TaxTMI 
TaxTMI 
2003 (2) TMI 132
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....m. E/CO-135/96-Bom. Diamond Industries E/112/96-Bom. K.P. Steels E/I13/96-Bom. 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. ....
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..../512/2000-Mum. Saraswati Steel Industries 33. E/513/2000-Mum. Sushilkumar B. Jain 34. E/514/2000-Mum. Aggarwal Industries 35. E/515/2000-Mum. Sanjiv Kumar Aggarwal 3.The Central Excise duties are multipoint in the sense that during its transformation an article passes through a number of stages, being held separately excisable and dutiable at each stage. The Modvat scheme was designed to alleviate the "cascading" effect of such taxes. Simply put, the credit of the duty paid 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, ....
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....e breaking up of ships, boars and other floating structures from the entire duty of Central Excise leviable thereon. 6.Show cause notices were issued alleging that the assessees had obtained the inputs from the ship breaking yards. The deemed credit was wrongly taken and was required to be reversed. The noticees filed identical replies. The first claim made was that the demand was hit by limitation inasmuch as the utilisation of credit from this source was in the knowledge of the department. It was claimed that the 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 th....
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....and the goods were also exempted in terms of Notification 45/94. The non duty paid nature of the contested goods thus stood established. On the plea that additional duty of customs had been paid on the ships up to 28-02-1994 he observed that the duty paid character could not attach to the goods manufactured by breaking of the duty paid ships. He thus established that the goods had not suffered duty. As regards the plea that the wordings of the order did not contain this clause, he held that the exceptions incorporated in the parent 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....
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....by the department and the arguments made by the respondents in these cases are relevant in disposal of this batch of cases. 15.Shri Parelkar submits that the areas in Saurashtra where bulk of the ship breaking units were situated are notified as Customs areas under Section 8 of the Customs Act, 1962. Referring to the wording of Rule 57G(2) of the Central Excise Rules, 1944 he submits that stocks lying in a customs area being clearly recognisable as non-duty paid came out of the purview of the deemed credit facility. It is his claim that 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 ....
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....d and secondly that the wordings of the exemption order did not suggest such denial. On this ground he distinguished the larger bench decision of the Tribunal in the case of Digambar Foundary v. CCE - 2000 (118) E.L.T. 85. It was his further submission that the denial of Modvat credit on the inputs purchased from dealers in the open market on the presumption that the goods in turn must have been bought from ship breakers was entirely untenable. 20.We have considered the submissions and have seen the authorities cited. 21.For deemed credit facility 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....
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....Board. The matter has been examined and the following instructions are issued: "Rule 57G of the Central Excise Rules, 1944, stipulates that the Government has the power to allow deemed credit 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. If no duty is imposed on any of the inputs then the provisions of Rule 57G cannot be invoked to allow deemed credit. Since the scrap cleared by the ship-breakers have not suffered 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)....