ORDER
A.C.C. Unni, Member (J)
1. Aggrieved with the Order-in- Original dated 17-5-1993 passed by Collector, Central Excise, New Delhi, M/s. Haryana Concast Ltd. (Appellants) have filed this appeal. By the impugned order the Collector had directed recovery of Modvat credit amounting to Rs. 26,99,073.00 availed by the appellants. A penalty of Rs. 1,00,000/- had also been imposed.
2. Prior to September, 1991 appellants were engaged in the manufacture of various Iron and Steel items falling under Chapter 72 of the Central Excise Tariff Act, 1985. These were made in their unit with the aid of electric are furnace. In September, 1991 they started a Rolling Mill for the manufacture of non-alloy steel flats, plain round and C.T.D. bars, angle channel shapes and sections. For the manufacture of the products in the Rolling Mill, they began to captively consume M.S. Ingots and billets manufactured by them without payment of duty claiming benefit under Notification No. 217/86. In their Modvat declaration dated 30-9-1991 they declared steel billets, steel ingots, sorts and bars falling under sub-heading 7207.90 and 7206.90 along with re-Tollable scrap falling under sub-heading 7204.90 as ‘inputs’ for the manufacture of steel flats of iron and non-alloy steel (sub-heading 7211.11), plain round and C.T.D. bars (sub-heading 7214.90) and angles, channels, shapes and sections (sub-heading 7216.10) as final products. The Department alleged that the appellants had failed to specifically declare the inputs separately for the manufacture of goods falling under the said sub-headings 7211.11,7214.90 and 7216.10 and thereby contravened the provisions of Rules 57A and 57G in as- much as the inputs viz. steel billets and steel ingots had not discharged their duty liability.
3. Before the adjudicating authority the present appellants maintained that under Notification No. 217/86 they were entitled to avail Modvat credit on items used in the factory of production or in any other factory of the same manufacturer. They contended that they had only cleared steel billets and ingots manufactured with the aid of electric arc furnace at nil rate of duty for captive consumption at their Rolling Mill for producing the final products viz. steel flats, rounds, CTD bars, angles, channels, shapes and sections of iron and non-alloy steel which were further cleared after payment of duty. Further, in case they had not opted for the exemption under Notification No. 217/86 and had cleared the material for producing the final product within their own factory after paying the duty thereon, they would have been eligible for availing Modvat credit on the said inputs. They also contended that steel billets/in gots manufactured by them were intermediate products which were further rolled into various sections portion of their production had been used in the manufacture of CTD bars, rounds, angles, channels, flats etc.
4. Turning down these contentions the Collector, Central Excise observed that though it was not in dispute that only steel billets/ingots are the inputs for the products, steel flats, rounds, CTD bars, angles, channels etc. steel billets and ingots themselves were manufactured from various other inputs like mixed alloy steel, processed steel, rejected slab, Ferro aluminium etc. In their declaration dated 30-9-1991 they had declared re-rollable scrap, i.e. end cutting of rounds, flats etc. along with steel billets, steel ingots/sorts and beets as inputs for their products viz. a steel flats, plain rounds, CTD bars, angles and channels. Collector observed that re-rollable scrap was not an input for CTD bars, flats etc. and this was an input only for steel billets/ingots. Though this had been admitted by the appellants themselves, this fact was not declared by the appellants nor specifically intimated to the Department. Since it was not intimated to the Department that only steel billets and ingots were the inputs for CTD bars, steel flats, rounds, angles, channels etc., Collector held that Modvat credit availed on scrap consumed in the manufacture of steel billets was not admissible as scrap was not an input for the final products. Collector observed that the declaration had not also shown scrap as an input for steel ingots/billets separately. He therefore held that Modvat credit availed on scrap during the relevant period was not admissible.
5. Shri P.S. Bedi, Consultant, appeared for the appellants and submitted that the appellants had been denied the Modvat credit on the ground that steel ingots and billets had been cleared without payment of duty in terms of Notification No. 217/86. He submitted that steel ingots and billets manufactured by them were further used by them in their Rolling Mill for the manufacture of their final products like CTD bars etc. There was no dispute about the actual use of steel ingots /billets in the manufacture of the final product. Their only fault according to the learned Consultant was that they had not declared them as intermediate products. This was only a procedural lapse which should have been condoned. He also submitted that since the appellants were paying duty on their final products like CTD bars, angles, shapes etc. and since the inputs had already been declared there was no need to file a separate declaration as Notification No. 217/86 required only Chapter description. In the instant case both the final products and the inputs were covered by the same Chapter 72 and therefore the appellants had fully complied with the requirements of Rule 57A. He also drew attention to Rule 57D(2) which provided that credit shall not be denied on the ground that any intermediate product had come into existence during the manufacture of the final product. Further, there was also no justification for invoking the longer period for raising the demand under Rule 57-1 nor for imposing any penalty as Modvat credit has been taken neither due to any reason of fraud, suppression or mis-statement of facts.
6. Appearing for the Respondent Collector JDR Shri Y.R. Kilania drew attention to the findings of the Collector in Para 15 of the impugned order and submitted that the appellants had mis-declared re-rollable scrap as input for the manufacture of their final products viz. steel flats, plain rounds, CTD bars, angles and channels and therefore the Collector had rightly disallowed the credit amounting to Rs. 26,99,073.00 taken during the relevant period and had rightly imposed the penalty.
7. We have given careful consideration to the submissions made and have perused the record. We find that the appellants have not denied the fact that they had shown Re-rollable scrap (i.e. end cutting of rounds) as inputs for their final products, angles and channels in their Declaration (vide photocopy of Modvat proforma declaration, annexed at p. 35 of the Memo of Appeal). Appellants’ contention is that though Re-rollable scrap is not used directly for the manufacture of the declared final products, it was used in the manufacture of an intermediate product viz. steel billets/ingots and they are covered by Rule 57D(2). We find that this argument has some force. In Collector of Central Excise v. DCW Ltd. [1992 (58) E.L.T. 300] the Tribunal had taken the view that as to what is an intermediate or a final product, the scheme of Modvat has to be read in the context of the manufacturing process of a particular assessee. The Tribunal had observed:
“So long as it can be shown that the inputs have been used for the manufacture of any inprocess materials which are used in the manufacture of the final product, the said material manufactured out of the inputs before it is finally used in the manufacture of the declared final product will have to be treated as intermediate products.”
In the instant case it is not in dispute that re-rollable scrap was an input for the manufacture of steel billets/ingots. It is also not in dispute that steel billets/ingots were used in the manufacture of the final products. The fact that billets/ingots were manufactured in the electric arc furnace unit of the appellants and that the final products were produced in their Rolling Mill unit cannot also be a factor for not treating steel ingots/billets as intermediate goods. In Bhartia Electric Steel Co. Ltd. v. CCE [1995 (77) E.L.T. 289] the Tribunal had observed all products emerging at any stage in between different manufacturing processes between the inputs brought in and the final products will have to be treated as intermediate goods in the context of Rule 57D. Otherwise Rule 57D will become applicable only to single-process manufactured goods like chemicals. This would not be the correct view having regard to the vast variety of goods which are entitled to the facility of Modvat credit.
8. Following the ratio of the decisions cited above we hold that the Collector has wrongly disallowed credit taken by the appellants on re-rollable scrap. We also do not find any justification for imposing the penalty as no wilful mis-declaration with intention to evade duty has been shown.
9. In the premises the appeal is allowed. Consequently the impugned order is set aside with consequential benefits to the appellants in accordance with law.