By TIOL News Service

NEW DELHI, AUG 03, 2015: THE assessee is engaged in the manufacture of bars and rods of mild steel falling under Chapter 72 of the Central Excise Tariff Act, 1985. These bars and rods of mild steel are manufactured from rollable and re- rollable old and discarded rails, wheels, fish plates , etc. The aforesaid raw materials/inputs are purchased by the appellant from Railway authorities in the auction held by the Railways, without melting the same and are duly registered with the Central Excise Department. The appellant is also registered under the Central Excise Act.

The assessee wants MODVAT credit of the duty which was already paid by the Railways on the rods, wheels, fish plates, etc., when the Railways initially purchased the same and which the Railways sold to the assessee after using the said products for a number of years. It is also a matter of record that at the time of purchase of the discarded rods, wheels, fish plates, etc., from the Railways in auction, the appellant did not pay any excise duty.

The question that arises for consideration is as to whether the assessee-appellant is entitled to claim the credit of the said duty paid by the Railways .

Statutory provisions at the relevant time:

1. As per the second proviso to Rule 57G (2), when considerable time has elapsed since the duty of excise was imposed on any inputs, it is deemed that the duty was paid thereupon and credit of the duty in respect of the said inputs can 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.

2. As per the notification dated 13.07.1992, in respect of ingots and re- rollable materials of iron or steel purchased from outside and lying in stock on or after the 07th day of July, 1992 with the re-rollers may be deemed to have paid duty at the rate of Rs.920 /- per tonne , and the credit of duty under Rule 57A of the said rules in respect of such ingots and re- rollable materials used, without undergoing the process of melting, is allowed at the aforesaid rate, i.e., at the rate of Rs.920 /- per tonne .

3. As per the notification dated 01.03.1994, in respect of the same very material, viz., ingots and re- rollable materials of iron and steel purchased from outside and lying in stock on or after 01.04.1994, it is again deemed that duty has been paid thereupon and the credit of the duty is allowable under Rule 57A of the said Rules at the rate of Rs.920 /- per tonne . The only conditions are that the material is used without undergoing the process of melting and the goods which are manufactured fall under Chapter 72 or 73 of the Schedule to the Central Excise Tariff Act, 1985.

The appellant herein was issued three show cause notices dated 28.07.1994, 19.09.1994 and 14.11.1994 to show cause as to why the request for claiming the MODVAT credit be not rejected. He filed reply to these show cause notices. Thereafter, the matter was heard by the Assistant Commissioner of Central Excise ( Lucknow ) in respect of these show cause notices which resulted in Order-in-Original dated 27.03.1996. The adjudicating authority accepted the claim of the appellant by the said order.

Revenue preferred appeal before the Commissioner (A). The Commissioner allowed the appeal and set aside the Order-in- Original which was passed by the Assistant Commissioner. The only reason for denying the MODVAT credit to the appellant, which is contained in the said order, is that the purchase bills of scrap from Railways in auction do not indicate the rate and amount of duty paid on the scrap/inputs at the time of clearance/sale by the Railways and thus, it was clear that no duty had been paid on inputs. On that basis, it is concluded that the question of availment of deemed credit does not arise.

The Tribunal dismissed the appeal of the assessee on the ground that the appellant had not paid any duty at the time of purchase of the material from the Railways.

The High Court also dismissed the appeal of the assessee, who is now in the Supreme Court.

The Supreme Court found:

1. The reasons given by the Commissioner (A) are clearly erroneous inasmuch as there was no such obligation on the part of the appellant to pay the excise duty at the time of purchase of the material from the Railways. On the contrary, the appellant was claiming MODVAT credit on deemed basis, viz., the excise duty that was paid by the Railways at the time of purchase of the said material which was sold as scrap to the appellant herein. This claim, was attracted on the basis of the aforesaid two notifications dated 13.07.1992 and 01.03.1994 coupled with Rule 57G (2) of the Rules. That aspect, has not even been touched upon or dealt with by the Commissioner.

2. Same error is in the order of the Tribunal where appeal was dismissed observing that the appellant had not paid any duty at the time of purchase of the material from the Railways.

3. The High Court vide the impugned judgment has dismissed the appeal of the appellant and while doing so, it has again fell into the same error as was committed by the CEGAT or the Commissioner, viz., denying the deemed MODVAT credit to the appellant on the ground that the appellant had not paid duty on the unserviceable raw material.

The Original Adjudicating Authority had recorded a finding of fact that there was no melting of the aforesaid inputs while manufacturing the bars and rods of the iron and steel. The adjudicating authority also recorded a finding that the goods in question which were purchased by the appellant as scrap from the Railways and became inputs for it to manufacture its own goods were not dutiable. Further no evidence was produced by the Revenue to the effect that they were exempt from the excise duty when purchased by the Railways originally . The adjudicating authority remarked that once the goods were dutiable, there was a presumption that duty was paid unless the Department is able to show that the Railways was exempt from payment of excise duty. The adjudicating authority thereafter applied the notifications dated 13.07.1992 and 01.03.1994 and held that in these circumstances, the deeming provisions contained in those notifications would get attracted and the appellant shall be entitled to the MODVAT credit at the rate of Rs . 920/- per tonne which is the rate specified in the said notifications.

The Supreme Court found from the facts of this case, which are not in dispute, the appellant satisfies all the eligibility conditions contained in notifications dated 13.07.1992 and 01.03.1994 for availing the deemed MODVAT credit.

Supreme Court allowed this appeal and set aside the orders passed by the High Court, the CEGAT and the appellate authority and restored the order of the Assistant Commissioner which had allowed the said credit to the appellant.

(See 2015-TIOL-166-SC-CX)