ORDER
R. Jayaraman, Member (T)
1. Both the stay application as well as the appeal are against the same order-in-original No. 21/Demand/K, dated 23-10-1992. Since I felt that the issue canvassed both in the stay application as well as in the appeal falls within the short compass, after getting the consent from both the sides, I proceeded to dispose of the appeal itself.
2. The appellants are receiving inputs like copper wire, paints, stamping under modvat scheme by filing proper declaration. The above-said inputs were found to be defective and hence they had to be returned to the suppliers for rectification of defects and return of the same. Hence, they wrote to the Asstt. Collector and the Asstt. Collector in his letter No. F. No.V (Chap. 84) 3-28/86/MP 1, dated 4-11-1986 informed the appellants as below :
“The matter has been reconsidered and a general permission to clear rejected duty paid inputs received in your factory is hereby granted on condition that the credit taken on R.G. 23 in respect of rejected goods will be deducted and it will be reversed when the goods are received back into the factory after necessary repairs or process.
The inputs may be removed under returnable challans and the accounts shall be maintained as prescribed under Trade Notice No. 162/86 issued by the Collector of Central Excise, Baroda”.
In accordance with this direction, they have been removing the rejected copper wire and stampings to the suppliers, after reversing the modvat credit under delivery challan and these materials, after rectification of the defects, were supplied to them back under the delivery challan. This was during the period from 3-6-1987 to 23-3-1988. However, after nearly 4 years, on 21-2-1992, a show cause notice was issued by the Department alleging that the modvat credit is not admissible in respect of the credit taken, on the basis of the challans received from the suppliers for return of the rectified materials. In the adjudication proceedings held by the Collector, he confirmed the demand for Rs. 57,220.72, invoking the extended period and also holding that the permission given by the Asstt. Collector in the above letter is for removal under Rule 57F(1)(ii) and not under Rule 57F(2) and hence these delivery challans are not the proper documents for taking the modvat credit and this fact has been suppressed from the Department. Hence, he confirmed the demand invoking the extended period.
3. Shri Ravinder Jain, the ld. JDR, on behalf of the Department, mainly pleads that the delivery challan is not the recognised document under Rule 57G and this is not a case of removal under Rule 57F(2). They ought to have issued gate pass, while removing the defective materials and then receive the goods back from the suppliers under gate passes. Return of the goods under delivery challan cannot entitle them to take modvat credit.
4. Shri Kohli also produced before me the complete statement showing how the goods were removed by debiting the modvat credit and when they were returned under delivery challan after rectification from the suppliers, the same credit was taken. He, therefore, pleads that they have followed the procedure as laid down by the Asstt. Collector and hence the extended period cannot be invoked for confirming the demand.
5. After hearing both the sides, I am satisfied that the appellants have followed the procedure prescribed by the Asstt. Collector after consultation with the Dy. Collector at Surat. The quantities of defective goods were cleared outside by reversal of modvat credit and when these materials after rectification of the defects were received back, the same credit was taken. This is what the Asstt. Collector has directed. Hence, the entire operation was within the knowledge of the Department and it is surprising as to how the Collector can invoke the extended period to confirm the demand in such a case. In view of this, without going into the merits of the case, I allow the appeal on the ground of time bar of the demand.
