ORDER
Moheb Ali M., Member (T)
1. The appellants are manufactures of metal containers falling under Chapter 72,73 & 85 of Schedule to the Central Excise Tariff Act, 1985. The inputs for such manufacture are tinned M.S. Plates and Sheets. They procure these inputs either from the open market or from importers who import the material. The appellants clears the goods manufactured out of these inputs on payment of duty. The modvat credit taken on the inputs amounting to Rs. 45,44,658/- taken during the period April 1989 to December 1992, was denied by the Commissioner in the impugned order on two grounds which would be discussed presently. The Commissioner also imposed an equal amount of penalty under Rule 571 (4) of the Central Excise Rules 1944. Interest of 20% was also demanded under Rule 57I (5) of the same rules. Hence the appeal.
2. The grounds for rejection are that the appellants has taken modvat credit on the strength of endorsed bills of entry and that modvat credit is availed of on the strength of gate passes issued by them to M/s. TCIL who in turn endorsed them to the appellant, even though the goods covered by the gate passes were never physically removed from their factory.
3. In regard to the first issue the Commissioner’s contention is that credit can be taken on endorsed bills of entry only when the goods are imported by someone and the sold to the user on a High Sea Sales Basis, in the present case the goods have been imported and warehoused. It is only the ex-bond bills of entry filed by the importer that are endorsed to the appellant and therefore credit should not have been taken on such endorsements made on the ex-bond bills of entry. In regard to the second issue the Commissioner’s finding are that the appellant prepared gate passes for the clearance of plain tin plates and printed lacquered sheets in the name of M/s. TCIL situated in the same premises of the assessee and availed of modvat credit on the same without actually despatching the goods out of the factory gate. Such availment of credit according to the Commissioner is not permitted, as the goods have not left the premises of the appellant. The Commissioner further observed that Rule 49 states that the duty is chargeable only on removal of the goods from factory premises. Availment of modvat credit by issuing gate passes without physical clearance of goods is nothing but a new modus operandi. The goods shown to have been removed to M/s. TCIL were endorsed back to the appellant and on such endorsement modvat credit has been taken. This according to him is not permissible under Rule 57G of Central Excise Rules, 194.
4. The appellant’s contend that the Commissioner has taken a super technical view of the matter and denied the credit even though the duty paid nature of the inputs was never in doubt. The credit taken on the endorsed ex-bond bills of entry is valid inasmuch as the credit is taken only of the duty paid on the inputs at the time of ex-bonding them from the warehouse. The department has also not doubted the fact that the inputs on which duty has been paid on the ex-bond bills of entries were actually received in the appellant’s factory. On the second issue as to whether the goods should be actually removed from the factory on a G.P.1 for them to be eligible to take credit of the duty paid on those goods the appellants contend that in this case as in the case of endorsed bills of entry, there was no doubt that duty has been paid, on the inputs and thereafter only credit has been taken. Modvat credit taken on the duty paid goods is valid and cannot be denied on the mere ground that the goods have not been removed from the factory.
5. We have heard both sides.
6. On the issue whether the modvat credit can be taken on the basis of endorsed bills of entry, we observe that so long as the duty paid nature of the inputs is not in doubt modvat credit cannot be denied on the mere plea that there was no high sea sales. In this case the goods that have been removed from a warehouse on ex-bond bill of entry have been duly received in the appellants factory. Modvat credit cannot be denied on such goods. We also observe that the Commissioner’s second contention that since goods have not actually been removed from the premises modvat credit is not admissible is not correct. In this case the appellants have explained as to why the goods were sold to M/s. TCIL, how a gate pass has been prepared and why the goods have not been actually dispatched. We find strength in the appellants’ argument that the goods have not been actually removed because they have to be received back into their factory for manufacture of finished goods on job work basis in any case. The mere fact that the goods on which duty has been paid has not been removed from the factory is not sufficient to deny modvat credit, which is otherwise admissible. The Commissioner’s order denying the credit on technical grounds has to be set aside.
7. The appeal is allowed.
(Pronounced in Court)