2015 (8) TMI 199 - SC - Central Excise

Cenvat / MODVAT Credit - Duty paying documents - Duty paid by Railway - only reason for denying the MODVAT credit is that the purchase bills of scrap from Railways in auction do not indicate the rate and amount of duty paid on the scrap/inputs at the time of clearance/sale by the Railways - whether the appellant is entitled to claim the credit of the said duty paid by the Railways - Held that - Appellant was claiming MODVAT credit on deemed basis, viz., the excise duty that was paid by the Railways at the time of purchase of the said material which was sold as scrap to the appellant herein. This claim, was attracted on the basis of the aforesaid two notifications dated 13.07.1992 and 01.03.1994 coupled with Rule 57G(2) of the Rules. That aspect, we find, has not even been touched upon or dealt with by the Commissioner. Same error, we find, is in the order of the Customs, Excise and Gold (Control) Appellate Tribunal (hereinafter referred to as CEGAT ) where appeal was preferred by the appellant against the order of the Commissioner and the CEGAT also dismissed the appeal observing that the appellant had not paid any duty at the time of purchase of the material from the Railways. The High Court vide the impugned judgment has dismissed the appeal of the appellant and while doing so, it has again fell into the same error as was committed by the CEGAT or the Commissioner, viz., denying the deemed MODVAT credit to the appellant on the ground that the appellant had not paid duty on the unserviceable raw material - appellant satisfies all the eligibility conditions contained in notifications dated 13.07.1992 and 01.03.1994 for availing the deemed MODVAT credit - Decided in favour of assessee.

Summary

Issues:
Entitlement to claim MODVAT credit of excise duty paid by Railways on raw materials purchased in auction.

Analysis:
The appellant, engaged in manufacturing bars and rods of mild steel, sought MODVAT credit for excise duty paid by Railways on raw materials like discarded rails, wheels, fish plates, etc., purchased without melting. The question was whether the appellant could claim credit of duty paid by Railways. The statutory framework under Rule 57G of the Central Excise Rules, 1944, along with notifications from 1992 and 1994, was crucial in determining this issue.

Rule 57G outlines the procedure for manufacturers to take credit of duty paid on inputs. The second proviso allows for deemed credit without production of duty payment documents under specific conditions set by the Central Government. Notifications from 1992 and 1994, based on this proviso, deemed duty paid on certain materials like ingots and re-rollable materials of iron or steel, allowing credit at a specified rate without melting.

The appellant received show cause notices challenging their MODVAT credit claim, leading to an Order-in-Original in 1996 where the claim was accepted. The adjudicating authority found no melting of inputs and that the goods purchased from Railways were not dutiable unless proven otherwise. The authority relied on a legal presumption that duty was paid unless exempted, citing a relevant court judgment.

However, the Revenue appealed, and the Commissioner overturned the Order-in-Original, citing lack of duty payment evidence on purchase bills. This decision was flawed as the appellant claimed MODVAT credit based on duty paid by Railways, not themselves. The Commissioner and subsequent appellate bodies failed to consider the legal basis for deemed credit under the notifications and Rule 57G.

The Supreme Court, after reviewing the case, found that the appellant met all eligibility conditions for deemed MODVAT credit as per the notifications. The Court overturned the decisions of lower authorities, including the High Court, and reinstated the Order-in-Original allowing the credit to the appellant. The judgment emphasized that the appellant was entitled to the credit as per the legal provisions and notifications, thus ruling in favor of the appellant.