SATHYA STEEL STRIPS PVT LTD Vs. COLLECTOR OF C E

JUDGEMENT

(1.) THESE two appeals of the same appellants are directed against the two Orders No. 23/87, dated 24.2.1987 and 38/87, dated 8.4.1987 passed by the Collector of Central Excise, Hyderabad by which he had ordered recovery of MODVAT credit irregularly availed of by the appellants under Rule 57(1) of the Central Excise Rules, 1944. In Appeal No. 311/87 the case relates to recovery of MODVAT credit on MS Scrap input on which the appellants were alleged to have availed of MODVAT credit prior to the date of filing declaration, for the purpose with the Assistant Collector under Rule 57G of the Central Excise Rules, 1944. The case also relates to irregular availing of MODVAT credit amounting to Rs. 2,77,562/-on ramming mass received in the factory from April 1986 to November 1986 on the ground that ramming mass is not eligible for MODVAT credit being not an input used in or in relation to manufacture of final product. In Appeal No. 243/87 the issue relates similarly to ramming mass and MS scrap besides C.I. Duplex Moulds. Credit availed of in respect of Duplex Moulds was Rs. 21450/-and Rs. 84,191.25 on Ramming mass and Rs. 6,45,202.75 in respect of MS Scrap. The Collector had in the impugned order demanded duty on both Duplex Moulds and Ramming mass on the ground that these material were not used in or in relation to manufacture of the final product of the appellants factory. In respect of MS Scrap the Collector held that they can avail of the MODVAT credit only from the date on which they have received acknowledgement for filing their declaration under Rule 57G of the Central Excise Rules, 1944. It is against these orders that the present appeals have been filed.

(2.) Shri N.K. Dev, the learned Consultant appearing for the appellants submitted that in respect of Ramming mass, duty demanded has been wrongly quantified and the recovery has been ordered twice over in the Collector's orders. In respect of Ramming mass, in the Order No. 38/87, dated 8.4.1987 in Appeal No. 311/87, the amount of Rs. 2,75,562.25 has been ordered to be recovered on Ramming mass received from April 1986 to November 1986. in the Order No. 23/87, dated 24.2.1987 again recovery of duty on Ramming mass has been ordered for the period May 1986 to July 1986 the amount being Rs. 84,191.25. According to the learned Consultant, it is obvious that the second amount mentioned above is already included in the first relating to the period between April 1986 and November 1986. Similarly also there is apparently an error in quantifying in the case of MS Scrap for the same reasons as above. Apart from this, the learned Consultant submitted that Ramming mass though not raw material for their finished product is yet used in or in relation to the manufacture of their final product because it is used in the furnace and gets melted with the final product during manufacturing process. According to the learned Consultant, Collector had already allowed MODVAT credit for heating electrodes which are also not raw material, and applying the same principle, Ramming mass, which is a substance coated on the layer of the bricks used in the furnace in order to ensure that the liquid metal does not leak out, and since in the process Ramming mass itself melts and gets mixed up with the molten metal liquid, and therefore Ramming mass also enters the final product, and has thereby become eligible for MODVAT credit. Ramming mass is a chemical covered by Chapter 38 of the Tariff Act 1985, and under Notification No. 177/86, the items under Chapter 38 have been included as inputs for final product covered under the Chapter 72 of CETA 1985. Hence also it is eligible for MODVAT credit. As regards Duplex Moulds, the learned Consultant submitted that Duplex Moulds are also covered by the wider amplitude of the explanation under Rule 57A for their use in relation to manufacture of final product. In respect of MS Scrap it was pointed out by the learned Consultant that steel scrap is eligible for deemed credit procedure as envisaged in Government of India order dated 7.4.1986 who have directed under the proviso to Rule 57G(2) that the stock purchased from outside and lying in stock on or after 1.3.1986 with the manufacturer for final product specified under Notification No. 177/86, dated 1.3.1986 be deemed to have paid the specified duty at the rates specified under the Notification, and that credit may be allowed at the rate specified in the table of the Notification without production of documents evidencing payment of duty. Therefore, there was no need for the Collector to relate the material to its origin and the nature of duty payment. In respect of material for deemed credit burden of proving scrap as clearly recognisable as being duty paid rests on the department. Other arguments put forth by the learned Consultant was that the Government of India's order on deemed credit dated 7.4.1986 covers stocks purchased and lying in stock on or after 1.3.1986. Therefore, such deemed credit can be allowed to the appellants without reference to the date of their declaration for coming under the MODVAT Scheme in terms of Rule 57G of the Central Excise Rules, 1944.

(3.) WE have carefully considered the submissions of the learned Consultant and the learned S.D.R. The question whether Ramming mass and Duplex Moulds would be inputs for being eligible for MODVAT has to be examined in terms of Rule 57A. The Explanation to that Rule states that for the purpose of this Rule, input does not include machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final product. Ramming mass is used to coat the bricks with which the furnace is lined in order to withstand the high degree of heat in melting iron. This being so Ramming mass is essentially a part of the furnace and would therefore be in the nature being part of the machinery/equipment used for producing final product. Similarly Moulds are clearly appliances used in the process of manufacture; they cannot be said to be used in or in relation to the manufacture of final product, namely, steel ingots. As regards MS Scraps used as input, the argument has been that deemed credit order of the Government covers stocks lying from 01.3.1986 onwards and MODVAT should be allowed irrespective of the date of declaration. Under Rule 57G, however, it is seen that Rule 57G lays down the procedure to be observed by the manufacturer intending to take MODVAT credit, and states that such manufacturer shall file declaration with the Assistant Collector, Central Excise having jurisdiction over his factory indicating the description of the final product and inputs used in each, and that the manufacturer should obtain a dated acknowledgement of the said declaration. Sub-rule (2) specifically states "A manufacturer who has filed a declaration under Sub-rule (1) may, after obtaining the acknowledgement aforesaid, take credit of duty paid on inputs received by him". It is clear that the facility of MODVAT credit on inputs available to the manufacturer is necessarily from the date on which he obtains the dated acknowledgement of the declaration filed by the manufacturer before the Assistant Collector. Therefore, the facility of taking credit cannot be availed by a manufacturer without reference to the provisions of Rule 57G. In this view of the matter even for applying the facility of deemed credit the date of declaration under Rule 57G cannot be ignored. This is because in our view the Finance Ministry's order dated 7.4.1986 on deemed credit issued under the proviso to Rule 57G is in relation to the inputs specified therein and would apply only to manufacturers who have, in the first place, become eligible for MODVAT Scheme by complying with the provisions relating to such eligibility contained under Rule 57G. The Collector has also given a finding after examining the statement containing particulars of scrap received by the appe lants that these include turning and boring scrap, MS Heavy scrap and MS pressed bundles which by their nature are clearly recognisable as non-duty paid. In the face of this factual finding of the Collector, the material being clearly identifiable as non-duty paid from their nature, the deemed credit order will not apply. In the result, we find that the Collector's order is well founded and is upheld. However, the amount ordered to be recovered under Rule 57-I needs to be re-determined as there apparently seems to be overlanding in the amount demanded in respect of Ramming mass and MS Scrap, as already pointed out above in the submissions made before us by the learned Consultant. The appeals are disposed of in the above terms.