1996 (9) TMI 290 - AT - Central Excise

Summary

Issues:
Deemed Modvat credit on iron and steel scrap from the open market, Proof of payment of duty required for Modvat credit, Admissibility of Modvat credit without proof of duty payment, Interpretation of Ministry's orders on deemed credit, Applicability of Tribunal's decision on scrap inputs, Limitation period for show cause notice, Sale of raw material with approval, Recovery of Modvat credit amount.

Analysis:
The case involved a dispute regarding the admissibility of deemed Modvat credit on iron and steel scrap received from the open market by M/s. Jagat Steels Pvt. Ltd. during the period of November 1986 to March 1987. The Assistant Collector of Central Excise, Patiala, held that the deemed Modvat credit was not admissible without proof of payment of duty by the assessee. The Collector of Central Excise (Appeals), Chandigarh, upheld this decision.

The appellants argued that as a rolling mill, they availed of Modvat credit based on Government orders deeming scrap in the market as duty paid. They contended that no proof of duty payment should be required for purchases from the market. However, the respondent highlighted that the scrap purchased lacked proof of central excise duty payment, and Ministry's orders clarified that no Modvat credit was available for bazar scrap.

The Tribunal analyzed the Ministry's orders dated 7-4-1986 and 29-8-1986, which withdrew the facility of deemed credit for waste and scrap of steel. The Tribunal clarified that waste and scrap like bazar scrap, clearly recognisable as non-duty paid, were not entitled to deemed credit even before 29-8-1986. The Tribunal's decision in M/s. Machine Builders & Ors. v. Collector of Central Excise supported the view that inputs exempt from duty were not eligible for deemed credit.

The Tribunal found that the scrap purchased by the appellants was clearly non-duty paid and not dutiable, as it was not a manufactured product in a factory. The Larger Bench decision emphasized that the purpose of deemed credit was to benefit those using inputs on which duty had been paid, not for inputs exempt from duty. Therefore, the appellants were not entitled to deemed credit on the scrap in question.

Regarding the limitation period for the show cause notice and the sale of raw material with approval, the Tribunal considered the appellants' submission that a portion of the raw material had been sold with the approval of Central Excise Officers, and the duty on it had already been debited. Subject to verification, relief was granted on this account.

In conclusion, the appeal was rejected except for the relief granted concerning the inputs sold with approval. The recovery of the Modvat credit amount was upheld, emphasizing that the appellants had no case on merits based on the provisions and precedents discussed.