ORDER
V.P. Gulati, Member (T)
1. These two appeals are against the order of Collector of Central Excise (Appeals) and involve common issue. They are therefore taken up together for disposal.
2. The short question that falls for consideration in the appeal is whether the inputs which were cleared from the manufacturers’ end under Notification 208/83 without payment of duty could be taken to be eligible for the benefit of MODVAT Credit under Rule 57G(2) in terms of Government of India order allowing deemed credit in respect of the goods falling under Tariff Heading 7213.90 purchased from the market. The learned Collector (Appeals) has held that inasmuch as the goods did not suffer any duty, in terms of this order under Rule 57G(2), no MODVAT Credit can be taken. Rule 57G(2) for the purpose of convenience is reproduced below :
“(2) A manufacturer who has filed a declaration under Sub-rule (1) may after obtaining the acknowledgement aforesaid, take credit of the duty paid on the inputs received by him :
Provided that no credit shall be taken unless the inputs are received in the factory under the cover of a Gate Pass, an AR-1, a Bill of Entry or any other documents as may be prescribed by the Central Board of Excise & Customs constituted under the Central Boards of Revenue Act, 1963 in this behalf evidencing the payment of duty on such inputs.
Provided further that having regard to the period that has elapsed since the duty of excise was imposed on any inputs, the position of demand and supply of the said inputs in the country and any other relevant consideration, the Central Govt. may direct that with effect from a specified date, all stocks of the said inputs in the country, except such stocks lying in a factory customs area [(as defined in the Customs Act, 1962 (52 of 1962)] or a warehouse as are clearly recognisable as being non-duty paid, may be deemed to be duty paid and credit of duty in respect of the said inputs may be allowed at such rate and subject to such conditions as the Central Government may direct without production of documents evidencing the payment of duty;
Provided also that the manufacturer shall take all reasonable steps to ensure that the inputs acquired by him are goods on which appropriate duty as indicated in the documents accompanying the goods, has been paid.”
3. The learned Counsel pleaded that Rule 57G(2) proviso envisages that the goods should not have been paid nil duty for the purpose of availing the benefit of MOD-VAT Credit in terms of the instructions issued under the said Rule. He pleaded that in their case the goods which were brought as inputs had been cleared under an exemption notification and being wholly exempt can be taken to be duty paid goods and could not be taken to have been cleared on payment of nil rate of duty. In this context he relied upon the decision of the West Regional Bench in the case of Arun Auto Spring & Manufacturing v. Collector of Central Excise and Customs, Rajkot, reported in 1990 (48) E.L.T. 543 (Tri.). He referred to para 10 of the said order. He pleaded that the Tribunal in that order has clearly held that where the inputs were exempted, these were eligible for the benefit of MOD VAT Credit, as these could not be considered as having been cleared on payment of nil rate of duty. He also referred to order of this Tribunal in the case of Rapsri Engineering Industries Pvt. Ltd. v. CCE, reported in 1989 (43) E.L.T. 577. He pleaded that in the light of the decision of the West Regional Bench, the appeal has to be allowed.
4. Shri P. Sunderaraju, the learned SDR adopted the reasoning of the learned lower authority and prayed that the appellants are not eligible for the benefit of MODVAT Credit.
5. We observe that the West Regional Bench in their order referred to supra in the context of the same notification have allowed the appellants the benefit of MODVAT Credit holding that the goods brought in could not be treated as nil duty paid goods. In this context the findings of the Tribunal in para 10 of their order are as under :
“The aforesaid arguments further narrow down the area of interpretation with regard to the following provision in the order :
“If such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty”.
It is not the case of the Department that the goods have been removed from Excise or Customs area without payment of duty and hence they are to be construed as non-duty paid. The department states that the goods have been supplied by a manufacturer, who is entitled to avail of the exemption legally extended under Notification No. 208/83. In view of this position, the goods cleared, availing of exemption legitimately available to the manufacturer, cannot be construed to be non-duty paid. They are to be considered as goods having been legally cleared availing of the exemption. Now the question is as to whether they could be construed as goods charged to ‘nil’ rate of duty. The department’s contention is that since the goods are exempted they are to be construed as goods charged to ‘nil’ rate of duty. We are unable to appreciate this stand for the following reasons.
“The words ‘charged to nil rate of duty’ appear to have a special significance. Section 3 of the Central Excises & Salt Act, is the charging Section. Thereunder, it is laid down that duty of such excise on all excisable goods shall be levied and collected at the rates set forth in the First Schedule. Hence, levy and collection on excisable goods is to be done as per the rates set forth in the First Schedule. Where duty on any goods is leviable at nil rate as per the Schedule, such goods may be construed to be the goods charged to ‘nil’ rate of duty. Where goods are charged to rates specified as set out in the Schedule and they are exempted by way of exemption notification under Rule 8(1) of the Central Excise Rules, they could be construed as goods subject to the rates specified in the First Schedule but are exempted and they cannot be construed as goods “charged to nil rate of duty”. Hence in our view, the words charged to ‘Nil rate of duty’ referred to in the order of the Govt. of India dated 7-4-1986 have a special connotation and meaning and used in the context of the ‘rate’ of duty as specified in the First Schedule. This view of ours is also strengthened by the fact that the Govt. of India in its later order dated 20-5-1988 specifically referred to goods wholly exempted from duty as not eligible for deemed MODVAT Credit. The relevant portion of the order of the Govt. of India No. 342/10/88-TRU dated 2-5-1988 is reproduced below :
“No such credit shall however, be allowed –
(i) …
(ii) if such inputs are clearly recognisable as being non-duty paid or wholly exempt from duty or charged to nil rate of duty”.”
We find that in the case of Rapsri Engineering Industries Pvt. Ltd. reported in 1989 (43) E.L.T. 577, this Tribunal has held as under :
“Therefore in respect of waste of copper and waste of Aluminium, the exemption is total and unconditional, and in such a circumstance, the Department will be within its right to hold that these are clearly recognisable as non-duty paid and deny deemed credit thereon”.
6. We observe that the question of grant of MODVAT Credit has to be considered in the context of the Scheme as set out in the Rules. The Scheme basically envisages the relief to avoid cascading effect of the duty paid on the inputs specified under Rule 57A and duty paid on inputs is sought to be allowed as credit to subserve this purpose. The words ‘nil rate of duty’ used in the Rule 57G(2) have to be read in the context of the totality of the Scheme. Wherever therefore, the goods are recognised to have not suffered any duty, no benefit of MODVAT Credit can be allowed. In view of this, as also the decision in the case of Rapsri Engineering Industries, reported in 1989 (43) E.L.T. 577 referred to supra and the view held by us in the case of UMS Radio v. C.C.E. -1991 (52) E.L.T. 579, we are of the view that benefit of MODVAT Credit as claimed cannot be allowed. However, inasmuch as West Regional Bench has ruled differently, the matter is therefore referred to Larger Bench for decision.