ORDER
P.G. Chacko, Member (J)
1. The appellants, during the material period, were engaged in the manufacture of moulds, dies, tools etc. and were also doing job work for customers under Rule 57F(4) read with Notification No. 214/86. In a show cause notice dated 16-3-1998, which was issued to them by the department after certain investigations, duty was demanded on certain clearances made by them to certain customers and also the Modvat credit taken on ‘Injection Moulding Machine’ was proposed to be denied on the ground that the said capital goods was used in the manufacture of exempted goods. The demand of duty and the proposal to deny Modvat credit were contested. The dispute was adjudicated upon by the jurisdictional Commissioner who passed the impugned order.
2. Heard both sides. Ld. Counsel for the appellants has not pressed the challenge against a major part of the demand of duty. There is challenge against the demand confirmed by the Commissioner in respect of Scientific apparatus cleared to IGCAR. This demand, amounting to about Rs. 2.33 lakhs, is consequential to denial of exemption under Notification No. 10/97-C.E. This Notification exempted scientific equipments from payment of duty, when cleared to research institutions like IGCAR and where the use of the goods for research purpose was certified by an officer not below the rank of Deputy Secretary to the Government of India. Ld. Counsel submits that the benefit of the Notification was denied solely on the ground of such certificate not having been produced. According to ld. Counsel, the benefit of exemption under the Notification should not have been denied on this procedural ground. Ld. SDR has opposed this argument. She submits that production of proof of the equipment having been used for research purpose was a substantive requirement and when it was not fulfilled, the benefit of the Notification could not be allowed. We have to accept this submission. It is an admitted fact that the requisite certificate regarding use of the equipment by IGCAR for research purposes was not produced. In the circumstances, it has to be held that the benefit of the Notification was not available to the assessee in respect of the equipment supplied to IGCAR. The demand of duty on the equipment cleared to IGCAR was rightly confirmed by the Commissioner.
3. In so far as the demand of duty on electrodes is concerned, it is submitted by ld. Counsel that ld. Commissioner has not considered the appellant’s claim for the benefit of Notification No. 214/86 (as amended by Notification No. 68/95, dated 16-3-1995) in respect of the electrodes cleared to buyers other than M/s. UCAL. After examining the impugned order, we find that this submission is factually correct. Ld. Commissioner has allowed the exemption only in respect of electrodes cleared to UCAL from 16-3-1995. For the same period, the assessee’s claim for the benefit of the Notification in respect of the clearances of electrodes to other buyers also should have been considered.
4. The second issue arising for consideration is whether capital goods credit on the Injection Moulding Machine was correctly denied to the assessee. Ld. Counsel submits that there is no dispute of the fact that the said machine was a modvatable capital goods during the material period. The only ground on which the credit of duty paid on the machine was denied is that the machine was used in respect of manufacture of goods exempt from payment of duty. Ld. Counsel submits that this ground is inconsistent with the very demand of duly on the products for the manufacture of which the machine was used. We have heard ld. SDR also on the issue. We find that, in respect of the goods for the manufacture of which the above machine was used, demand of duty was raised and the appellants have since conceded such demand. Where the final products were duty-paid, the manufacturer was entitled to Modvat credit on eligible capital goods used for the manufacture of such products. We therefore, hold that Modvat credit on ‘injection moulding machine’ should be allowed to the assessee inasmuch as they have paid duty on all the products for the manufacture of which the machine was used.
5. As regards penalty, it has been submitted by ld. Counsel that the entire duty was paid before the issuance of show cause notice and there is no finding of any goods having been clandestinely removed by the appellants. In the facts and circumstances, it is prayed that the penalty imposed by the Commissioner be vacated. Ld. SDR reiterates the findings in the impugned order as regards penalty. Taking into account the facts and circumstances of the case, we hold the view that any penalty on the assessee is not warranted in this case.
6. In the result, we uphold the demand of duty on all goods except the electrodes cleared to customers other than M/s. UCAL from 16-3-1995. As regards such clearances of electrodes, ld. Commissioner is directed to consider the assessee’s claim for the benefit of Notification No. 214/86 (as amended by Notification No. 68/95, dated 16-3-1995). On this claim, he shall pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. Further ld. Commissioner shall allow the benefit of Modvat credit on “injection moulding machine” to the assessee. Lastly, the penalty on the appellants is set aside. The impugned order will stand modified accordingly.
7. The appeal is disposed of as above.
(Order dictated and pronounced in open Court).