ORDER
K.S. Venkataramani, Member (T)
1. This matter relates to INPUT MODVAT SCHEME and the relevant Rules are Rule 57A, 57G, 57H and 57-1 of the Central Excise Rules, 1944.
2. The amount of credit which is in dispute is Rs. 2,11,564/- which has been reversed Under Protest by the appellants vide Entry No. 128 dated 27-6-1990 made in RG-23A Part-II Register.
3. The appellant filed its first declaration under the MODVAT Scheme i.e. under Rule 57G on 4-7-1986 i.e. soon after introduction of the scheme. This declaration, inter alia, covered Glass Bottles of various sizes; Gum; Adhesives; Caps; and Tapes. In this declaration, the finished product was shown, inter alia, as “Brahmi Amla Hair Oil” and “Jasmine Hair Oil”, both classifiable under Heading and sub-heading 3305.10 of the Schedule to the CETA.
4. The entry under the above sub-heading No. 3305.10 (as it stood at the relevant time) read as under :-
33.05
Preparations for use on the hair, including brilliantines, perfumed hair oils, hair lotions, pomades and creams, hair dyes (in whatever form), shampoos, whether or not containing soap or organic surface-active agents.
3305.10 – Perfumed hair oils
3305.90 – Other
5. The Company having decided to commence another brand of perfumed hair oil, namely “Almond Drop Hair Oil”, filed another revised declaration on 30-12-1988, wherein while the new brand of hair oil was disclosed as finished product, a new input, namely “Perfume 10631” was also declared. It is submitted that this new brand of hair oil was also classifiable under the earlier Heading 3305.10 of the Schedule to the CETA, 1985.
6. On 1-2-1990, the appellant received a communication from the Superintendent of Central Excise directing the appellant to reverse the credit on the ground that the Appellant received raw material prior to filing of declaration and as such, as per him Modvat credit was not admissible to the appellant under Rule 57G of the Central Excise Rules, 1944.
7. In response to the above letter the appellant filed a letter dated 16-2-1990 requesting to allow Modvat credit under Rule 57H in respect of inputs received before filing declaration. It was mentioned in the letter that the stock position on the date of filing the declaration can be verified from the stock-ledger Register and the duty amount can be verified from the input gate passes which can be produced as and when required. It was also declared therein that the inputs have not been used by them in the manufacture of final products which were exempt from the whole of duty leviable thereon.
8. In pursuance of the aforementioned letter, the learned Assistant Collector (as he was then known) granted permission under Rule 57H of the Central Excise Rules, 1944, vide his letter dated 23-3-1990. In the said letter he categorically mentioned the quantity in stock for which the credit was granted.
9. On 19-6-1990, the appellant received a letter dated 18-6-1990 from the Assistant Commissioner by which the appellant was directed to reverse the aforesaid credit taken by the appellant. The following reason was given for the same :-
“…as per Audit objection the credit granted was wrong and you were not entitled to take credit of Rs. 2,11,564/- under 57H of the Central Excise Rules, 1944….”
10. Due to the above direction of the learned Assistant Commissioner, the appellant reversed the above credit Under Protest.
11. A show cause notice was issued to the appellant on 5-11-1990 in which it was alleged that as per Rule 57H of Central Excise Rules, 1944 a manufacturer who received inputs prior to filing declaration for Modvat credit under Rule 57G has to file application under Rule 57H and that the manufacturer should not utilise the inputs till the Assistant Commissioner is satisfied that such inputs are lying in stock, but, it was alleged that the appellants had utilised the inputs without fulfilling the condition under Rule 57H. The Assistant Commissioner Central Excise (Appeals), New Delhi confirmed the demand by the impugned order dated 18/20-2-1992.
12. We have heard Shri Apurva Bhattacharya, learned Counsel for the appellants and Shri Mewa Singh, learned Senior Departmental Representative.
13. The submissions made by both the sides have been carefully considered. The charge against the appellants is that they had taken credit and utilised it without prior permission from the Assistant Commissioner under Rule 57H of Central Excise Rules. A similar situation had come up before the Tribunal in the case of Safex Fire Services v. Commissioner of Central Excise, Bombay-I, reported in 1996 (81) E.L.T. 174 (Tribunal). That was also a case of an assessee taking credit and utilising it prior to filing application under Rule 57H. The Assistant Commissioner therein had disallowed such credit taken on their own for the reason that the requisite records for establishing the stock of inputs had not been produced before him and the credit had been taken on their own. The Tribunal noted the appellants’ plea that they had all the documents to show the stock position as on the critical date, and held that though their action in taking the Modvat credit on their own without waiting for the credit to be allowed under Rule 57H may invite penal liability, yet they cannot be denied the substantial benefit available under the Modvat Scheme, so long as it is established that the stock of inputs was lying on the relevant date and they utilised those inputs in the manufacture of dutiable final product. The position of the present appellants is better in that the Assistant Commissioner in their case has accorded formal permission under Rule 57H and had granted the credit vide his order dated 23-3-1990 with the direction that the credit so allowed may be taken in RG-23A Part II account only after necessary endorsement has been made on the duty paying documents by the jurisdictional Superintendent of Central Excise. Similarly in another decision of the Tribunal on interpretation of Rule 57H in the case of Aqueous Victuals Ltd. v. Collector of Central Excise, Kanpur, reported in 1996 (84) E.L.T. 366 (Tribunal), the decision in Safex Fire Services (supra) had been followed and it was also observed therein that the credit taken without Assistant Commissioner’s permission on inputs lying in stock or received before filing a declaration is admissible as the condition of prior permission is not prescribed under the Rule. The ratio of these decisions is applicable to the facts of the present case and hence the denial of Modvat on inputs on this ground under Rule 57H is not sustainable.
14. It is further seen that out of the amount of credit of Rs. 2,11,564/-sought to be reversed, amount of Rs. 1,98,576/- relates to inputs as packing material, namely, bottles. But it is seen that bottles (of the same sizes) had been included in their first declaration on 4-7-1986 and also in their subsequent declaration of 29-12-1988. That bottles are covered by the first declaration is also admitted in the Assistant Commissioner’s adjudication order. In such a context, and also considering that under the Modvat Scheme there is no requirement of one-to-one input output ratio, there was no justification even otherwise to include credit availed on this input in the demand. It is, therefore, held, in the facts of this case, and for the reasons aforesaid, that the appellants are eligible for the Modvat credit of Rs. 2,11,564/- which should accordingly be restored to them. In the above view of the matter taken on the merits of the case, we do not feel called upon to pronounce upon the contention raised before us on the competency of the Assistant Commissioner to modify his order passed under Rule 57H. The impugned order is accordingly set aside and appeal allowed.