1989 (12) TMI 195 - AT - Central Excise

Summary

Issues Involved:

1. Whether goods exempted from duty under Notification No. 208/83 can be considered as non-duty paid or charged to nil rate of duty for the purpose of deemed credit.
2. On whom the onus lies to prove the non-duty paid character of inputs and whether the onus has been discharged.
3. Whether the order disallowing the deemed credit is legal and proper.

Issue-Wise Detailed Analysis:

1. Whether goods exempted from duty under Notification No. 208/83 can be considered as non-duty paid or charged to nil rate of duty for the purpose of deemed credit:

The appellants are manufacturers of springs of iron or steel and had availed of modvat credit for steel flats exceeding 5 mm in thickness. The department issued show cause notices alleging that the inputs were clearly recognisable as non-duty paid or exempted from central excise duty, as they were purchased from M/s. G.D. Industrial Engineers, who cleared the flats without payment of duty under Notification No. 208/83. The appellants contended that the deemed credit should be denied only if inputs are clearly recognisable as non-duty paid or charged to nil rate of duty, as per the Government of India's order dated 7-4-1986. The Tribunal held that goods cleared availing of exemption under Notification No. 208/83 cannot be construed as non-duty paid. The term "charged to nil rate of duty" has a specific meaning, referring to goods with a nil rate specified in the First Schedule of the Central Excises & Salt Act. Goods exempted by an exemption notification cannot be considered as charged to nil rate of duty. The Tribunal concluded that deemed credit is available for inputs exempted under Notification No. 208/83, as the Government of India's order dated 7-4-1986 does not bar deemed credit for such inputs.

2. On whom the onus lies to prove the non-duty paid character of inputs and whether the onus has been discharged:

The appellants argued that the burden of proof lies on the department to establish that the inputs received are non-duty paid. The department contended that since the goods were received from a manufacturer availing of exemption under Notification No. 208/83, they should be considered as non-duty paid. The Tribunal noted that the appellants had produced evidence from the suppliers showing that they were not availing of modvat credit or credit under Rule 56-A for inputs used in the manufacture of flats. The Tribunal held that the department's findings were inconsistent and not supported by a speaking order. The onus to prove the non-duty paid character of inputs was not discharged by the department.

3. Whether the order disallowing the deemed credit is legal and proper:

The Tribunal examined whether the order disallowing deemed credit was legal and proper. The appellants contended that the inputs, though exempted under Notification No. 208/83, were not unconditionally exempted. They were exempted only if duty paid inputs were used for their manufacture, and no credit was availed under Rule 56-A or 57A. The Tribunal agreed with the appellants, noting that the Government of India's order dated 7-4-1986 did not specifically bar deemed credit for exempted inputs. The subsequent order dated 20-5-1988, which barred deemed credit for wholly exempted goods, could not be applied retrospectively to the period in question (1986-87). The Tribunal concluded that the order disallowing deemed credit was not legal and proper, and deemed credit should be extended to the appellants.

Conclusion:

The Tribunal allowed all four appeals, holding that deemed credit under the Government of India's order dated 7-4-1986 is available for inputs exempted under Notification No. 208/83. The department's interpretation was incorrect, and the order disallowing deemed credit was not legal and proper. The appellants were entitled to consequential relief.