2014 (5) TMI 91 - HC - Central Excise

Benefit of Notification No.202/88-CE dated 20.5.1988 - Whether the benefit of Notification No.202/88-CE dated 20.5.1988 can be denied when Railways have paid duty on the auctioned old rails while purchasing the same and the same has been sold to the applicant as such - Burden to proof - Held that - burden of establishing that the inputs were non-duty paid and the petitioners were, therefore, not entitled to the benefit of the notification as aforesaid shall be on the Department failing which their duty paid character shall be presumed or deemed to be inputs on which the duty has already been paid - onus was on the Department to prove that the goods have not suffered duty or that the same are recognizable being non-duty paid. Mere auctioning by the railway the discarded rails etc. would not automatically lead to the inference that the same were clearly recognizable as deemed non-duty paid-The authorities misdirected themselves in holding that since the railway was not registered with the Central Excise Department, the sale by it through auction cannot lead to the inference that the goods auctioned were duty paid. The benefit of Notification was wrongly denied to the petitioners - Following decision of Laxmi Rolling Mills & Others versus CEGAT , New Delhi 2001 (12) TMI 85 - HIGH COURT OF JUDICATURE AT ALLAHABAD - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of benefit of Notification No.202/88-CE dated 20.5.1988.
2. Status of duty paid goods after being discarded.
3. Recognition of old rails as non-duty paid.
4. Eligibility of re-rollable materials for deemed credit.

Detailed Analysis:

1. Denial of Benefit of Notification No.202/88-CE dated 20.5.1988:
The applicant, a manufacturer of 'MS round bars' from old rails purchased through auction from Railways, claimed the benefit of Notification No.202/88-CE dated 20.5.1988. The Adjudicating Authority denied this benefit, asserting that the rails were not duty paid. This decision was upheld by the Collector (Appeals) and the Tribunal, which relied on the Larger Bench judgment in Machine Builders vs. CCE. The High Court, however, found that there was no basis for presuming the rails were non-duty paid and held that the benefit of the notification should not be denied.

2. Status of Duty Paid Goods After Being Discarded:
The court examined whether duty paid goods become non-duty paid after being discarded and used extensively. The applicant argued that old rails, being duty paid, should not be treated as non-duty paid merely due to their age and usage. The High Court agreed, stating that there was no material evidence to support the claim that the old rails were non-duty paid. The court emphasized that the burden of proof was on the department to establish that the goods were recognizable as non-duty paid.

3. Recognition of Old Rails as Non-Duty Paid:
The court referred to the explanation in the notification, which deems all stocks of inputs in the country as duty paid unless clearly recognizable as non-duty paid. The High Court found that old rails purchased from Railways could not be treated as clearly recognizable non-duty paid stock. The adjudicating authority's assumption that these were non-duty paid was deemed erroneous.

4. Eligibility of Re-Rollable Materials for Deemed Credit:
The applicant contended that re-rollable materials, such as old rails, used in manufacturing final products like 'MS round bars', should be eligible for deemed credit. The High Court supported this view, referencing similar cases like Laxmi Rolling Mills and Vivek Re-Rolling Mills, where it was held that the burden of proof lies with the department to show that the inputs were non-duty paid. The court concluded that the applicant was entitled to the benefit of the notification.

Conclusion:
The High Court answered all the questions in favor of the applicant and against the department, affirming the applicant's eligibility for the benefit of Notification No.202/88-CE dated 20.5.1988. The reference was answered accordingly.