V.P. Gulati, Member (T)
1. The issue in the appeal relates to benefit of Notification No. 53/88 in respect of the scrap which is generated out of inputs which have been processed and in respect of which Modvat credit has been taken. The benefit of notification is available in case the scrap is generated out of duty paid materials. The plea of the appellants is that when the inputs were received in the assessee’s factory they had suffered duty and therefore that should be taken to be duty paid inputs for the purpose of benefit of Notification No. 53/88. In this connection, he referred us to Sl. No. 24 of the notification and the conditions stated against that serial number.
2. The learned DR urged that in view of the Modvat credit taken in respect of the inputs the same have to be treated as if these were manufactured of the appellant’s factory and even if these inputs are cleared as such they had to discharge the duty liability as if these were cleared for home consumption. He has pleaded that under the Modvat scheme for reason of taking the Modvat credit a fiction has been created as is evident under the provisions of Rule 57F that these inputs after the duty burden in respect of the same had been lifted from the same by reason of taking of the Modvat credit of duty already paid on them, the same therefore became non-duty paid goods. He pleaded that in that view of the matter, the benefit of notification as claimed could not be allowed.
3. The learned Consultant has pleaded that the notification should be strictly construed and once it could be shown that the goods out of which the scrap had been generated had at earlier stage paid the duty, appellants would be entitled to the benefit of notification. He, in this connection, cited the decision of the Tribunal reported in 1989 (41) E.L.T. 217 (Bom.) = 1989 (22) ECR 292 and 1987 (30) E.L.T. 741.
4. We have considered the pleas made by both sides. The short point that falls for consideration is whether for reason of taking the Modvat credit in respect of the inputs by processing of which the scrap in question has emerged would disentitle the respondents from the benefit of Notification No. 53/88. The benefit is available in terms of notification where a scrap is generated out of duty paid inputs. In the present case, no doubt when the goods were received in the respondents factory these had suffered duty, but by reason of taking the Modvat credit in respect of the same so far as the duty paid character of the goods is concerned, the same changed and in terms of Rule 57F even if these were to be cleared as such these had to discharge duty as if the same had been manufactured in the appellant’s factory. Thus a deemed fiction has been created to treat the goods in respect of which Modvat credit was taken as if the same were manufactured in the respondents factory. This being the position the question is whether for the purpose of Notification 53/88 also this could be treated as non-duty paid goods. We observe that by reason of taking of the Modvat credit the duty burden came to be lifted from the goods and the duty element already paid came to be taken as credit in RG 23 A Part-II Register. The purpose of the notification is to ensure that there is no levy of duty so far as the scrap is concerned, in case the inputs out of which the same has been generated have already discharged their duty. The legislature in its wisdom did not want the scrap to be charged duty over again once the material out of which the same had been emerged had suffered duty. Since the duty burden has itself been lifted from the goods, this condition therefore and the purpose for which the notification has been issued cannot be taken to have been complied with. The question of double levy of duty on the scrap i.e. once on the material contained in the scrap in the primary form and second time when it emerges as scrap would not arise, as from the primary material itself the duty burden was lifted by reason of the Modvat credit having been taken. In this context, what the benefit of a notification was contingent upon the goods having been manufactured out of duty paid inputs, the Hon’ble Supreme Court in the case of M/s. Chandrapur Magnets reported in 1996 (81) E.L.T. 3 (S.C) has held that in case the Modvat credit is reversed, the benefit of notification could be allowed. From this it clearly follows that once the Modvat credit is taken the goods could not be considered as duty paid unless the Modvat credit was reversed. We, therefore, hold that the appeal of the revenue has to be allowed and we hold the learned lower authority was in error in having allowed the benefit of the notification. We, therefore, allow the appeal of the Revenue.