1994 (10) TMI 185 - AT - Central Excise

Issues Involved:
1. Denial of Modvat credit on high resolution photomasks, graphite jigs, and fused quartzware.
2. Alleged non-declaration of fused quartzware.
3. Time-barred demand for duty.
4. Requirement of pre-deposit of duty and penalty.

Issue-wise Detailed Analysis:

1. Denial of Modvat Credit:
The primary issue revolves around the denial of Modvat credit on high resolution photomasks, graphite jigs, and fused quartzware. The appellants argued that these items are essential consumables in the manufacturing process of transistors and diodes. High resolution photomasks are used to transfer patterns onto semiconductor chips, graphite jigs provide heat, current, and alignment during the sealing process, and fused quartzware is used to carry silicon wafers into the furnace for doping purposes. The appellants contended that these items are consumables and not apparatus/equipment, and thus should be eligible for Modvat credit.

However, the respondent argued that these items are used as apparatus/appliances for producing and bringing about changes in the substance used in relation to the manufacture of the final product, and therefore, are excluded from the definition of inputs under Rule 57A of the Central Excise Rules, 1944. The adjudicating authority supported this view, stating that these items are used as apparatus/appliances and are excluded from Modvat benefits.

2. Alleged Non-Declaration of Fused Quartzware:
The appellants faced an additional ground for denial of Modvat credit on fused quartzware due to alleged non-declaration of this item. The appellants argued that the fused quartzware, being in the form of glass tubes, had been correctly declared as glass tubes in terms of Note 5 to Chapter 70 of CETA, 1985. The respondent, however, contended that the actual usage of the fused quartzware had been suppressed by misdeclaring it as glass tubes.

3. Time-Barred Demand for Duty:
The appellants argued that the demand for duty was time-barred as the show cause notice was issued on 7-4-1993 for periods from 12-6-1988 to 15-3-1990, while the Modvat declaration for all three items was approved by the Department in March 1988. They highlighted that earlier show cause notices had already been issued in January 1991 on similar grounds, indicating a bona fide dispute between the appellants and the Department. Therefore, no suppression could be attributed to the appellants to warrant the extended period of limitation.

The respondent countered that the plea of time-bar was not raised during the original proceedings and that the appellants had misdeclared the items as raw materials for semiconductor devices in the Bills of Entry, which did not qualify as raw materials within the accepted meaning.

4. Requirement of Pre-Deposit of Duty and Penalty:
The Judicial Member (J) opined that the eligibility of the items to Modvat benefit should be considered in detail during the appeal hearing and noted that the demand appeared to be time-barred. Thus, they waived the requirement of pre-deposit of duty and penalty and stayed recovery pending the appeal.

In contrast, the Technical Member (T) held that the items were appliances covered under the exclusion clause of Rule 57A and that the appellants had not made out a prima facie case on merits or on the point of time-bar. Therefore, they rejected the application for waiver of pre-deposit and stay of recovery proceedings.

Majority Opinion and Final Judgment:
The matter was referred to a third Member (J) due to the difference in opinions. The third Member (J) agreed with the Judicial Member (J) on the point of time-bar, stating that the appellants had a prima facie case since the facts and circumstances indicated a long-standing bona fide dispute. Consequently, the requirement to pre-deposit the disputed amount of duty and penalty was waived, and recovery proceedings were stayed pending the appeal.

Conclusion:
In view of the majority opinion, the pre-deposit of duty and penalty was waived, and its recovery was stayed pending the appeal.

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