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TMI Blog2004 (8) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Mills (herein after referred to as M/s. MSRM) E/3188/02 Shri Janki Shah (Director of M/S. Maharashtr a Steel Rolling Mills) E/3183/02 2. Pursuant to a information that M/s. KEC Ltd. and M/s. Sunrise Ltd. were availing 'unlawful' (SIC) deemed export benefits, and had indulged in availment/passing on of irregular MODVAT CREDIT were visited by the officers and enquiries launched which resulted in the notice. The impugned order consequent thereto has found: 42. (ii) I observed that M/s. Maharashtra Steel Rolling Mills Pvt. Ltd. Mumbai were aware that M/s. Sunrise Structural were not a re-roller and despite that they have allegedly entered into MOU with the Notice No. 1 who was a manufacturer of angles for supply of angles to the various parts of M/s. KEC International Ltd. and other TLT manufactures so as to raise invoice in their name so that Central Excise duty @ 16% should be passed on to M/s. KEC International Ltd. M/s. MSRM being themselves re-rollers of steel products allegedly knew that the products cleared by the re-rollers working under Section 3A of CEA 1944 carry 12% deemed modvat credit provided the goods are cleared direct from the manufacturers of input to man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed goods against MOU with M/s. MSRM, Notice No. XI and also on the basis of purchase orders. M/s. Sunrise's supply price, as per purchase order, was determined on the basis of market price prevailing at the time of clearance. The prices also varied for different quantities as per the purchase orders. The price varied from ₹ 12,915/- to ₹ 16,300/- pmt. Re-rollers price varied from ₹ 14,300/-to ₹ 14,600/-. The benefits accrued to M/s. Sunrise is illustrated as under: Purchase price of Angles from Re-rollers @ ₹ 15,180/- PMT (Gross) (Price ₹ 14,500 + Sales Tax ₹ 580 + Transport ₹ 100) = ₹ 15,180/- (-) Sales Tax = ₹ 580/- (-) Modvat @ 12% = ₹ 1,822/- ₹ 12, 778/- Sale price of Angles by M/s. Sunrise Structural and Engg. Ltd. Nagpur @ ₹ 12,915/- PMT (Net) (+) Sales Tax ₹ 599/- (+)Duty@16% ₹ 2,066/- ₹ 15,580/- Gross Difference Sale (-) Purchase Rs. 15,580/- (-) ₹ 15,180/- = ₹ 400/- Gross Difference = Diff. of Excise + Difference of + Profit duty Sale Tax Difference of Excise + Difference of duty Sale Tax = ₹ 244/- + ₹ 19/- = ₹ 263/- Profit/MT = ₹ 400/- - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Engg. Ltd., Nagpur paid standard rate of duty of 16% to make KEC entitled to avail of modvat credit as if the goods are manufactured by M/s. Sunrise Structural and Engg. Ltd., Nagpur. Had M/s. MSRM made contract with the re-rollers for supply of angles to M/s. KEC, in that case, the name of M/s. MSRM on the invoice as buyer would not have made M/s. KEC entitled to 12% deemed modvat credit and in the absence of the name of M/s. MSRM on the invoice would have made them ineligible to receive benefits of invalidation i.e. duty free import. The re-rollers, i.e. Noticee No. Ill to VI were benefited to the extent of transport charges shown in their fake invoices which they never incurred. Accordingly, all the Noticees were benefited. Accordingly, all the Noticees have involved in a conspiracy to defraud revenue and evade duty and to derive undue and unjust benefits in contraventions of the Central Excise Rules with intent to evade duty. Since the Noticees have sought to avail of the benefit of the Notification No. 58/97 which was not availed to them by suppressing the material facts and without following the procedures, the benefits of the decision of the Hon'ble CEGAT in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1944. 42 (viii) M/s. Sanvijay Industries Pvt. Ltd., Nagpur - Noticee No. VI have passed on irregular modvat credit by issue of fake Central Excise invoices during the period 4/99 to 3/2000 in collusion with Noticee Nos. I, II, XI enabling M/s. Sunrise and TLT manufactures like Noticee No. II avail irregular modvat credit. They have issued mere documents without sending corresponding excisable goods along with such documents. They showed transportation charges in their invoices without incurring the same and thus inflated the price and Noticee No. I i.e. M/s. Sunrise Structurals and Engg. Ltd., Nagpur to take excess modvat credit. They have contravened the provisions of Rules 52A of Central Excise Rules, 1944. 42. (ix) Shri Sanjay Agarwal, (Noticee No. VII) Director of M/s. Sunrise Structurals and Engg. Ltd., Nagpur (Noticee No. 1) was responsible for making overall arrangement for passing on irregular modvat credit to Noticee No. II amounting to ₹ 1,46,47,561/- and to other such manufacturers of TLT totally amounting to about ₹ 2.64 crores. Noticee No. VII enjoyed crucial position in the management and control of Noticee No. I. The Noticee was also a party in devising t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 22.6.2000 the Noticee Nos. VII was the person who directed to prepare take document, fabricate statutory and other records so as to let Noticee No. II to avail of irregular modvat credit as above. Thus Noticee No. VII has concerned himself in transporting, take selling and purchasing the contravening excisable goods which he had reason to believe were liable for confiscation under the Central Excise Act, 1944, or the rules made thereunder and has therefore rendered himself liable for penalty under Rule 209A of the Central Excise Rules, 1944 read with Section 38A of the Central Excise Act, 1944. 42. (x) Shri Puranlal Agarwal, (Noticee No. VIII) Managing Director of M/s. Sunvijay Re-rolling and Engg. Works Ltd., being the Chairman Sunvijay including M/s. Sunrise Structurals and Engg. Ltd., Nagpur, and Prop, of M/s. Prakash Ispat, Director of M/s. Sunvijay Industries and M/s. Ramson Alloys Pvt. Ltd., is responsible for making overall arrangements in passing on irregular Modvat credit to Noticee No. I amounting to ₹ 3,65,92,114/- and ₹ 99,360/-. The Noticee has devised a scheme for rolling of M.S. Angles at his units working under Section 3A of C.Ex. Act, 1944. This mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that inspection was done at re-rollers' place that before despatch of the goods to them, all operations including Straightening of Angles were done at the Re-rollers' place, and that after receipt of M.S. Angles at M/s. KEC the same were again subjected to straightening. Shri Milind Sardeshpande, Manager (Q.A.) of KEC in his statement dtd. 25.10.2000 has stated that M.S. Angles were directly received from the re-rollers without being routed through/processed at any other factory. Further, they were also receiving M.S. Angles not relating to the MOU in question from these re-rollers. Therefore his version that goods were taken to M/s. Sunrise Structurals for Straightening of Angles, is not at all convincing. Shri K. Ram Kumar further stated that he knew that the angles in their primitive form were manufactured by the re-rollers and he did not know that these were sent by the re-rollers. It is not correct to accept this version of the Noticee because Shri Milind Sardeshpande, Manager (QA) of M/s. KEC in his statement dt. 25.10.2000 stated that M.S. Angkles were received in his factory in strapped condition duly colour coded and the same were directly received from the re-roll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticees Nos. IV to VI) premises. It also emerged from the MOU dtd. 28.4.1999 between Noticees Nos. I II contained in the records seized on 20.6.2000 that the goods M.S. Angles were to be inspected at Re-rollers' premies. Since the goods were offered for inspection at the Re-rollers premises and according to the statements of Shri Narendra P. Manusmare, Engr. (CQA) and Shri Gupta, Engr. (CQA) of M/s. KEC International Ltd. Butibori recorded on 5.5.2000 before the Superintendent (P), Central Excise Hqrs., Nagpur, such M.S. Angles were finally bundled and strapped after inspection, it appears the goods have been directly sent to Noticee No. II especially since there was no movement of goods between Noticees Nos. IV to VI to Noticee No. I. According to Shri Tushar M. Deshpande, who stated in his statemednt dt. 29.9.2000 that the inspection of goods was carried out at the premises at which the goods were offered to the company for inspection. He also stated that in case of Modvat availed on documents of Noticee No. I the inspection was carried out at Noticees Nos. IV to VI. There was no written offer from M/s. MSMR to M/s. KEC for inspection but it was from the Re-rollers to M/s. KE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of duty by utilising the deemed credit. Had M/s. MSRM entered into MOU with re-rollers, the invoice would be in the name of M/s. MSRM and accordingly M/s. KEC would not have been eligible for deemed credit as per the conditions of Notification No. 58/97. To avail the benefit of deemed export, they got invoice in their name from M/s. Sunrise Structurals and Engg. Ltd., Nagpur for purchase of Steel angles paying duty @ 16%. Thus making M/s. KEC to avail modvat credit @ 16% who had invalidated their advance licence in favour of M/s. MSRM. In reality steel angles were supplied by the re-rollers to M/s. KEC on the invoice of M/s. Sunrise Structurals and Engg. Ltd. Nagpur. The conspiracy angle has been discussed in sub-para (iii)(c) above. Thus M/s. MSRM Notice No. XI were in the knowledge that their impugned transactions would make the goods liable for confiscation under the Central Excise Rules, 1944 and yet concerned themselves in purchasing and selling the impugned excisable goods which they knew were so liable to confiscation and rendered themselves liable for penalty under Rule 209 of the erstwhile Central Excise Rules, 1944 read with Section 38A of the Central Excise Act, 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redits and debits made of duty at 16% on inputs removed from that factory and credit thereafter availed at 16% by KEC as per these duty debits documents of Sunrise were not eligible. (iii) Invoices issued by Sunrise. The deemed credit of 12% on input declared by Sunrise cannot be denied, since they have availed the same on steel angles, a declared input. Even if the factory was closed and no manufacture took place. The credit entry in RG 23A cannot be denied, as in this case, if there is temporary closure of the factory and there is no production. There is no specific rule permitting that. Credit can be availed under Rule 57A and kept in the books without any time limit. As regards the non-receipt of the inputs in the declared factory premises, it is found that the delivery of inputs was taken at the factory gate of the suppliers. Thereafter the same has been transported to KEC. There is therefore 'constructive receipt' of the inputs in question by Sunrise. A three member bench of the Tribunal has held in the case of the Maruti Udyog Ltd. that credit was entitled on inputs even if the same are not received physically. Therefore violation, if any, is only in the goods not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt decision in the case of M/s. Formica India . No contrary decision, on this very same notification 58/97 applicable as in this case, or otherwise was shown to us. It is well settled that for technical/procedural lapse, benefit of Modvat credits cannot be denied. In the case of M/s. Associated Transmit Structurals Ltd., C-IV/309-11/WZB/2004 it has been held that the decision in the case of M/s. Shivagrico Implements Ltd. 2001 (44) RLT 856 does not apply only to captive consumption as department representative contends. Therefore credits in this case cannot be denied merely for non compliance of procedure prescribed by notification 58/97, as arrived at in this case. (d)(i) the Larger Bench of the CEGAT in 1984 (17) ELT 331 (Tri) : 1984 ECR 1409 (Cega) in the case of Atma Steels Pvt. Ltd. v. CCE has held in para 101 (d) as under: 101(d) Recourse can be had to previsions as prevailing at the time of initiation of proceedings, and the period available would be the one as permissible under the provisions of existing at the time of issuance of show cause notice, in spite of the fact that short-levy or non-levy refers to the period when different period of limitation was available. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate legislation to validate the action is enacted. Section 6 of General Clauses Act, 1897 applicable only to repeal and the Constitution Bench of Supreme Court in Rayala Corporation (P) Ltd. v. Director of Enforcement , in para 15 at page 414, held that Section 6 of the General Clauses Act applies to repeal of a Central Act and will not apply to 'omission'. The relevant portion from the Supreme Court decision is reproduced below: 17. ...In the case before us, Section 6 of the General Clauses Act cannot obviously apply on the omission of Rule 132-A of the DIRs for the two obvious reasons that Section 6 only applies to repeals and not to omissions, and applies when the repeal is of a Central Act or Regulation and not of a rule.... The Supreme Court also held Section 6 applies only to Central Act and not to the rules framed thereunder. Another Constitution Bench of Supreme Court in Kolhapur Canesugar Works Ltd. v. UOI , following the decision of Supreme Court in Rayala Corporation, held that Section 6 of General Clauses Act will apply to repeal and not to omission. The Supreme Court in Kolhapur Canesugar held as under: 32. ...The decision of the Constitution Bench is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned order and has referred to plain English dictionary meaning of 'supersession' and has come to the conclusion that substitution is covered by the term 'supersession'. This finding of the Commissioner is contrary to the decision of Supreme Court in Central Provinces Manganese Ore Co. Ltd. (supra), therefore cannot be upheld. (v) Section 38A reads as under: 38A. Effect of amendments, etc., of rules, notifications or orders.-Where any rule, notification or order made or issued under this Act or any notification or order issued under such rule, is amended, repealed, superseded or rescinded, then, unless a different intention appears, such amendment, repeal, supression or rescinding shall not- (a) revive anything not in force or existing at the time which the amendment, repeal, supersession or rescinding takes effect; or (b) affect the previous operation of any rule, notification or order so amended, repealed, superseded or rescinded or anything duly done or suffered thereunder; or (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any rule, notification or order so amended, repealed, superseded or rescined; or (d) Affect a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 425. Hamilton Gell v. White [1922] 2 KB 422, at p 431. As to when a right 'accrues' for this purpose see Lewis v. Hughes [1916] 1 KB 831; Costello v. Brown (1924) 94 LJKB 220. Cf Director of Public Works v. Ho Po Sang [1961] AC 901. If a right to damages has accrued, it is immaterial that the amount has not been quantified. Free Lanka Insurance Co. v. Ranasinghe (1964) AC 541. Being able to avail oneself of a statutory defense is not a 'right' for this purpose Sifam Electrical Instrument Co. Ltd. v. Sangamo Weston Ltd. [1971] 2 All ER 1074. A liability was held to be 'incurred' when the debtor had committed an act of bankruptcy. Re a Debtor (No. 490 of 1935) [1936] Ch 237. And on as to what is vested right, it was submitted, quoting the observations made by Privy Council in Director of Public Works v. Ho Po Sang 1961 All ER 721 at 731 the Supreme Court held in M.S. Shivananda v. Karnataka State Road Transport Corporation as under: 15. The distinction between what is, and what is not a right preserved by the provisions of Section 6 of the General Clauses Act is often one of great fineness. What is unaffected by the repeal of a statute is a right acquired or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the department on the date of issue of the show cause notice. Even if it is assumed, that a show cause notice had been issued by the department in the present case prior to 31.3.2000, i.e. before the substitution of Cenvat rules in place of Modvat rules, when the Supreme Court in Kolhapur Canesugar has held that show cause notice issued prior to omission of Rules 10 and 10A is not saved, since no vested right accrued to the department. Going by that ratio, laid down by the Supreme Court, even if the show cause notice was issued by the department in the present case prior to substitution on 31.3.2000, still, the department could not proceed with the show cause notice, since no vested right accrued to the department. Similarly, no liability is incurred by the appellants. Hence, the present proceedings are not saved by Section 38A. The position will be no different when, no show cause notice at all was issued when the Cenvat rules were substituted w.e.f. 31.3.2000. In the present case, show cause notice was issued on 19.6.2001 after the 'substitution'. Therefore, no vested right accrued to the department, and the notice cannot be therefore upheld. (vii) The Ld. DR relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit at the rate of 12% in terms of Notification No. 58/97-CE. In terms of 57F(2), the inputs on which credit is taken can be removed as such for home consumption, on payment of duty. As per Rule 57F(12) the credit availed on the inputs can be utilised for payment of duty on the clearances of inputs themselves. Under Modvat Rules provisions, a manufacturer of final products is entitled to take credit on the inputs and utilise the said credit for reversal of duty due on clearance of inputs as inputs. They could utilise the credit availed by it for payment of duty in the said inputs and KEC will be entitled for the credit of duty paid by Sunrise on the goods received by them. The situation will not change even if Sunrise sends inputs directly to KEC as in para 107 of the speech made by the Finance Minister at the time of presenting the budget for the year 1987, it was stated as under: Receipt of inputs directly by the job worker will be permitted for all items under the Modvat scheme. and in guide to Modvat published by the CBEC, it has been stated as under: Where the raw materials/semi-finished goods are sent directly from the supplier without first coming to factory of the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the Modvat credit is otherwise admissible to Sunrise, which is being denied on account of non-following of procedure, failure to follow such a procedure can be attributed as an error or omission on the part of the assessee, that can never be a suppression or intention to evade. In the present case, the only violation is non-bringing of the steel angles into the factory premises of and by Sunrise. That cannot amount to suppression etc. with an intent to evade payment of duty. Reliance placed in the following decision of the CEGAT in the case of Geep Industrial Syndicate wherein the CEGAT held in para 5 as under: 5. ...It is admitted that the caps manufactured in the torch unit were transferred to the two battery units and hence the purpose for which the Notification stipulated Chapter X procedure to be followed, stands fulfilled. Further, failure to follow Chapter X procedure may be an error or omission on the part of the assessees, but it cannot amount to suppression and the question of suppression will arise only when an assessee wants to obtain a benefit not available to him under the law and will not arise when any exemption conferred by law is sought to be denied due to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in turn supplied the goods to projects financed by notified agencies in terms of para 10.2(d) of the import Export Policy. KEC is entitled to benefits specified in para 10.3 of EXIM Policy which are: (a) Special Imprest Licence (b) Deemed Export Drawback (c) Refund of technical excise duty Even the sub-contractors i.e. supplier of raw materials to KEC are also eligible for the above benefits. Thus, the duty paid on the angles, would be refunded by DGFT in the form of either refund of terminal excise duty in the form of drawback. Thus, there is no loss of revenue to the government, has force to consider sheltering the appellants from a penal consequence, if any. (j) Inputs were received by KEC from Sunrise based on the duty paying documents issued by Sunrise. The invoices issued by Sunrise show that duty was paid by them on angles at 16% ad valorem. This is not disputed in the show cause notice. The show cause notice states that Sunrise has paid duty on the clearances of inputs at 16% ad val. In other words, duty payment @ 16% ad valorem on angles paid by Sunrise was accepted by the department in terms of Rule 1731 of the Central Excise Rules. KEC has taken the credit of duty paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit at the rate of 12% of the invoice price is available under Rule 57A to the inputs purchased from the units working under Section 3A. Invoice price has been defined in the Explanation to Notification. Para 4 of Notification No. 58/97-CE (NT) States that the provisions of this notification shall apply only to those inputs received directly by the manufacturer of the final products from the factory of the manufacturer of the inputs under cover of an invoice declaring the appropriate duty have been paid under Section 3A of the Act. This requirement is satisfied in the present case in as much as it the case of the department that the goods were received by us (sic KEC) from the units working under Section 3A. Therefore it cannot be said that the inputs were not received by us directly from the units working under Section 3A. Thus, the first portion of para 4 of Notification No. 58/97-CE (NT) is satisfied. The second portion of para 4 of the notification is also satisfied. The requirement of para 4 of Notification No. 58/97-CE (NT) is that the inputs should be received under cover of the invoice declaring appropriate duty has been paid under the provisions of Section 3A. Though t ..... 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