Orissa High Court in the case of Bhanja Bhandar v. State of Orissa reported in 1975 (37) STC 169 (Orissa). In any case, he submitted that Rule 57G(5) was introduced with effect from 2-11-1993, laying down the provision for condonation of delay of six months retrospectively for filing declaration. Therefore, he submitted that the declaration filed on 22-12-1994 will date back to 22-6-1994. As such, he submitted that the credit having been utilised by them for payment of duty on parts and accessories only after December, 1994 and the declaration declaring the parts and accessories as final product, having been filed on 22-12-1994, the denial of Modvat credit availed upto the period of 1990 and onwards, was not justified. 4.4 Arguing further, learned Advocate submitted that during the period from 1-1-1995 to 5-2-1995, the appellants had effected clearance of parts of motor vehicles on payment of duty from the Modvat account amounting to Rs. 2.95 crores and during the period from 6-2-1995 to 15-3-1995, they had effected clearance of motor vehicles, by paying duty from P.L.A. equivalent to Rs. 3.04 crores. As th....
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....rest @ 20% are neither legal nor warranted. 5. Countering the arguments, Shri A.K. Mitra, Additional Solicitor General assisted by Shri B. Mukherjee and Shri P.K. Dutta, Advocates for the Revenue, submitted that Modvat Rules are operational and if one wants to take the benefit of the same, they have to follow the procedure envisaged under the Rules. The Rules contained the terms and conditions for availing the Modvat credit and if the assessee is not adhering to the same, the substantive benefit cannot be allowed to them. Credit on the inputs can be used only by payment of duty on the declared final product and if the appellants have failed to declare the parts and accessories as one of their final products, Modvat credit cannot be allowed to them. 5.1 Opposing the strong reliance of the appellants on the Tribunal's judgment in the case of Mahindra & Mahindra Ltd., learned Solicitor General submitted that the findings in that case do not apply to the instant cases inasmuch as the appellants are lacking in their bona fides. The parts were declared as final product in their declaration dated 4-3-1986 and the same were omitted in the subsequent declaration filed on 31-....
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.... declare the final product, this condition cannot be done away with and cannot be considered lightly. 5.2 As regards the limitation, referring to Rule 57-I(4), learned Counsel submitted that "intent to evade duty" was introduced by the amendment carried on 23-7-1996. Prior to this, intention was not relevant. Even if the appellants were having any intention not to declare their final product in their declaration, the longer period was justifiably invoked by the adjudicating authority inasmuch as the credit was availed without declaring the product in their declaration. 5.3 Learned Counsel also supported the penalties imposed on the manufacturers as also on its employees on the ground that the Modvat credit has been availed and used by the appellants fraudulently and by misleading the Department. 6. In his rejoinder, Shri Sridharan submitted that in the show cause notices, it is an admitted case of the Department that the inputs were indeed used by them in the manufacture of the final product. As such the principles of Indian Aluminium case referred to by the learned Counsel for the Department, does not apply. 6.1 As regards the Department's contentio....
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....nt of duty, and on undeclared final products, is upheld, the credit cannot get extinguished, but still would be available for utilisation towards the duty paid on the declared final product. In the instant case, we find that the appellants had utilised the said credit of duty paid on the inputs used in the parts and accessories towards the payment of duty on the motor vehicles till December, 1994. The parts and accessories were being cleared on payment of duty till this date. Even if the Revenue's contention that parts and accessories were not declared as final products, is accepted, the result of the same would be that the credit was not available towards the duty-payment on these undeclared parts and accessories, which the appellant company was not utilising in any case. The non-declaration of the final product cannot result in denial of availment of credit on the inputs and as the appellants have not utilised the credit for payment of duty on undeclared final product till December, 1994, following the ratio of the various judgments relied upon by the learned Advocate, we hold that the credit was not to be disallowed. 7.1 As explained by the appellants, after December, 19....
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....llowing credit of duty under Rule 57A is subject to the provision of the relevant Section (AA) of the Central Excise Rules, 1944. Rule 57F (1) categorically states, in so far as we are concerned in this case, that the input in respect of which a credit has been allowed "be used in, or in relation to, the manufacture of the final products for which such inputs have been brought into the factory." Therefore, allowing of credit on inputs is permissible subject to the use in (declared) final product for which such inputs were brought. This position becomes further clear when sub-rule (3) of Rule 57F emphasises that credit so allowed on any inputs shall be utilised, inter alia, towards payment of duty on any final product in, or in relation to, the manufacture of which such inputs are intended to be used in accordance with the declaration filed under sub-rule (1) of Rule 57G. (emphasis supplied). 10.4 Declaration of a final product as well as all inputs used therein is a mandatory and a substantive condition for taking credit and utilising it. In my view, liability to make a declaration of a final product and its inputs and taking acknowledgement thereof is strict and an assesse....
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....that credit earned by the (common) inputs is correct. This assumption, as stated above, is not correct. It is too wide an assumption conferring unintended financial accommodation to a manufacturer availing the facility of Modvat scheme. The assumption perhaps, would not have been off the mark, had the declared final product would have been the norm and the non-declared final product was a stray or an occasional product so that a manufacturer could claim that he was not aware that he would manufacture at all the non-declared final product. Such is not the situation in the present case. Even if it is so, it is the mandate of the Modvat scheme, as discussed earlier, that credit can be taken only in respect of inputs which are brought for use in declared final product. If the inputs are used otherwise, then credit to that extent has to be reversed. If a manufacturer, as the first appellant in this case, knows fully well that a portion of his inputs alone is going to be used in the manufacture of his declared final product and the remaining portion in a non-declared final product, having regard to his previous practice and the future manufacturing programme for the two products, yet he ....
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....rocedure. Insofar as RG 23A is concerned, the prescribed procedures required the assessee, under Rule 57G(3), to maintain an account in Part-I and Part-II in respect of final products manufactured by them which the said assessee in the instant case had not maintained since April 1986 in respect of the said parts, as final products. Also the assessee was required to submit copies of RG 23A Part-I and Part-II and the copies of supporting duty paying documents along with the monthly RT-12 returns. The said assessee did not furnish these along with RT-12 returns for the said parts. Though maintenance of consolidated RG 23A Part-II was permitted during the relevant period, in such a case, the assessee was required to submit a statement in the prescribed format at the end of every month, stating name of the common inputs, quantity used in the manufacture of final products, credit involved, name of the Final product, amount of credit utilised for payment of duty on the final product, excess/less credit utilised and Entry No. of PLA/RG 23A Pt. II under which excess credit debited. It may be true as contended by the assessee that at the point of receipt of the inputs, it was not possible to....
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....t of 'wilfulness' in suppression on the appellants' part gets proved. This gets a further support because of the need to obtain more resources for discharging duty on the declared final product motor vehicle as it is high value final product as compared to Ps & As. Financial accommodation, as already found, is the key element in this innocuous-looking exercise. 12.4 In fact, I am of the view that in the face of Rule 57-I (2), no time limit for demand of duty on inputs not disposed of in the manner mentioned in Section 'AA' of the Central Excise Rules, 1944 applies. 13.1 Yet another plea of the learned Advocate for the appellants is that the inputs being common for the declared and non-declared final products and there being no provision for one-to-one correlation between the input and the final product, there was nothing wrong in taking ab initio credit and utilising it for the declared final product. I have already dealt with the effect of common input in earlier paras while dealing with the underlying assumption in Tribunal's judgment in M & M's case and the peculiar procedure adopted by the appellant, as held by the adjudicating Commissioner while dealing with th....
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....her possible reading of the said declaration can be that what has been declared is "parts and accessories of Rolling Stocks". Vagueness, in my view, is, therefore, writ large on the said declaration dated 4-3-1986. 14.3 A perusal of their acknowledged declaration 31-3-1986 shows that it is a well thought out declaration. It is not that the appellants have not declared at all any parts and accessories of motor vehicles. They have declared, among other things, various models of I.C. engines, various models of gear box and various models of spring assemblies. These are also parts of motor vehicles though these may fall under different Chapter of CETA. When the appellants could declare some of the parts of motor vehicles, it does not stand to reason that their failure to declare other parts and accessories is just a bona fide omission on their part. 15.1 Next plea of the learned Advocate is that the appellants made a declaration dated 22-12-1994. This was rejected by the Central Excise authorities vide their letter dated 28/29-12-1994 because the said letter in an admittedly summarised manner gave description merely of the final products and not of an inputs. It was not....
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....09A, in my opinion are not warranted. They are employees of the appellant company and had no personal axe to grind in dealing with those goods and inputs. Persons, referred to in Rule 209A, as being concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or in any other manner dealing with the offending excisable goods should be independent persons acting in any aforementioned manner. For example, an independent purchaser of the offending goods (Ps & As) could be penalised if he knew that the goods purchased by him were liable to confiscation. Therefore, penalties on individual employees of the appellant company are set aside in both sets of appeals. 21.1 In short, two appeals of the appellant company i.e. E/284/97 and E/289/97 are rejected. Appeals of the individual employees namely of S/Shri S.M. Khorana, R.S. Thakur, C.G. Verghese and P.K. Ray in both sets of appeals are allowed. Sd/- (P.C. Jain), Member (T) POINT OF DIFFERENCE (1) Whether the appeals of the appellant company M/s. TELCO are required to be rejected as held by Technical Member or allowed as held by Judicial Member.....
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....nion is not limited to the question of following Mahindra and Mahindra Ltd. decision. He explained that the learned Member (Technical) has comprehensively examined the various provisions relating to Modvat credit and has given valid reasons as to why the impugned order is in accordance with the rules. Therefore, his order which has been passed on a correct appreciation of legal position should be accepted by the third Member. Learned Addl. Solicitor General also submitted that the Member's (Technical) order contains findings on many points other than on the applicability of the judgment in Mahindra and Mahindra Ltd. case. He submitted that in regard to points on which only one Member has given findings, it should be held that on those points there is no difference of opinion and as points on which there is agreement. Shri Sridharan submitted that this is not the correct approach. Points on which both the Members have not given findings should be held to be points not considered by both and the findings of one Member cannot be held to be the undisputed findings on those points. 23. I have perused both the orders and the submissions made by both the Counsels in order to ascer....
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....ther judgments also in this regard - (1) Plastichemix Industries v. Commissioner of Central Excise and Customs, Vadodara - 1996 (84) E.L.T. 467 (T). (2) Friends Wire Industries v. Collector of Central Excise, Chandigarh - 1995 (80) E.L.T. 219 (T). (3) Collector of Central Excise, Chandigarh v. Kumar Auto Cast Ltd. - 1996 (82) E.L.T. 137 (T). (4) Mukesh Engineering Industries v. Collector of Central Excise, Bombay-I, 1995 (79) E.L.T. 718 (T). (5) Indo Gem Laminations (P) Ltd. v. Collector of Central Excise, Chandigarh - 1998 (102) E.L.T. 263 (T). He submitted that as these judgments squarely cover the issue involved in the present appeals, the Bench which considered the appeals was bound to follow these judgments. He submitted that the learned Member Technical overlooked the fact that these judgments related to common inputs being used for declared and non-declared final products and that the Division Bench was required to follow the earlier decisions. By not following these judgments, and by giving his own decision on the issue on his appreciatio....
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.... inputs without paying any interest. 26. As the difference of opinion is with regard to applicability of the decision in Mahindra and Mahindra Ltd. case and other cases, these decisions may be gone into in some detail. In the Mahindra and Mahindra case, only motor vehicle was declared as a final product, while I.C. Engines and motor vehicle parts were also cleared on payment of duty utilising Modvat credit. The input was common for both motor vehicles, I.C. Engines and motor vehicle parts. The observations of the Tribunal being very relevant on the issue of common input used in the manufacture of both declared and undeclared final products paragraphs 4.1, 4.2 and 4.4. of the decision are reproduced below :- "4.1 After hearing both the sides, we find that there is no dispute that the inputs received under the Modvat scheme go into the manufacture of the declared final product namely Motor vehicle. Hence no objection can be taken for utilisation of the credit earned by these inputs in regard to the duty payable on these declared final product namely Motor vehicle. We agree that when I.C. engines and motor vehicle parts are not declared as final products, they cannot u....
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....V. parts as final products. By this omission, only their field for utilisation of credit gets restricted to duty payable only on motor vehicles, but does not get extinguished, because inputs have not gone into any final products, which are cleared at Nil rate of duly or wholly exempted, attracting the mischief of Rule 57C of the Central Excise Rules. Moreover, the fact of utilisation of credit towards duty on I.C. Engines and M.V. parts is known to the Dept. in the relevant RT 12 returns filed in respect of those items. Thus viewed from all angles, the demand invoking extended period and also imposition of penalty cannot be sustained. The order of confiscation of plant and machinery is also not maintainable. 4.4. Accepting the technical validity of the objection raised by the Dept. there could have been an order to make payment of duty involved on I.C. Engines and Motor Vehicle parts through PLA but it has to be simultaneously with restoration of an equivalent amount in RG 23A Part II for utilisation towards the duty on the declared final product namely Motor vehicles. Such an order is not passed by us in this case, firstly on account of the time bar of the demand and secon....
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....bt wrongly availed of the Modvat credit for payment of duty on MCI inserts by debiting their RG 23A Part-II account. Once they had made good such wrong utilisation of Modvat credit by payment of duty from their PLA, the RG 23A account which was debited earlier had to be restored. They are entitled for such crediting of the amount in question to their RG 23A Part-II account if not already taken by them at the time of payment of duty of equivalent amount in the PLA. This amount would be available to them for utilisation for payment of duty as admissible under the relevant Modvat Rules particularly Rules 57A, 57F and 57G of Central Excise Rules ..........." 27. All the aforesaid cases related to use of common input in the manufacture of both declared and undeclared final products. The Tribunal held in all these cases that Modvat credit could not be utilised to pay duty on undeclared final products and that duty should be paid on such undeclared final products from PLA or in cash. The Tribunal further held that when such payment is made from PLA or through cash, an equivalent amount should be recredited into the Modvat account so that the same could be used to discharge duty on....