2022 (8) TMI 699 - AT - Central Excise

Disallowance of MODVAT Credit - ingots/billets and rounds - Rail Anchor and Suspension Shackle - Fish Plate Bar and Loose Jaw Bar - credit denied on the ground that the inputs (ingots, billets and rounds) used in manufacturing Elastic Rail Clip (ERC), Modified Loose Jaw (MLJ), were not of the type specified by the buyer - HELD THAT - There can be no dispute that according to Chapter Note 1(f), Chapter 72 of the Excise Tariff, steel containing by weight 0.6% or more of silicon was alloy steel. Even otherwise, there has been no attempt on part of the revenue to controvert Mak Engineering s averments and submissions regarding the chemical composition of EN-45 grade steel or the views given in the publication Tool and Alloy Steel of M/s Dhiraj Steel Company produced in support thereof - no substantive evidence has been brought on record to support the Commissioner s observations that during the period in question, Mak Engineering had mostly purchased non-alloy ingots for manufacture of ERC and MLJ. Mak Engineering s final products manufactured from EN-45 alloy steel had been accepted by the railways after due quality inspection. This, by itself, leaves little room to allege that the input materials were something other than alloy steel. The ingots/billets procured by Mak Engineering and directly sent to its job workers, who had undertaken re-rolling on job work basis, were of grade EN-45. Such grade had also been specifically mentioned in the job work challans issued by the job workers. The job workers challans, manufacturers challans and other relevant challans should have been given due recognition by the Commissioner. On a query from this Bench, Sri Khaitan satisfied us that all such challans had formed part of the Department s seized records - the Commissioner wrongly observed that the invoices and relevant documents relating to job work showed that the disputed inputs were non-alloy. The said observations are contrary to the records of the case. The case of alleged price differential between alloy and non-alloy steel products sought to be made against the appellant on the basis of two invoices, one dated 08.08.1996 and the other dated 22.09.1996, lacks merit - it is evident from the accompanying challan that the goods were actually of grade EN-45 i.e. alloy steel. The said accompanying challan has been wrongly ignored and it accordingly follows that the entire case of alleged price differential must fail. Even otherwise, the said two invoices under consideration were more than one and half months apart and ought not to have been compared in the manner as done while framing the allegations in the show cause notice. Nothing turns against Mak Engineering on the basis of such alleged price differential. Thus, there is no proper justification to deny the credit on inputs in relation to manufacture of ERC and MLJ. Rail Anchor - It is the revenue s case that according to Chapter Note 1(f), Chapter 72 of Excise Tariff, steel having silicon and manganese less than 0.60% and 1.65% respectively fell in the category of non-alloy steel - HELD THAT - It seems wholly unreasonable on part of the Commissioner to have given a go-bye to the ingot manufacturers invoices for ingots used in the manufacture of Rail Anchor which described the products as alloy ingots. When admittedly the ingot manufacturers had supplied alloy ingots under proper central excise invoices, subsequently confirmed vide the statements given by the said ingot manufacturers, Mak Engineering had availed Modvat on alloy steel, the job worker namely, ASRM had also categorically stated to have rolled alloy steel anchor bars and the use of alloy steel having chromium in the range of 0.32% to 0.38% for manufacturing Rail Anchor was not prohibited as per the Railways Specification, there remains no scope to sustain the findings that Mak Engineering had irregularly availed credit on the inputs. Nothing turns on the fact that the railways inspection agency, M/s Rites had never checked the Rail Anchor for chromium content. The Commissioner has not been able to appreciate the statement dated 19.07.2000 of Sri Dilip Sen of Mak Engineering in its proper perspective. It must be noted that the said representative was never asked questions as to the chromium content of the material used for manufacturing Rail Anchor. Accordingly, the said statement cannot be of much relevance in the facts and circumstances of the case - the Commissioner had wrongly held that no documentary evidence had been produced to show that without changing the percentage of carbon, silicon, manganese and sulphur, only presence of chromium at 0.3% will change the character of non- alloy steel to alloy steel products. This observation is completely arbitrary and perverse inasmuch as it is based on a total ignorance of the provisions of Chapter Note 1(f) of Chapter 72 of the Excise Tariff. Thus, the denial of Modvat Credit in relation to Rail Anchor was not in accordance with law and we set aside the impugned findings in this regard. CENVAT Credit on Fish Plate Bar and Loose Jaw Bar - denial on the ground that duty had been paid by the manufacturer, M/s Bengal Hammer Industries (Unit II) whereas the commercial invoice for the same had been raised by Unit III or Unit IV of the said manufacturer - HELD THAT - Having gone through the excise documents issued by the said M/s Bengal Hammer Industries Pvt. Ltd., it is clear that the bills contained reference to the said manufacturer s Works, Rolling Mills, Registered Office as well as City Office. The commercial invoices of the said manufacturer containing reference of its Units III and Unit IV could not have, by itself, negatively impacted the availment of credit at the end of the supply recipient. Mak Engineering had rightly submitted that there was nothing illegal or wrong about the aforesaid internal arrangement of issuance of commercial bills, central excise invoices etc. at the end of the input supplier, M/s Bengal Hammer Industries Pvt. Ltd. - It is also not that the revenue has controverted Mak Engineering s assertion that M/s Bengal Hammer Industries Pvt. Ltd. maintained the same bank account for all its units and Mak Engineering had duly made payment for the inputs to the said M/s Bengal Hammer Industries Pvt. Ltd., pursuant to raising of central excise invoices and commercial invoices. The revenue has not been able to establish that the inputs in question had not been received by Mak Engineering directly from the factory of M/s Bengal Hammer Industries Pvt. Ltd. aforesaid or that the covering central excise invoices had not declared the payment of appropriate central excise duty under Section 3A of the Excise Act - the revenue has not been able to establish that Mak Engineering had violated the conditions of the above Notification dated 30.08.1997. Consequently, the impugned findings denying credit of Rs. 2,89,742/- in respect of Fish Plate and Loose Jaw are set aside being incorrect and illegal. Suspension Shackle - Credit denied on the basis that the assessee- appellant had used rounds of a diameter other than 25 mm - HELD THAT - The Commissioner had erred by relying on the statement of the third supplier viz. Shiva Steel Rolling Mills. When the assessee-appellant had specifically requested that the records of the said supplier should be called for and after affording opportunity to inspect the same, it should be allowed to cross-examine Sri Bimal Sureka, partner of Shiva Steel Rolling Mills aforesaid, then the assessee-appellant s request for cross-examination should have been granted. The Commissioner was unjustified in failing to grant such inspection and cross-examination but disallowing credit on the basis of the said alleged statement - apart from the statements, no evidence has been brought on record to prove that the appellant had used non-25 mm diameter rounds for manufacturing Suspension Shackle. Thus. Mak Engineering had lawfully and correctly availed the credit of Rs.2,47,580/-. Invocation of extended period of limitation - suppression of facts or not - HELD THAT - From a careful perusal of the show cause notice it is apparent that the said show cause notice has merely set out the language of Section 11A of the Excise Act without specifying as to which particular fact was suppressed by Mak Engineering - the present case does not involve any suppression of facts on part of the assessee. The Commissioner too, had mechanically upheld the invocation of extended period of limitation - there is no hesitation in holding that Mak Engineering is entitled to succeed on the point of limitation. Appeal allowed.

Summary

Issues Involved:
1. Disallowance of Modvat Credit for Mak Engineering.
2. Alleged mis-declaration and duty liability for ASRM.
3. Allegations regarding specific inputs used in the manufacturing process.
4. Applicability of earlier adjudication orders.
5. Compliance with Notification No. 58/97-CE.
6. Limitation and extended period of limitation.

Detailed Analysis:

1. Disallowance of Modvat Credit for Mak Engineering:
The adjudicating authority disallowed Modvat Credit of Rs.15,73,482/- to Mak Engineering under various provisions of the Central Excise Act, 1944, and the Central Excise Rules, 1944. The show cause notice alleged that the ingots/billets and rounds used were not of the type specified by the buyer, leading to the disallowance of credit of Rs.12,83,740/- for inputs used in manufacturing ERC, MLJ, Rail Anchor, and Suspension Shackle. Additionally, credit of Rs.2,89,742/- was proposed to be disallowed for Fish Plate Bar and Loose Jaw Bar due to discrepancies in duty payment and invoicing.

2. Alleged Mis-declaration and Duty Liability for ASRM:
The show cause notice alleged that ASRM mis-declared that it had not done re-rolling of non-alloy steel and violated provisions of Section 3A of the Excise Act read with Rule 96ZP(1) of the Excise Rules and relevant notifications. The notice sought to determine ASRM's annual capacity and fixed the total outstanding duty liability at Rs.48,20,700/- along with applicable interest and penalty.

3. Allegations Regarding Specific Inputs Used in the Manufacturing Process:
The allegations were period-specific and product-specific. For instance, the use of non-alloy steel instead of alloy steel in the manufacture of ERC and MLJ, and incorrect classification of inputs for Rail Anchor and Suspension Shackle. The appellant argued that the inputs used were as per the required specifications and that the products were accepted by the Railways after due inspection.

4. Applicability of Earlier Adjudication Orders:
Mak Engineering argued that on identical facts and evidence, show cause proceedings against its sister concern, Manash Forgings, were dropped by an adjudication order dated 25.07.2006, which was accepted by the revenue. The Tribunal observed that the Commissioner failed to apply his mind independently and largely followed the earlier adjudication order dated 28.02.2005, which was set aside by the Tribunal. The Commissioner did not properly consider the applicability of the findings in the adjudication order dated 25.07.2006 of Manash Forgings, which was identical to the case of Mak Engineering.

5. Compliance with Notification No. 58/97-CE:
The revenue alleged that Mak Engineering violated the provisions of Notification No. 58/97-CE dated 30.08.1997 while procuring fish plate bars and loose jaw bars from M/s Bengal Hammer Industries Pvt. Ltd. The Tribunal found that the allegations were without merit, as the inputs were manufactured by M/s Bengal Hammer Industries Pvt. Ltd., and the price was correctly shown in the central excise invoice as well as in the corresponding commercial invoice.

6. Limitation and Extended Period of Limitation:
Mak Engineering argued that the entire relevant facts were fully disclosed to the Department, and the credit was taken based on documents evidencing payment of duty, which were regularly filed with and defaced by the Central Excise authorities. The Tribunal held that there were no valid grounds for invoking the longer period of limitation, as the show cause notice merely set out the language of Section 11A of the Excise Act without specifying any particular contravention.

Conclusion:
The Tribunal set aside the de-novo adjudication order dated 21.02.2012, allowing the appeals filed by Mak Engineering Industries Limited and Alloy Steel Rolling Mills with consequential reliefs. The Tribunal observed that the Commissioner failed to re-consider the entire matter independently and did not properly consider the applicability of the findings in the adjudication order dated 25.07.2006 of Manash Forgings. The Tribunal also found that the revenue had not been able to establish that Mak Engineering violated the conditions of Notification No. 58/97-CE dated 30.08.1997 or that there were valid grounds for invoking the longer period of limitation.