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TMI Blog1996 (2) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... d credit on the basis of Government orders issued under second proviso to Rule 57G(2) of the Rules. The stand of the Revenue is that since in these cases there are clear materials to show that the inputs did not suffer duty, they are outside the pale of the Government orders and, therefore, deemed credit was not admissible. 4.We may make brief reference to the facts of each of the cases. [E/72/88]. - Appellant, manufacturer of stranded steel wires and other products using inputs including iron wires, steel wires, opted for Modvat credit in respect of iron wire, steel wire falling under Heading 7213.90 of Schedule to Central Excise Tariff Act (for short, Tariff Act) and purchased from manufacturer who avail exemption under Notification No. 208/83 and started taking credit on the input and utilising the credit. Appellant, when directed to do so, could not produce documents to establish that the inputs received were duty paid. The Assistant Collector held that the credit availed of was not admissible and should be refunded or adjusted in the PLA. This was on the ground that under Notification No. 208/1-8-1983, goods under sub-heading 7213.90 are exempt from duty if manufactured fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocured from converters who manufactured them from duty paid unwrought Aluminium and as such were found to be exempted under Notification No. 100/88 during the period in question. The exemption continued under Notification No. 181/88, dated 13-5-1988. The Assistant Collector noticing the changes brought about in Government order dated 7-4-1986 by Govt. order dated 2-11-1987 held that respondent was not eligible to deemed credit on Aluminium Alloy ingot falling under 76.01 of the Tariff Act since the input was exempted by Notification No.100/88, dated 1-3-1988 and, therefore, was clearly recognizable as being non-duty paid input or as exempted from duty or charged to nil rate of duty. This order was set aside by the Collector (Appeals) with regard to credit availed during the period 1-3-1988 to 19-5-1988 on the ground that there was no evidence to show that the Aluminium ingots were manufactured out of non-duty paid goods and the exemption in Government order dated 2-11-1987 did not take in inputs "wholly exempted" from duty. He also held that for the period from 20-5-1988 to 12-9-1988 it has to be verified if the respondents' supplier was availing exemption under exemption Notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turers in these cases. 6.Section AA containing Rules 57A to 57-I and incorporated in the Rules in 1986 introduced the Modvat Credit Scheme. Rule 57A enables the Central Government to specify "finished excisable goods" (final products) in the manufacture or in relation to the manufacture of which "goods" specified by the Government (inputs) are used. In respect of such inputs credit of specified excise duty or countervailing duty paid thereon is allowed to be used towards payment of excise duty on the final product subject to the provisions of Section AA and such conditions and restrictions as may be specified in the notification. Rule 57C mandates that no credit of the specified duty paid on the specified inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the excise duty leviable thereon or is chargeable to nil rate of duty. Rule 57D provides against denial or variation in credit of duty in respect of inputs contained in waste, refuse, or by-product in certain circumstances. Rule 57F deals with manner of utilization of the inputs and the credit. Rule 57G prescribes the procedure to be followed by the manufacturer wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of demand and supply of the said inputs in the country and any other relevant considerations, the Central Government may direct that with effect from a specified date, all stocks of the said inputs in the country, except such stocks lying in a factory, customs area (as defined in the Customs Act, 1962 (52 of 1962) or a warehouse as are clearly recognisable as being non-duty paid, may be deemed to be duty-paid and credit of duty in respect of the said inputs may be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing the payment of duty". The ingredients of the second proviso are :- (a) The Central Government must have regard to the period that has elapsed since excise duty was imposed on any inputs, or the position of demand and supply of the said inputs in the country, or other relevant considerations. (b) Having regard to one or more of the aforesaid conditions, the Central Government may issue a direction as contemplated. (c) The direction to be isssued is that :- (i) with effect from a specified date, all stocks of the said inputs in the country may be deemed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of representations of Manufacturers of final products specified in Notification No. 177/86-C.E., dated 1-3-1986 issued under Rule 57A that they are not able to avail of credit on inputs, i.e. iron or steel, copper, aluminium, zinc, lead and articles of such metals because of their inability to produce duty-paying documents. This Govt. order superseded earlier order dated 14-3-1986. [Government order dated 2-11-1987]. - Annexed to the order is a table specifying inputs in column (2) iron, steel, unwrought copper, aluminium, lead and zinc in any form and waste and scrap of copper, aluminium, lead and zinc, the heading No. of Tariff Schedule (Column 3) and the rate of duty deemed to have been paid and may be allowed as credit (col. 4). The order is similar in terms to the order dated 7-4-1986 in regard to certain inputs. In regard to other inputs, similar relief is given in respect of inputs lying in stock on or after 2-11-1987 with manufacture of final products. However, of the three exceptions in Govt. order dated 7-4-1986, exception (iii) has been delated and exception (ii) has been modified to read as follows :- "(ii) if such inputs are clearly recognizable as non-dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular materials came from non-duty paid stream. The SRB agreed with a similar view taken by a single Member Bench in Collector of C. Ex. v. Kapsons Electro Stampings - 1988 (37) E.L.T. 323 (T-NRB) In UMS Radio Factory Pvt. Ltd. v. Collr. of C. Ex. - 1991 (52) E.L.T. 579 (T-SRB), dt. 22-8-1990 the Manufacturer availed deemed credit on Aluminium Castings used as inputs, though the same were exempt from duty by a notification. The assessee had purchased castings from the Manufacturer of castings and had no duty paying documents. It was clear that the Manufacturer of the inputs had cleared the same without payment of duty as they were exempt from duty. It was held that the fact that Aluminium Castings had been manufactured from duty paid Aluminium ingot has no relevance in the context of the second proviso to Rule 57G(2) of the Rules and Government order dated 7-4-1986. It was further held that the expression "non-duty paid" refers to goods when no duty has been paid and if the inputs are exempted goods, no credit is available in respect of the same. 11.In Arun Auto Spring Mfg. Co. v. Collector of Central Excise Customs. 1990 (48) E.L.T. 543 (T-WRB) the inputs were supplied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll, however, be allowed :- (ii) if such inputs are clearly recognizable as being non-duty paid." Order dated 2-5-1987.- No credit shall, however, be allowed :- (ii) if such inputs are clearly recognizable as being non-duty paid or wholly exempt from duty or charged to nil rate of duty. These orders have been issued by the Central Government on the basis of the enabling provision in the second proviso to Rule 57G(2) to extend the benefit of Modvat credit to certain manufacturers who would otherwise be not entitled to it. Therefore, the scope, meaning and intent of the Government orders must be considered in the backdrop of parent Rule and the Rules in Section AA which incorporates the Modvat Credit Scheme. 14.The Government order dated 7-4-1986 used two sets of words, "clearly recognizable as being non-duty paid" and "charged to nil rate of duty". The second Government order deleted the words 'charged to nil rate of duty". The third order restored the deleted words and also introduced new words "wholly exempt from duty". The words "clearly recognizable as being non-duty paid" are seen in the second proviso to Rule 58(G)(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce duty paying documents which will unerringly connect the documents or duty payment with the particular inputs. Any other view would go against the pivotal element of the scheme, namely, duty has been paid on the inputs. In Consolidated Coffee Ltd. v. Coffee Board, 1980 (46) STC page 164 the Supreme Court has explained that the expression "deemed" is used in different senses, namely, it may be used to indicate what is obvious, or to indicate what is uncertain or to impose an artificial construction in a word or phrase which will not otherwise be available. 16.In this connection it is necessary to find the mischief sought to be avoided by the deemed proviso to Rule 57G and the Government order. The mischief is disentitlement to Modvat credit on duty paid inputs brought to the factory on account of non-possession or inability to produce documents like gate pass etc. evidencing payment of duty. The mischief could not have been overcome by stipulating that credit is available even if duty has not been paid on inputs, for that would be against the pivotal element of the Scheme. If duty need not be paid and has not been paid, the question of duty paid being earned as credit does not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.There is divergence of opinion regarding the meaning of the words "charged to nil rate of duty". According to the assessees, the words comprehend only those goods in respect of which nil rate duty is shown in the Schedule to the Tariff Act, so that the bar in this regard applies only to inputs in respect of which nil duty is shown in the Schedule to the Tariff Act. According to the Revenue, such an interpretation can be given if the words used are "chargeable to nil rate of duty" as in Rule 57C, but the words used "charged to nil rate of duty" have to be understood in a broad sense so as to comprehend all inputs in respect of which duty is not actually collected for any reason, be it on account of mention of nil rate of duty in the Schedule to the Tariff Act or on account of exemption. The same words have been used in Rule 57C, in Rule 57D(1) in relation to final product or waste or by-product, as the case may be, in second proviso to Rule 57H(1), first proviso to Rule 57H(1A), Rule 57L and Rule 57M. The word "charge" is not used in Section 3 of the Central Excises and Salt Act, 1944 which is the charging section for excise duty. On the other hand, the word "chargeable" is use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he goods not cleared could not have been used by another. It is difficult to accept that the Rule-making authority intended to protect the Revenue only against clandestine clearances for in such cases it is unlikely that the actual user would have shown use of such clandestinely cleared goods. 20.We, therefore, hold that the correct view is as follows :- The words "inputs are clearly recognizable as being not duty paid" comprehend all inputs on which it is patent that duty has actually not been paid for any reason i.e. rate of duty is stated to be nil rate in the Schedule to the Tariff Act, or the inputs are wholly exempt from duty or for any other reason (all the three Government orders). The words "charged to nil rate of duty" must be understood not in the narrow sense of nil rate of duty being stated for the inputs in the Schedule to Tariff Act, but in the general sense that actually no duty has been demanded or paid. The case of inputs wholly exempt from duty would also be attracted (Government order dated 7-4-1986 and 30-5-1988). The words "wholly exempt from duty" would take in cases of unconditional exemption of whole of the duty payable and also conditional exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment to (Emphasis supplied).accept that claim or to contest the same". The above observations have been explained by the appellate Division Bench of the Court in the judgment reported in 1995 (75) E.L.T. 735 (P H) in the following words :- "The grievance of the appellant is that the learned single judge has placed the burden on the manufacturer is totally misconceived. According to the learned single judge, the manufacturer has to take a definite stand. We find that the view taken by the learned single judge is wholly unexceptionable". (Emphasis supplied) The Punjab and Haryana High Court was not, in the above case, dealing with a notification exempting goods from excise duty subject to conditions. 22.A manufacturer who seeks the benefit of the Government order issued under proviso to Rule 57G(2) must naturally say so, that is, take a definite stand and to the extent necessary produce documents and marshal arguments and logic to show that he is so entitled to the benefit of the order. He should also take a definite stand that his case does not fall within the exceptions enumerated in the explanation to the Government order. Where there is an exemption notification, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to do so, the exemption must be regarded as having taken effect. It has to be appreciated that in the generality of such cases, the person who clears the inputs is not the assessee, but the manufacturer of the inputs and the assessee might not have purchased the same directly from the manufacturer but might have purchased from the Bazar. When the controversy arises in the appellate forum it is for the Revenue to satisfy the appellate forum that the conditions are satisfied in the given case and that the exemption has taken effect. 24.It is contended for the assessee that even if the inputs used by them were not duty paid on account of exemption, if the inputs were manufactured from duty paid goods, they are entitled to deemed credit on their inputs. The provision in Rule 57A definitely requires that a person, in order to be entitled to credit on duty paid on specified inputs brought to his factory, must use the inputs in or in relation to the manufacture of specified final products. If the inputs are exempted from duty, they are not duty paid and hence no credit is admissible. Credit of duty paid not on inputs of the assessee but on raw materials by using being which the input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured from smelters who manufacture the same from duty paid Aluminium. By Notification No. 100/88, unwrought Aluminium, alloyed or not and castings were wholly exempt from duty if manufactured from goods falling under Chapter 76 or 83 on which duty had been paid. The first proviso to the notification stated that such exemption shall not be applicable, if the goods were manufactured by producers who produce the same from Bauxite or Aluminium or both, whether in the same factory or different factories in India. Thus, it is seen that the exemption on respondent's inputs was a conditional exemption. In order that the inputs are to be regarded as falling within the second exception to the Government orders dated 2-11-1987 or 20-5-1988 the question whether the manufacturer of the inputs satisfied the conditions referred to above imposed by Notification No. 100/88 has to be investigated. If the manufacturer satisfied the conditions and had availed of the exemption, the inputs have to be regarded as "wholly exempted" from duty and as such "clearly recognizable as being non-duty paid" or "charged to nil rate of duty" and hence respondent would not be entitled to deemed credit for the period ..... X X X X Extracts X X X X X X X X Extracts X X X X
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