ORDER
U.L. Bhat, J. (President)
1. The Assistant Collector passed an order demanding differential duty on BWT-A type wagons and BCN type wagons manufactured and cleared by the appellant during the period from 20-11-1986 to 28-2-1991. He also indicated that the demand for the period from 1-3-1986 to 19-11-1986 covered by the show cause notice was not being decided in view of the instructions of the Ministry. The Collector (Appeals) having dismissed the appeal filed by the assessee, the present appeal is filed. We have heard both sides.
2. Appellant manufactures railway wagons. The appellant claims to be essentially a pre-fabricator. Inputs procured by the appellant as well as certain specific items of inputs supplied by the Railways are used in the manufacture or fabrication of wagons. Wagons became chargeable to duty only with effect from 1-3-1975 under TI 68 of the Tariff. From 1-3-1975 to 1-8-1986 assessable value was to be determined on the basis of invoice price under Notification No. 120/75. With effect from 1-8-1986, the notification was rescinded and thereafter assessable value had to be computed under Section 4 of the Central Excises and Salt Act, 1944 (for short, the Act). There was controversy regarding the components of assessable value and whether value of inputs supplied free of cost by the Railways was to be included in the assessable value. The Supreme Court in Burn Standard Co. Ltd. v. Union of India -1992 (60) E.L.T. 671 held that value of item so supplied free of cost by the Railways has to be included in the assessable value. The assessment for the period 1-3-1986 to 19-11-1986 has not yet been completed. It is said that in view of the dispute between the Railways and the Finance Ministry, Central Board of Excise and Customs instructed the assessing authorities not to finalise assessments. By Notification No. 452/86, dated 20-11-1986 specific rate of duty was imposed on various types of wagons except BWT-A type and BCN type. The dispute in the present appeal is confined to the valuation of these two types of wagons not covered by the notification. The dispute in this appeal relates to the period 20-11-1986 to 15-11-1991.
3. These two types of wagons cleared during the period in question were provisionally valued and assessed to excise duty on the basis of the prices declared by the appellant. By the impugned order, the Assistant Collector added to the provisionally assessed value the cost of inputs supplied free of cost by the Railways including the excise duty paid thereon. Actually what he did was to determine the value of inputs supplied free of cost by the Railways, add the excise duty paid thereon and on the sum total, assess differential duty on the wagons at the rate of duty applicable to wagons. This order is challenged by the appellant on two grounds.
4. It is admitted that in regard to these inputs the appellant did not originally purport to avail the Modvat benefit under Rule 57A of the Central Excise Rules, 1944 (for short, the Rules). The appellant, therefore, did not follow the procedure prescribed under Rule 57G of the Rules in regard to these inputs. Appellant did not file a declaration under Rule 57G(1) of the Rules, did not .make relevant entries in RG 23A parts I and II and did not submit to the Superintendent of Central Excise the original documents evidencing payment of duty along with extracts of parts I and II of form RG 23A every month as required under Rule 57G(4) of the Rules. Actually at the time of entry of these inputs into the factory premises, the appellant did not have any idea of claiming Modvat benefit in regard to those inputs. Even the particulars of the cost of such inputs and the duty paid on the inputs were furnished by the appellant only as per letter dated 25-11-1982 sent to the Assistant Collector in response to information sought by the latter. These statements show the cost of inputs supplied free of cost by the Railways and used in the manufacture of the two types of wagons referred to earlier as well as the duty paid thereon. In arriving at the value of such inputs, the Assistant Collector accepted these statements as correct and thereby accepted the correctness of the cost indicated, and the duty indicated for these inputs. It is the contention of the appellant that since the Assistant Collector has proceeded on the basis that excise duty had been paid on these inputs and has included the duty element in the value of the inputs, the appellant would be entitled to avail Modvat credit in respect of such duty. This claim was rejected by the lower authorities on the ground that the right to avail Modvat credit is dependent on observance of the procedural requirements of Rule 57G of the Rules and since all these procedural formalities were not observed, the appellant would not be entitled to the benefit of Modvat credit.
5. Shri Malik, SDR has referred to a few decisions of the Tribunal where on account of the failure to submit declaration as contemplated in Rule 57G(1) of the Rules, the Tribunal negatived the claim for benefit of Modvat credit. These decisions are Collector of Central Excise, Bangalore v. Brirtdavan Alloys Ltd. – 1994 (69) 764 (T), Indian Hume Pipe Co. Ltd. v. Collector of Central Excise, Bangalore – 1995 (77) E.L.T. 885 (T) and P.G. Conductors v. Co/lector of Central Excise, Jaipur – 1996 (81) E.L.T. 336 (T). The assesees in these cases had opted for Modvat credit even initially but failed to submit declaration or submitted defective declaration contrary to Rule 57G(1) of the Rules. The Tribunal held that since proper declaration had not been submitted, credit cannot be availed. This principle, of course, is applicable to the generality of cases.
6. The question is whether the non-observance of these requirements fetters the hands of the statutory authorities or the Tribunal in allowing Mod-vat credit in a special situation, like the present one. We have already indicated the special circumstances arising in the case. The appellant took a definite stand at the relevant time that the cost of inputs supplied free of cost by the Railways was not to be added to the assessable value of the wagons. The appellant, therefore, did riot claim Modvat credit and did not observe the requirements of Rule 57G of the Rules in regard to these inputs, vis-a-vis, the two types of wagons. According to the appellant, the raging controversy regarding the includibility of such value was set at rest by the Supreme Court in Burn Standard Co. Ltd. v. Union of India – 1992 (60) E.L.T. 671 (SC). It was, therefore, impossible for the appellant to observe the requirements of Rule 57G of the Rules at the relevant time. In more or less parallel situations, the High Court of Bombay and the Tribunal gave appropriate relief to the assessees.
7. In Kirloskar Brothers Ltd. v. Union of India and Ors. – 1988 (34) E.L.T. 30 (Bombay) the assessee, who was manufacturing compressors suitable for installation in air-conditioners had no licence for manufacturing air-conditioners, fitted compressors in air-conditioner cabinets and cleared most of them from the factory either to their branch offices or to their research departments. One of the units was sold. The clearance was made without any declaration and without payment of excise duty on air-conditioners but paying duty on compressors on the basis of gate passes made out as compressors. The assessee took the stand that they had not engaged themselves for the manufacture of air-conditioners and the goods cleared were only compressors. The statutory authorities and the Tribunal rejected their contention holding that assessee manufactured air-conditioners and cleared the same without paying duty on air-conditioners. The High Court declined to interfere with this finding of fact. In relation to the claim for proforma credit put forward by the assessee, the department contended that the assessee – if desirous of taking the credit should have followed the procedure under the Act and the Rules which they did not follow. The High Court overruled this contention of the department pointing out that the assessee was all along contending that it was not engaged in the manufacture of air-conditioners and, therefore, no duty was payable for contravention of the Act and the Rules. The High Court remanded the matter for calculation of actual duty payable.
8. Relying on the above decision, the Tribunal in H.C.L. Ltd. v. Collector of Central Excise, Meerut – 1994 (71) E.L.T. 608 (T) and Apex Steels (P) Ltd. v. Collector of Central Excise, Chandigarh – 1995 (80) E.L.T. 368 (T) directed, in analogous situation, that credit may be given for the duty paid on the inputs, though the legal requirements had not been followed. Our attention is invited to Board’s Circular No. 267, dated 30-1-1992 directing the statutory authorities to write off duty to the extent of the amount for which Modvat credit could have been availed and claim only the balance duty from the manufacturers.
9. Having regard to the above decisions, we are satisfied that in the present case the appellant could not have followed the requirements of Rule 57G of the Rules, inasmuch as appellant had taken a bona fide stand that the cost of inputs supplied free of cost by the Railways was not part of the assessable value of the Railway wagons. Having taken such a stand, the appellant could not have either given a declaration or made entries in RG 23A parts I and II or observed the other requirements. We, therefore, direct that Modvat credit will be allowed to be availed by the appellant subject to the jurisdictional Assistant Collector, if he so deems it necessary, verifying the actual quantum of excise duty paid on the inputs in question. If it is found on such verification that the excise duty paid on such inputs was higher or lower than the excise duty shown as having been paid in the statements and copies of documents submitted already by the appellant, actual quantum will be reckoned for the purpose of arriving at the cost of such inputs for determining the correct assessable value of railway wagons in question and Modvat credit to that extent alone shall be utilised. If the Assistant Collector does not deem it necessary to verify the quantum of excise duty actually paid on such inputs, credit shall be given to the extent to which duty is included in the statement submitted by the appellant and accepted in the impugned order.
10. The next contention relates to the method adopted by the Asstt. Collector in calculating the differential duty payable on the two types of wagons. The Assistant Collector determined the value of the inputs supplied free of cost by the Railways and used in the manufacture of the two types of wagons, treated it as the differential assessable value of the wagons in question and adopted the rate of duty applicable to railway wagons and calculated the duty. This, of course, is a short cut way of determining the differential duty, but the proper way is different, bearing in mind that what is to be arrived at is the differential duty based on the provisionally assessed value of the wagons in question and the correct assessable value of the wagons in question. This would mean that the jurisdictional Asstt. Collector should have calculated the correct assessable value of the wagons cleared during the period by adopting the proper procedure and determined the duty payable on such final assessable value and claimed only the differential duty on that basis. In the light of this direction, it is unnecessary for us to refer to the various decisions cited on behalf of the appellant, namely, Metal Box India Ltd. v. Collector of Central Excise, Madras – 1995 (75) E.L.T. 449 (SC) affirming Collector of Central Excise v. Metal Box India Ltd. – 1989 (39) E.L.T. 79 (T) and ITC Ltd. v. Collector of Central Excise, New Delhi -1994 (72) E.L.T. 315 (T).
11. The impugned orders stand modified to the extent indicated above. The jurisdictional Assistant Collector, after due notice to the appellant, will quantify the differential duty to be demanded. Appeal is allowed to this extent.