ORDER
G.R. Sharma, Member (T)
1. Captioned appeal has been filed by the appellants assailing the order passed by the Commissioner. The Commissioner (Appeals) ordered the recovery of Rs. 15,93,833/- and imposed a penalty of Rs. 4 lakhs on the appellants.
2. The facts of the case briefly stated are that the appellants manufacture electrical transformers. The appellants had been receiving back the defective electrical transformers into the factory for repair within and beyond warranty/guarantee period under Rule 173H. During the course of P.B.C. checks of various forms maintained by the appellants under Rule 173H, it was observed that during the period 1-6-1989 to 25-11-1992, the appellants had availed Modvat credit on the inputs which were used for repairs by the defective transformers received back by them for repair without reversing Modvat credit and clearing such repaired transformers without payment of duty. The entries in Form-V register were kept blank. Separate accounts were not maintained showing the quantity of Modvat credit availed on the inputs used in the repair work. The department alleged that these were suppressed with intent to evade payment of duty. The department also alleged that under Rule 57F(1) the inputs on which Modvat credit has been availed can either be used in relation to the manufacture of final products for which such inputs had been brought into the factory or can be removed for home consumption on payment of duty not less than the credit taken thereon. It was also observed that under Rule 57A duty paid on the specified inputs can be utilised towards payment of duty on the specified final product used in relation to the manufacture. It was alleged that the inputs have been used under Rule 57C inasmuch as the repaired transformers were removed without payment of duty. A SCN was issued to the appellants asking them to explain as to why the duty amounting to Rs. 27,02,676.40 should not be demanded from them and why a penalty should not be imposed. After careful consideration of the submissions, the Commissioner held as indicated above. Hence the appeal before us.
3. Shri A.R. Madhav Rao, ld. Advocate submits that the appellants are manufacturing transformers and supplying the same to State Electricity Board; that in the contract, the prices are inclusive of guarantee/warranty charges; that free replacement for repairs of these transformers are made in case any defect arose during warranty period; that copies of contract relevant to price lists were filed; that the contract price was inclusive of spare parts for free rectification during warranty period; that the appellants have been pleading that no duty was payable on the repaired transformers or components used for repairs; that the credit was not reversable inasmuch as the duty was paid on higher value taking into account such repairs/replacement; that this issue was raised by the department on many occasions; that the SCN dated 19-12-1980 under Rule 56A was discharged without any further proceedings; that the SCN dated 16-11-1987 based on CERA audit during the period 22-7-1987 to 29-7-1987 was not proceeded with; that the SCN dated 20-5-1993 for the period 26-11-1993 to 30-4-1994 and the SCN dated 4-11-1993 for the period 3-5-1993 to 17-9-1993. The Addl. Collector passed the order on 2-3-1994 holding that there was not any wilful defiance of law and that no penalty was justified.
4. Ld. Counsel submits that the proceedings were not initiated by SCN dated 27-5-1994 for the period 1-6-1989 to 25-11-1992 even after the order of the Addl. Collector holding that there is no contumacious conduct for the subsequent period ; that the SCN issued in this case is beyond a period of six months and is unsustainable in view of the Tribunal’s Order No. 3554/96-A, dated 5-11-1996 in the case of Debikay Electronics; that the department was fully aware of the fact that the appellants were clearing the repaired transformers without payment of duty and that Modvat credit was being taken on the inputs used in the repair of the transformers. Ld. Counsel submits that it is well settled law that there should be wilful suppression with intent to evade duty for invoking the extended period; where there is no intent to evade and there is bona fide belief then the extended period cannot be invoked. In support of this contention, ld. Counsel cites and relies upon the decision of the Apex Court in the cases of Tamil Nadu Housing Board – 1994 (74) E.L.T. 9 (S.C.), Pushpam Pharmaceutical Co. – [1995 (78) E.L.T. 401 (S.C.) and Lubri-Chem Industries Limited 1994 (73) E.L.T. 257. Ld.Counsel submits that the demand is time barred and, therefore prays that the impugned order may be set aside and the appeal may be allowed.
5. Shri Satnam Singh, ld. SDR submits that there was no provision in the Central Excise Rules which provided that the duty paid inputs can be used for repairs of defective transformers within warranty period or beyond, that repairing transformers does not amount to manufacture; that when there is no manufacture of finished excisable goods, Modvat credit under Rule 57A cannot be availed; that there was no force in the arguments of the appellants that Part II price list showed that the assessable value was on the higher side and it included the cost of repair; that no evidence was brought on record to prove how much excess price was charged or indicated in the Part II of the price list; that even if this contention of the appellants was correct, it did not entitle them to avail and utilise Modvat credit on the inputs in question. Ld. SDR submits that the contravention of provisions of Rule 57F is thus established. He reiterated the findings of the authorities below.
6. On the question of demand being time barred, ld. SDR submits that the appellants were utilising the inputs for repairs of transformers without payment of duty; that Form-V register was kept blank and did not indicate correct position thus there was material suppression and, therefore the allegation of suppression or mis-statement of facts is established. Insofar as the intent to evade payment of duty is concerned, he submits that since the appellants did not reverse the credit taken under Modvat scheme on the inputs used in the repair of defective transformers, therefore, they evaded duty, the intent is proved. Ld. SDR submits that both on facts and law the appellants have failed to make out a case in their favour and, therefore prays that the appeal may be allowed
7. We have heard the rival submissions. We find that in the instant case the transformers were coming to the factory for repairs within warranty or beyond warranty period. They were being cleared without payment of duty. In the repair of these transformers inputs on which Modvat credit was taken were being used. The department alleged that since on the inputs Modvat credit was taken, therefore at the time of clearance of repaired transformers an equivalent amount of duty on the inputs used in the repairs of transformers should have been reversed as no duty was paid on the transformers and the activity of repair did not amount to manufacture. We note that there is a Form-V register meant for the purpose. Entries in Form-V were kept blank. Form-V register did not indicate that the transformer after repair was being cleared without payment of duty nor did it indicate the quantum of inputs and Modvat credit thereon used in the repair of transformer. The appellants contended that they had submitted part II price list; that assessable value shown was much higher than the actual value of the transformers inasmsuch as the value charged was inclusive of warranty repair etc. However though this contention was made but no evidence was brought on record to prove that higher value was charged or to what extent was the higher value was charged and whether the higher value equivalent or more or less than the amount of duty taken as Modvat credit on the inputs used in the repairs of the transformers. Thus the contention of the appellants that the price declared in Part II of the price list included the future repairs during the warranty period, is not sustainable in law. Thus the appellants fail on merits of the case.
8. Ld.Counsel submits that the demand is hit by limitation. In the instant case the SCN was issued 18 months after last date of demand. We note that the goods received under provisions of Rule 173H are required to be entered among other records in Form-V. Categorical findings are there in the order that the relevant entries in Form-V register were left blank. Though different SCNs were being issued from time to time but those SCNs are not relevant for the present enquiry. Thus there was suppression and mis-statement. There is force in the contention of the ld. SDR that there was intent to evade payment of duty. Therefore plea of the appellants on limitation fails.
9. Having regard to the above discussions and findings, the impugned order is upheld and the appeal is rejected.