ORDER
S.L. Peeran, Member (J)
1. In this Revenue appeal, the brief facts are that respondents are manufacturers of Cotton Yarn, Synthetic Staple Fibre Yarn and Artificial Staple Fibre Yarn falling under chapters 52 to 55 to the Central Excise Tariff. They are availing the facility of Modvat credit on Capital Goods under Rule 57Q. The jurisdictional Range Officer issued a show cause notice proposing to deny credit of duty taken by the assessee, alleging contravention of Rules 57Q, 57R and 57T of the Central Excise Rules, 1944. The allegations given in the show cause notice are:
(i) The assessee had taken credit of duty paid on capital goods on the strength of original invoices in violation of Rule 57T.
(ii) The assessee had taken credit of duty paid on capital goods on the basis of xeroxed documents which are marked as “duplicate for transport” by using rubber stamp in contravention of Rule 57T. (iii) The assessee took credit of certain capital goods which were used in the manufacture of cotton carded/combed falling under Tariff Heading No. 5202.00 which was not specified as a final product in the Annexure to Rule 57Q prior to 21-10-1994-The show cause notice proposed to disallow the credit of Rs. 2,26,429 /- under Rule 57U of Central Excise Rules, 1944 and to impose a penalty under Rule 173 Qibid.
2. The Assistant Commissioner of Central Excise, Coimbatore III Division considered the merits involved in respect of each issue referred to in the notice and vide order-in-original C. No. V/52/15/261/95, dated 22-4-1996, disallowed the credit to the extent of Rs. 1,49,617.00 under Rule 57U of Central Excise Rules. He, however, allowed credit of Rs. 75,540/- as being eligible.
3. Aggrieved by the above order, the assessee filed an appeal with the Commissioner (Appeals), Trichy. The Commissioner (Appeals) vide Order-in-Appeal No, 105/97 (CBE) dated 18-3-1997 allowed the appeal filed by the assessee. The issues were decided as follows :-
(a) to allow credit after disallowing proportionate credit @ 2 1/2% per quarter for use of capital goods upto 21-10-1994.
(b) to allow credit based on original invoice after due verification by Assistant Commissioner.
(c) to allow credit on invoices which are not pre-printed, after due verification by Assistant Commissioner.
4. Heard Ms. Aruna Gupta, learned JDR who submits that the Order-in-Appeal impugned is suffering from the following infirmities :-
(A) The Order of the Commissioner .(Appeals) that preparatory machines and their spares are entitled to proportionate credit and covered by Rule 57Q is incorrect and not as per law.
(B) The stand of the Commissioner (Appeals) that Rule 57-S envisages granting of proportionate credit for preparatory machines and their spares which were received prior to 21-10-1994 is not correct. Seeking recourse to the amended provisions of Rule 57-S to redefine capital goods is not proper. The terms ‘capital goods’ are explained under Rule 57Q and not under Rule 57-S.
(C) Notification No. 23/94-CE. (N.T.), dated 20-5-1994 seeks to make amendments to Rule 57-S and does not intend to enlarge the concept of capital goods so as to include the goods used in relation to the manufacture of final product. The term capital goods is well explained/defined under Rule 57Q only and not under Rule 57-S as held by the Commissioner (Appeals). Rule 57-S deals with the manner of utilization of credit under Rule 57Q and does not deal with the scope of the term capital goods. This view of the department has been upheld by the South Regional Bench, CEGAT in its Final Order No. 646/96, dated 16-4-1996 in the case of Commissioner of Central Excise v. Velathal Spinning Mills (P) Ltd., wherein it has been held that “Rule 57-S” only provides for the manner of utilization of capital goods and the credit allowed in respect of duty paid thereon and that it does not in any way enlarge the scope of definition of capital goods for Modvat purposes. Further, an item to qualify as capital goods, should specifically satisfy the definition of capital goods as set out in the explanation to Rule 57Q.
(D) Preparatory machines and their spares are entitled to credit only after issue of Notification No. 60/94-C.E. (N.T.), dated 21-10-1994. As there are no provisions for allowing proportionate credit by giving retrospective effect to the said notification, the order of the Commissioner (Appeals) in this regard is not valid and deserves to be set aside.
(E) As regards the direction of the Commissioner (Appeals), to extend the credit availed on the strength of original invoices, the adjudicating authority has allowed the benefit based on the merits of each case in terms of Rule 57G(2A) as explained in para-6 of the Order-in-Original. Any acceptance of such documents should be strictly within the parameters of law after due verification of the invoices related to the goods in question. As such the Commissioner (Appeals) order to rerexamine this issue is not correct arid not as per law.
(F) As per Rule 57T(3), no credit of duty shall be taken unless such capital goods are received in the factory with documents as specified under Rule 57G evidencing payment of duty. In the instant case photostat copies of invoices marked as “duplicate copy” by rubber stamp cannot be taken as valid documents for the purpose of Modvat credit in view of the provisions of Rule 57T read with Rule 52A. Credit can be allowed on the basis of the documents that are prescribed by the Central Government for the purpose of availing credit. This view has been upheld by the Tribunal in the case of Collector of Central Excise v. Jai Bhavani Steel Industries (P) Ltd., reported in 1996 (83) E.L.T. 537 (T). Therefore, the decision of the appellate authority to allow credit after due verification is erroneous in law. She cites 1998 (28) RLT 872 CEGAT (Singamvellar Spinning Mills Ltd. and Ors.) wherein such Modvat credit has been denied prior to the period from 21-10-1994.
5. Heard Shri S. Kandaswamy, learned Consultant for respondents who submits as follows :-
(a) With respect to credit on original copy of invoice vide Board’s instructions No. 68/68/94-CX., dated 24-10-1994.. the Assistant ‘Collector can allow credit after verification and on his satisfaction.
(b) With respect to duplicate copies and xerox copies thereof, all duplicate copies were traced out except in one case involving Rs. 2218/- and the credit was rightly granted except in this one case.
(c) On pre-preparatory machine, he submitted that the facts in the case of Singamvellar Spinning Mills and Ors. (supra) is distinguishable with respect to Rule 57T. Rule 57T proviso (first) prescribes that such capital goods shall not be used “exclusively” for production of final product which is exempted. Even if it is held that cotton carded /combed being excisable goods were exempted upto 21-10- 1994, yet credit cannot be denied to them on this ground as the said capital goods were not exclusively used only to produce the same Instead it was also often used to manufacture non-cellulosic spun yarn (man-made yarn) wherein cotton was not combed or carded. such yarn was not exempted prior 21-10-1994 and therefore the ratio of that case-law was not applicable in their case.
(d) Date of credit is 5-4-1995, the machines were received in April-Sep-. tember, 1994 and the declaration was filed before taking credit as per Rule 57T(1) and after 21-10-1994. Hence the conditions of Rule 57T are satisfied. Further, Modvat credit on capital goods is not conditional to the date of receipt of goods, the only condition being that duty is paid after 1-3-1994, which is satisfied in this case. He cites Trade Notice No. 30/96-C.E., dated 31-5-1996 of Mumbai Commissiorierate.
(e) He cites 1998 (101) E.L.T. 495 (Tribunal) & 1995 (79) E.L.T. 718 (Tribunal) and 1997 (90) E.L.T. 361 (Tribunal) which holds that belated Modvat credit is allowable.
Therefore, the learned Consultant prays that there is no merit in the Revenue appeal.
6. I have carefully considered the submissions on both sides and records of the case. Regarding the credit on original documents as well as on rubber stamped invoices etc., I find that the order impugned has rightly remanded the matter to the original authority for allowing credit after verification (in both types of cases) on the ground that substantive benefit of credit is not to be denied on such procedural irregularities. It is noted that the Board’s circular supra also provides for such a course of action.
7. With respect to credit on the machines, I find that there is great merit in the submission of the ld. Consultant that the ratio of Singaravelar Spinning Mills and Ors. (supra) may not apply here in view of the word “exclusive” in first proviso to Rule 57(T). A plain reading of the proviso shows that assessee has to declare and certify that the capital goods were not “exclusively” used in manufacture of any final product which was exempted. Applying the ratio of Singaravelar Spinning Mills and Ors. (supra), I find that though combed/carded cotton was “goods’, the further conclusion noted therein does not automatically follow here, if the machines in this case were not exclusively used only to produce that commodity. Because, the Rule 57T does not expressly provide that where the capital goods are used for dual purpose viz. to manufacture both dutiable and exempted final products, such dual usage would render it ineligible for Modvat credit. Therefore, the word “exclusively” assumes great significance and I find that in such dual usages, as long as the machines were atleast also used for producing dutiable synthetic yarn, then such an ‘exclusive’ usage would stand precluded and credit would be available. However, as this is a question of fact, the same needs to be verified by the jurisdictional Assistant Commissioner. Since the Order-in-Appeal had already correctly remanded the matters of invoice verification to him (as noted above), therefore this issue also needs to be remanded to the Assistant Commissioner for verification.
8. In view of the aforesaid findings, the Order-in-Appeal is modified only to the extent that credit allowed therein on pro-rata basis is set aside and the matter remanded to the original authority for verification as per above. If on verification it is found that these subject capital goods were, also used for manufacture of synthetic yarn, then since declaration thereof was filed before taking credit, and duty thereon having been paid after 1-3-1994, credit thereon shall be allowed by him to the full extent. Revenue appeal is disposed of accordingly.