Decided on January 18,1991



K. Sankararaman, Member (Technical) - (1.) THESE two appeals involve a common question for decision and are disposed of by this common order. Common arguments were advanced before us by Sri S.K. Bagaria, learned counsel for both the appellants, M/s. Ma Tara Rope Works and M/s. R.P. Wires & Fencings and by Sri M.N. Biswas, learned Senior Departmental Representative.
(2.) The appellants are manufacturers of stranded wires from galvanised wires. Modvat credit at the rate of Rs. 365/- per metric ton had been taken by them on the strength of Finance Ministry's order dated 7-4-1986 relating to deemed credit for availing modvat credit without the production of duty paying documents. The lower authorities had held that since the inputs had been received by the appellants from the manufacturers thereof who had availed themselves of the benefit of exemption from duty in terms of Notification No. 208/83 the said inputs stand excluded from the facility of modvat credit in terms of the deemed credit order dated 2-4-1986 as the same provides that no credit shall be allowed. JUDGEMENT_5438_TLCE0_19910.htm (ii) if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty. On the above basis it was held that the inputs are not eligible for deemed modvat credit and the credits taken were disallowed. The present appeals have been filed challenging the said decisions. Sri S.K. Bagaria, learned counsel for the appellants, submitted that the deemed modvat credit had been disallowed by the jurisdictional Assistant Collector, which decision had been subsequently upheld by the Collector (Appeals) only on the ground that the galvanised wire had been received by them from the manufacturers thereof, who had availed of exemption from duty and hence did not pay duty. The said inputs are exempted goods. The deemed credit was availed of by the appellants during the period June 1986 to February 1987 for both the appeals. The deemed credit order was in force for this entire period. The relevant order which is dated 2-4-1986 only excluded inputs which are clearly recognisable as being non-duty paid or charged to nil rate of duty. These expressions carry different meanings and are not synonymous. Non-duty paid goods means goods on which duty is payable but not paid or in other words duty has been evaded by surreptitious clearance of the goods. Hence, he relied upon the authoritative pronouncements of Courts and quasi-judicial authorities for bringing out the correct significance of the term "paid", "appropriate duty" and nil assessment. The authorities cited were: (1) 1978 (2) ELT 399 (SC) (2) 1989 (35) ELT 142 (Tribunal) (3) 1987 (32) ELT 521 Tata Yodogawa v. Union of India He contended that the expression non-duty paid goods does not cover exempted goods. There is no charge of any clandestine clearance of the inputs to bring them within the scope of the term non-duty paid goods. As regards the other expression goods charged to nil rate of duty this also does not cover exempted goods. The expression "charged" is applicable in terms of Section 3 read with the Tariff Schedule. In the said schedule several goods bear nil rate of duty. Only such goods are provided for in the present provision under consideration. If goods are wholly exempt from duty by virtue of the fact that duty had been paid on the raw materials therefor, they are not goods charged to nil rate. The criterion of goods wholly exempted from duty had come into the scheme of the deemed credit provisions only in the order dated 20-5-1988. This issue had been exhaustively covered by the West Regional Bench of the Tribunal in Arun Auto Springs v. Collector of Central Excise, Rajkot, reported in 1990 (29) ECR 458. That Bench had held that goods wholly exempt from duty came to be excluded from the purview of the deemed credit order only with effect from 20-5-1988 when a fresh order on deemed credit came to be issued in supersession of the earlier order on the subject and, as such cannot be applied retrospectively. That Bench had relied on a Supreme Court judgment for the proposition that purchase from a manufacturer also amounted to purchase from the open market. 1981 (8) ELT 613 (SC) Ahura Chemical Products Ltd. Sri Bagaria submitted that these very issues have arisen in the present appeal. He urged that adopting the same views the present appeals may be allowed. He also cited the following decisions of the different Tribunal Benches wherein modvat credit had been held to be admissible in terms of the deemed credit order dated 7-4-1986 where the inputs were wholly exempt from duty but subject to certain conditions. The stand of the department that the inputs being exempt from duty the benefit of deemed credit would not be available in respect of them had been rejected. 1988 (37) ELT 323 1989 (43) ELT 577 1990 (27) ECR 398 He also handed over a note explaining the two courses open to the manufacturers of stranded wire from galvanised wire to press his case that there was no revenue loss by their availing of deemed credit and paying the differential duty on stranded wire. In one method the manufacturer can take modvat credit in respect of duty paid on billets for paying the duty on wire rods and the effective duty liability will be nil. This can be repeated in successive stages of manufacture of galvanised wires and finally stranded wires. At the final stage, the effective duty liability will be only 15% minus Rs. 365 per M.T. This would however involve paper formalities of making modvat credit entries and debit of duty on the finished products arising at successive stages. On the other hand modvat benefit at the intermediate stages of wire rods and galvanised wires may not be availed of but these products would be cleared free of duty under Notification 208/83. By this method also the effective duty liability would still be 15% minus Rs. 365 per M.T. the same as in the other method, the only difference being that all the paper formalities of making debit and credit entries would be eliminated at the intermediate stages of wire rods and galvanised wires.
(3.) IN view of the above position regarding revenue effect and the overwhelming trend of decisions of different Tribunal Benches, and more particularly that of the West Regional Bench in the case of Arun Auto Springs, their appeals may be allowed.;

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