1991 (1) TMI 277 - AT - Central Excise

Summary

Issues Involved:

1. Disallowance of Modvat Credit for scrap arising in the manufacture of E.R.W. and SW Pipes.
2. Applicability of deemed credit facility to scrap exempt from duty.
3. Interpretation of exemption notifications and their impact on Modvat Credit eligibility.
4. Burden of proof regarding duty-paid status of inputs.
5. Distinction between captively produced inputs and those purchased from the open market.

Detailed Analysis:

1. Disallowance of Modvat Credit for Scrap Arising in the Manufacture of E.R.W. and SW Pipes:

The appeals were filed against the disallowance of Modvat Credits amounting to Rs. 5,14,308.00, Rs. 15,45,253.05, and Rs. 2,20,580.08. The scrap in question, arising from duty-paid H.R. Coil, was deemed non-duty-paid by the Assistant Collector, and this decision was upheld by the Collector (Appeals). The appellants argued that the scrap should be considered duty-paid based on Government of India order F. No. B-22/5/86- T.R.V., dated 7-4-1986. However, the Assistant Collector and the Collector (Appeals) maintained that the deemed credit facility was not applicable as the scrap was exempt from duty.

2. Applicability of Deemed Credit Facility to Scrap Exempt from Duty:

The appellants contended that the scrap should qualify for Modvat Credit under the deemed credit order, arguing that the scrap was duty-paid. The Department countered that the scrap was not duty-paid and hence not eligible for Modvat Credit. The deemed credit order excludes goods chargeable to nil rate of duty or non-duty-paid, which was applicable to the scrap in question. The Tribunal upheld this view, stating that the scrap, being exempt from duty, was outside the scope of the deemed credit facility.

3. Interpretation of Exemption Notifications and Their Impact on Modvat Credit Eligibility:

The appellants relied on several decisions (1988 (37) E.L.T. 323, 1989 (43) E.L.T. 577, 1990 (27) ECR 398, and 1990 (49) E.L.T. 284) to support their case. These decisions dealt with the eligibility of Modvat Credit for inputs purchased from the open market and conditionally exempt from duty. The Tribunal distinguished these cases, noting that the inputs in the present case were captively produced and not purchased from the open market. The Tribunal held that the exemption notifications and deemed credit orders did not apply to captively produced inputs.

4. Burden of Proof Regarding Duty-Paid Status of Inputs:

The Tribunal emphasized that the burden of proof regarding the duty-paid status of inputs lies with the manufacturer, especially when the inputs are captively produced. The deemed credit facility aims to simplify the process for inputs purchased from the open market, where proving duty payment can be challenging. However, for captively produced inputs, the manufacturer must provide evidence of duty payment. The Tribunal concluded that the appellants failed to provide such evidence, justifying the disallowance of Modvat Credit.

5. Distinction Between Captively Produced Inputs and Those Purchased from the Open Market:

The Tribunal highlighted the distinction between captively produced inputs and those purchased from the open market. In cases where inputs are purchased from the open market, the deemed credit facility applies if the Department cannot prove that the inputs are non-duty-paid. However, for captively produced inputs, the manufacturer must provide evidence of duty payment. The Tribunal held that the scrap in question, being captively produced and exempt from duty, did not qualify for Modvat Credit under the deemed credit order.

Conclusion:

The Tribunal dismissed the appeals, upholding the disallowance of Modvat Credits for the scrap in question. The Tribunal held that the deemed credit facility did not apply to captively produced inputs exempt from duty, and the burden of proof regarding duty payment lies with the manufacturer. The Tribunal's decision emphasized the need for manufacturers to provide evidence of duty payment for captively produced inputs to qualify for Modvat Credit.