2013 (8) TMI 772 - SC - Central Excise

MODVAT credit - Interpretation of the Notification No. 58/97-CE - During MODVAT verification it was found that the supplier of inputs had not discharged full duty liability for the period covered by the invoices - Whether the manufacturer of final products was entitled to deemed credit, under Notification 58/97-CE dated 30.8.97 when the manufacturer-supplier of inputs had not paid Central Excise Duty and given a wrong certificate on the body of invoices about duty dischargement under Rule 96ZP of Central Excise Rules, 1944 - Held that - One had to assume that the importer of polyvinyl alcohol had actually manufactured the same in India - One can further assume, possibly without any difficulty, that the said polyvinyl alcohol had been manufactured from vinyl acetate monomer, but it was not possible to assume or presume or imagine that the raw material used was the one on which appropriate amount of duty of excise had been paid in India and hence, the condition which was contained in the said notification had to be fulfilled in order to get the benefit of the notification. The notification clearly states to which of those inputs it shall apply and to which of the inputs it shall not apply and what is the duty of the manufacturer of final inputs. Thus, when there is a prescribed procedure and that has been duly followed by the manufacturer of final products, we do not perceive any justifiable reason to hold that the assessee-appellant had not taken reasonable care as prescribed in the notification. Due care and caution was taken by the respondent. It is not stated what further care and caution could have been taken. The proviso postulates and requires reasonable care and not verification from the department whether the duty stands paid by the manufacturer-seller - When all the conditions precedent had been satisfied, to require the assessee to find out from the departmental authorities about the payment of excise duty on the inputs used in the final product which have been made allowable by the notification would be travelling beyond the notification, and in a way, transgressing the same - This would be practically impossible and would lead to transactions getting delayed Decided against the revenue.

Issues Involved:
1. Entitlement to deemed MODVAT credit.
2. Interpretation of Rule 57A(6) of the Central Excise Rules, 1944.
3. Compliance with notification No. 58/97-CE(NT) dated 30.8.1997.
4. Obligation of the manufacturer of final products to ensure payment of appropriate duty on inputs.
5. Legal precedents and their applicability.

Detailed Analysis:

1. Entitlement to Deemed MODVAT Credit:
The respondent-company availed deemed MODVAT credit of Rs.77,546/- based on invoices issued by the supplier, who had not discharged full duty liability. The Competent Authority issued a show-cause notice proposing recovery and penalty, which was upheld by the adjudicating authority and the Commissioner (Appeals). However, the tribunal and the High Court ruled in favor of the respondent, leading to the present appeal by the Revenue.

2. Interpretation of Rule 57A(6) of the Central Excise Rules, 1944:
Rule 57A(6) allows the Central Government to declare inputs on which excise duty is deemed to have been paid and to allow credit of such duty subject to conditions specified in the notification. The proviso requires the manufacturer to take all reasonable steps to ensure that the inputs acquired are goods on which appropriate duty has been paid as indicated in the accompanying documents.

3. Compliance with Notification No. 58/97-CE(NT) Dated 30.8.1997:
The notification specifies that deemed duty shall be equivalent to 12% of the invoice price and applies only to inputs received directly from the manufacturer with an invoice declaring that appropriate duty has been paid. It does not apply if the manufacturer has not declared the invoice price correctly. The respondent met these conditions, as the inputs were received directly from the manufacturer with the correct invoice price declared.

4. Obligation of the Manufacturer of Final Products to Ensure Payment of Appropriate Duty on Inputs:
The Revenue argued that the respondent should verify from the department whether the duty had actually been paid. However, the court held that Rule 57A(6) and the notification only require the manufacturer to take reasonable steps to ensure that the appropriate duty as indicated in the documents has been paid. The respondent had taken due care by following the prescribed procedure, and requiring further verification would be impractical and beyond the scope of the notification.

5. Legal Precedents and Their Applicability:
The court analyzed previous judgments, including Usha Martin Industries and Motiram Tolaram, which dealt with exemption notifications and the requirement to prove payment of appropriate duty. The Constitution Bench in Dhiren Chemical Industries clarified that "appropriate duty" means the correct rate of excise duty actually paid. However, the present case differs as it pertains to deemed MODVAT credit under a specific notification, not an exemption notification. The conditions of the notification were satisfied by the respondent, and further verification from the department was not required.

Conclusion:
The court concluded that the respondent had taken reasonable care as required by the notification and Rule 57A(6). The appeals by the Revenue were dismissed, and the view expressed by the High Court was upheld.

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