ORDER
S.S. Sekhon, Member (T)
1. (a) In appeal No. 2718, the appellant is engaged in the manufacture of SG Iron Castings etc. and is availing the credit of duty paid on inputs, amongst other things have declared off cuts of M.S. Sheets (Melting scrap) Ferrous waste & scrap (remitting) scrap of alloy steel; other Ferrous scrap; waste & scrap of steel; on various dates vide declarations filed as prescribed under the rules –
(b) Such scrap, is the principal raw material. Since the scrap received and its chemical composition is of great importance, each lot received is tested by a spectrometer.
(c) Based on certain information, the Preventive officers started an enquiry; recorded statements of employees, dealers who had supplied the scrap and a show cause notice was issued, alleging for the period October 1996 to March 2001 that –
(i) Assessee had availed credit an inputs viz. H.R. Trimmings M.S. Scrap, ferrous waste & scrap, off cuts of M.S. Sheets etc. even though the same could not be used as input in the manufacture of castings as per specification.
(ii) Scrap so received from the dealers was in bundled form as received from dealers, even though it was not cleared in bundled form the factory of the manufacture where it arose.
(iii) Scrap found was ‘CRCA punched sheet scrap’, in bundle form, while the invoice from the dealers i.e. nos. 899 dated 9-8-2000 & 569 dated 6-8-2000 of M/s. Mehta Trading Corporation & M/s. National Steel Traders respectively showed dissention as “M.S. Sheets”.
(iv) Assesses had with intent to evade payment of Central Excise duty, colluded with the Registered Dealers & availed Modvat credit/Cenvat credit on Cold Rolled Cold Annealed Scrap (CRCA Scrap for short) even though the invoice sent showed the same as off cuts M.S. Sheets, M.S. Trimming etc.
1.2 Notice was also issued to the Sr. Vice-President, Sr. Material Manager of assessee-appellant in E/2718/04, & M/s. National Steel Traders, M/s. M.H. Corporation, M/s. Mehta Trading Corporation, M/s. Kohinoor Trading Corporation, dealers/second stage dealers who had supplied the said scrap as impugned in this case.
1.3 Since no charges were found to be framed on Sr. Vice-President & the Sr. Material Manager for invoking penalty under Rule 209A. No orders were passed on them. 1.4 Penalty of Rs. 2 lakhs each was imposed on - (i) M/s. M.H. Corporation, Mumbai & M/s. Kohinoor Trading Corporation of Mumbai being first stage dealers. (ii) M/s. Mehta Trading Corporation, Mumbai, M/s. National Steel Traders Mumbai being second stage dealers. Under Rule 209A of Central Excise Rules, 1944 read with Rule 26 of Central Excise (No. 2) Rules, 2001. 1.5 Assessee, (M/s. BCL for short) was demanded Rs. 1,05,18,891/- after denying the credit on the invoices of M/s. Mehta Trading Corporation & M/s. National Steel Traders under the provision of Rule 57-I(i)(ii) read with Rule 57AH(i) & Rule 12 of Central Excise Rules, 2001 read with proviso to Section 3A of the Central Excise Act, 1944, a penalty of equivalent amount was imposed on M/s. BCL under Rule 13(2) of Cenvat Credit Rules, 2001 read with Section 11AC of Central Excise Act, 1944 and the demands were to be discharged with intend under the provision of Rule 57-I(5) read with Rule 57AH(i), Rule 12 of Cenvat Credit Rules, 2001 & Section 11AB of Central Excise Act, 1944. 1.6 Hence these appeals, which were heard together & are being disposed by this common order. 2. It is found - (a) It is an admitted fact and finding that M/s. Mehta Trading Corporation & M/s. National Steel Traders are the main suppliers of scrap to M/s. BCL & they are second stage dealers, inasmuch as they obtain scrap from other dealers, and thereafter sell the same to the M/s. BCL who avails credit on the documents, so issued by these second stage dealers. (b) M/s. Kohinoor Trading, a first stage dealer along with M/s. M.H. Corporation. They obtain/procure scrap from original manufacturers, like any other first stage dealer, i.e. from Mahindra & Mahindra Ltd. Bajaj Auto, Telco etc. & also sell to second stage dealers scrap obtained by them viz. to M/s. Mehta Trading & M/s. National Steel Traders. (c) The notice alleges, the assessee to have received the scrap in bundles, some of them having punched CRCA sheets; scrap; termed as assembled scrap (alleged as market scrap) generated during the stamping and lamination, as against MS Sheet off cut scrap shown in the invoices. (d) It is also an admitted position found, that assessee requires all kinds of scrap which have been declared. The evidence relied by the adjudicator, of the scrap being procured in loose form is then being converted into bundles/bales & thereafter sent to M/s. BCL. The difference in commercial invoice description & the Central Excise invoice description explained is due to an arrangement for Banking purposes. (e) The Commissioner has arrived at his conclusions - (i) The lower price charged by the first stage dealer for sales, would it self show that they had not sold the same material that was purchased from original manufacturers.
(ii) Shri Abdul Khan, Partner of M/s. Kohinoor Trading Co. accepted the fact of segregation of good quality scrap & sale separately of such select items at higher prices. Remaining scrap at lower prices was sold than the purchase price at which it was procured from manufacturers where scrap arose to M/s. Mehta Trading Corporation M.S. Scrap cutting off cuts etc. may not be the goods received as described in the invoices, & small portion of original material in the receipts will not entitle credit.
(iii) The assessee was aware of the quality of scrap being different from that sold by original manufacturer to first stage dealer, yet they obtained the documents and availed the credit.
2.2 We find the scheme of Modvat credit and its successor scheme i.e. Cenvat credit scheme provide that the duty paid on an input can be availed as credit, provided the inputs viz. scrap is received in the factory of the availer. M/s. BCL, the assessee herein has received and used the quantities. The credit can be availed, of such duty paid inputs received even if on the commercial basis of sales effected or otherwise, from the suppliers dealers. Two stages of dealers are permitted and transfer enter such dealers, before a credit availer receives the inputs is permissible. The amounts paid, as price, to such dealers, who have to be registered under the scheme, and maintain records, can be more than the price at which the dealers procured the inputs from the original manufacturers and the first stage dealers or can be negotiated and/or be less or even not paid. However, the original duty discharged by a manufacturer under the Central Excise Act, 1944 cannot be varied and has to be allowed to be taken as credit irrespective of actual price tendered to the suppliers/sellers especially the dealers. Therefore, the entire attempt to find a red herring in the actual amounts, paid for the “scrap”, in this case to be less or more will not induce us to go hunting to establish an alleged case of ineligibility to credit. We find that price paid to a dealer has no relevance to the credit eligible.
2.3 The other main issue to be considered is whether the description of ‘CRCA scrap’ actually observed and M.S. offcuts etc. mentioned on the duty documents should lead to a conclusion that the inputs allegedly received and taken credit, were not covered by the duty paid documents. The Commissioner appears to be swayed into believing the statement of functionaries of the assessee viz. Shri N.D. Tiwari & that M.S. Sheet offcuts were not received but orders were placed for supplying ‘CRCA sheet punched scrap’ & the same was received, as stated by Shri Patankar Sr. Material Manager & Shri Barve. However this reliance, as placed, is one sided. Statement of Shri Barve and Shri Patankar has not be read and applied in its entity as to their purport. The Commissioner has exhibited a bias, in his appreciation of the statements, since he ignores Shri Barve’s averments in the statement dated 21-6-2001 as answer to question 6 :
“We require M.S. Scrap as our raw material manufacture S.G. Iron castings. The nomenclature or description under which they may be supplied to us may be different such as trimmings, boning, cut pieces etc. Against mostly received in bundled condition. It is the form we receive is that it should be M.S. Scrap required for our melting.”
Again to Q. 10 as-
“In the Modvat invoice description is offcuts of M.S. Sheet and in commercial invoice it is mentioned CRCA scrap. The offcuts of M.S. Sheets are also a type of CRCA scrap though there is a difference in the wordings or description.”
This categorical information, in a relied upon statement, of “offcuts of M.S. Sheets” to be also a type of “CRCA Scrap” is not controverted by any other material in the notice or and the findings. No material is shown to us to came to a conclusion of “CRCA Scrap” not to be ‘offcuts of sheets’. We, therefore, find no reason to arrive at and ascribe great significance to the Modvat documents to be showing the description ‘off cut M.S. Sheet scrap’ while the bundled scrap consists of “CRCA sheet scrap” as is being made out in these proceedings. There is no material on record to indicate that offcuts are differently valued than “CRCA sheet scrap” per unit. In fact the charge are of higher values for “CRCA scrap” that M.S. Sheet offcut scrap is the case of Revenue. When duty has been paid on a lesser value then remedy is not to deny the benefit of credit of actual duty paid but was to alert the manufacturers jurisdictional officers to start proceedings to enhance the scrap values. Credit cannot be denied as availed. The alternate submission of M/s. Bajaj Auto Scrap classification being in doubt also would go to explain the difference no men clause.
2.4 There is a finding of segregation by scrap being conducted at first dealers premises of the scrap received from the original equipment manufacturers like Bajaj Auto etc. Thereafter supply of bundled scrap to the secondary dealer & than the assessee or direct to the assessee is affected. There is no allegation and/or finding of short receipt of scrap then as shown as quantity in the Modvat credit availing documents mentioned/accompanying the goods. Even if scrap from two or more lots has got mixed & part of the consignment of these mixed lots is sent, no excess or short quantity then that shown on duty paid documents is alleged or found to be dispatched from both dealers & received by the assessee. There is no allegation of the two or more lots, so alleged to have been mixed to make up the quantity lost due to segregating have been procured at different values of duty payment by manufacture & the first stage dealer. Therefore, we do not find any reason to deny the quantum of credit as availed as per the documents when no physical quantity short received is established & there is no duty quantum difference alleged & /or found.
2.5 The allegation of segregation and bundling will not in any case being any charges on the Second Stage Dealers & the assessee. The perusal of the statement of Shri Abdul H. Khan of Kohinoor Trading Company dated 30-7-2001 indicates no press bundling but only hand bundling to have been done, as well as it indicates they buy A-grade scrap at Tender price from M/s. Bajaj; thereafter they sort out good pieces & sell on Modvat credit only the remainder quantity at pro rate duty. There appears to be nothing improper in this approach & that cannot call for denial of the credit on invoices issued by such dealers. They had received the scrap classified as ‘M.S. Offcuts of M.S. Sheets’. Same we sorted out, thereafter sent as “M.S. Scrap”. Mere change of nomenclature, will not call for denial of credit.
2.6 This Tribunal in the case of Singh Scrap Processors Ltd. v. CCE, Mumbai – had held that removal of impurities in the scrap purchased & compressing with aid of mechanical press to form billets would amount to manufacture. If the dealers activities, amounted to manufacture, as per this decision then the dealers should have been brought under the Excise net for the activity of segregation & bundle billet formation. The denial of the credit on the dealers invoices, for the reason, as arrived, cannot be upheld when no efforts are made to bring this activity of the dealers under excisable manufacture. If the dealer status is not questioned, then the dealers need not maintain the records of inputs for which they have not issued Modvatable invoice, as in the case herein & the facts revealed. There is nothing incriminating in sale of goods prices at higher value & no Modvat invoice issued.
2.7 We therefore find no reason to arrive at for denying the credit as availed & penalty on the assessee or /& the dealers as arrived in this case. The duty, interest & penalty orders are therefore to be set aside. 2.8 Before parting, we would like to observe that the decision of Sunshine Structures & Engineering Ltd. v. CCE, Nagpur (A/711 to 722/WZB/04-CII) dated 27-8-2004 relied by the appellant will not help the assessee for the period under Cenvat Rules & also when the order is not being upheld on merits, we do not go into question of applicability of the decision for part of period. Appeal disposed off, on merits, by setting aside the order and allowing the appeals. (Pronounced in Court on 15-7-2005)