ORDER
S.S. Sekhon, Member (T)
1. These two appeals are against an order of the Commissioner of Customs & C. Ex., Hyderabad vide Order-in-Original No. C. Ex. 15/97, dated 28-11-1997 confirming the demands of duty and penalties therein.
2. We have heard Shri R. Raghavan, ld. Advocate for the appellants and Shri S. Kannan, ld. DR for the department.
3. We have considered the submissions and perused the order and we find that the appeals are on the following grounds :-
(a) The two appeals are filed by the assessee company, a texturiser of man made yarn and its Managing Director against Order-in-Original No. 15/97, dated 28-11-1997 passed by the Commissioner, determining
(i) confirming a demand of Rs. 1,03,74,135/- towards BED and Rs. 18,56,119/- towards SED under Rule 9(2) of the Central Excise Rules, 1944 read with proviso to Section 11A of the Central Excise Act, 1944 and Section 3 of the Additional Duties of Excise (Textiles & Textile Articles) Act, 1978 and adjusting the amount of Rs. 10,25,000/- towards BED and Rs. 1,55,750/- towards AED which has already been paid towards the duty amount payable along with the interest under Section 11 AC.
(ii) Penalty under Section 11 AC of Rs. 1,19,30,254/- and Rs. 15,00,000/- under Rules 9(2), 52A and 226 of the Central Excise Rules on the assessee.
(iii) Penalty of Rs. 15,00,000/- on Shri Kamal Nayan Dhananiwala Managing Director of the assessee company. No rule mentioned in the operative para of the order though the finding is held to be liable for penalty under Rule 209A as he found that –
(iv) the assessee had procured 85,448 kgs of POY on fictitious names, viz. Sunder Synthetics, Mahesh Textiles, Tirumala Textiles and Ravi Textiles during the period 26-10-94 to 31-12-1995, and did not account for the same in the statutory records, manufactured 187303.139 kgs of textured yarn out of thin POY without accounting the same and cleared the same illicitly on which they were required to pay duty as determined by him.
(v) the value of clearances during the year 1994-95 and 1995-96 as Rs. 91,41,322/- and Rs. 2,61,10,753/- will therefore work out to Rs. 1,30,82,538/- and Rs. 4,08,79,563/- respectively, making them not eligible for the exemption under Notification 1/93, dated 28-2-1993 as amended during the year 1996-97 since they had availed this exemption during the said year, they are required to pay duty of Rs. 6,25,000/- towards BED and Rs. 93,750/- towards SED.
(vi) they were not eligible for Modvat credit of Rs. 88,65,605/- BED and Rs. 13,29,845/- (AED) on the POY and the said amounts were not deductible, as they had “given a go by to all rules and regulations. We shall smuggle as long as we are not caught, once caught, we ask for Modvat credit” Since they were not unaware of the scheme and were not estopped from availing the scheme, they cannot be granted the benefit of the case law cited by them. In view of Mihir Textiles Ltd. case 19.97 (92) E.L.T. 9 (S.C.), they cannot be granted the Modvat benefit.
(vii) The contravention under Rules 9(1), 52A, 173F, 173G and 226 was established and penalty was called for under Rules 9(2), 52A, 173Q and 226 and Section 11 AC.
(b) Our findings are as under :-
(i) There is no finding or allegation that POY, procured from M/s. Sanghi and texturised and cleared without duty determination thereon was non-duty paid. In fact the SCN and the findings link the invoices in different names issued by M/s. Sanghi as payment of duty. If that be so, it can be concluded that it is an admitted position that texturising was done on duty paid POY. There is no dispute that the assessee had filed declarations under Rule 57A, the duty paying invoices are available, goods are being found to have been brought to the factory, therefore we see no reason not to grant the Modvat credit, if on the final product (Textured yarn) duty is being determined and demanded. The bar of Rule 57E is applicable only to non duty paid or inadequate duty paid inputs and not to full duty paid inputs as in this case. Therefore, the order of denial of Modvat credit by the Commissioner is not correct in law. His reliance on the case of Mihir Textiles 1997 (92) E.L.T. 9 (S.C.) is not correct as that decision is with regard to classification of imported goods under registered contract and is not applicable to Modvat credit. Once inputs (POY in this case) is held to be duty paid and duty is demanded on Texturised yarn and also in 1996-97 the exemption granted under notification is being denied and goods are being treated as dutiable. Therefore, we find Modvat credit cannot be denied as the issue is no longer res integra there being a catena of judgments supporting the eligibility of the same, even in cases of clandestine removal viz. Gujarat Ambuja Cement v. C.C.E. – 1996 (85) E.L.T. 154; Indian Oxygen Ltd. -1995 (80) E.L.T. 573; Saphire Steels (P) Ltd. – 1994 (71) E.L.T. 1049.
(ii) Not only we find that Modvat credit eligibility will be required to be worked out but the demand on the final texturised yarn and its value may need not be worked out for purposes of duty and turnover by applying the Supreme Court decision on the appeal of Modvat credit on Valuation in the case of Dai Ichi Karkaria 1999 (112) E.L.T. 353 (S.C.).
(iii) for the above purposes, the orders are required to be set aside and remanded for determination of the actual amounts of duty to be payable and thereafter a re-determination of penalty is required to be arrived at under Rules 9(2), 52A and 226.
(iv) We find that Section 11 AC has been placed in the law only on 29-9-1996 and for the demands of duty evaded earlier, the same cannot be involved. Penalty under Section 11 AC is therefore required to be set aside as also the orders of interest under Section 11AB.
(v) On merits of the determination of the allegation of unaccounted receipt of POY and removal of texturised yarn after manufacture thereof, the appellants have submitted and taken us through the serious gaps in the evidences and its appreciation. Since we intend setting aside the order and remand the same for reworking out the eligibility of credit and Valuations and thereafter duty and penalty, we refrain from giving any findings on these issues, which we leave to the appellants to urge before the original authority, who should consider the same after granting a hearing and arrive at his findings thereon after considering the case law cited before him.
(c) In view of our findings and the order of remand, we would also order the re-determination of penalty on the Managing Director in the de navo proceedings and for that purpose would set aside the order with directions for rehearing the Managing Director.
4. In view of our findings, the order is set aside and the appeals allowed as remand for de novo adjudication.