C.N.B. Nair, Member (T)
1. The impugned order in appeal has confirmed duty demand against the appellants under four headings and also imposed a penalty of Rs. 70 lakhs under Rule 173Q. These duty demands are challenged in this appeal.
2. The first duty demand is on account of denial of modvat credit to the appellant. The credit involved is over Rs. 61 lakhs. The material facts of this dispute are that the appellant, even though not a small scale unit, availed themselves of exemption under notification No. 1 /93 and cleared goods worth about Rs. 30 lakhs without payment of any duty. The learned counsel submits that the appellants had reversed modvat credit on raw materials used in the manufacture of the goods cleared without payment of duty. He, however, concedes that, the appellant, not being a small scale unit was not entitled at all to the benefit of notification No. 1/93. He, therefore, submits that the appropriate action in the appellant’s case is to assess all the goods manufactured and removed by them at the appropriate rate of duty (without allowing small scale exemption) and to allow them modvat credit in respect of all the inputs used in or in relation to the manufacture of those goods.
3. The second demand of about Rs. 9.6 lakhs is on account of the allegation of under valuation of goods produced by the appellants as a job work for Steel Authority of India Limited. The appellants were receiving inputs for the production of the steel items from SAIL. They were delivering the finished products to the buyers of SAIL. What they received was their job work charges. The appellant discharged duty on the goods at the ex-factory sale price of SAIL in respect of goods produced and cleared by them. The dispute has arisen because the certificate dated 18-3-94 of SAIL based on which assessable value was taken indicated collection of certain extra amounts by way of railway packing statutory levies railway freight and distribution charges in addition to ex-work prices. The appellant had treated the ex-work price as the assessable value. The learned counsel explained during hearing that this duty demand has no basis at all. The goods produced by the appellant tally with the similar goods manufactured and sold by SAIL. They were therefore right in treating the exworks price of SAIL as comparable price and discharging duty. He also submitted that no duty could be charged in respect of railway packing statutory levies railway freight distribution charges etc., which are all post clearance charges and have no relation to ex-factory prices of goods.
4. The third demand of over Rs.16,000/- is in respect of modvat credit taken by the appellant on welding electrodes. Learned counsel for the appellants stated that these electrodes had been used in the appellants’ factory for the purpose of repair and maintenance of machinery installed in the factory. Therefore they can be treated as used in relation to the manufacture of the goods. However, these electrodes have no role to play in the production of the goods at all. Further, they were not eligible at the relevant time, for modvat credit as capital goods either.
5. The last demand of about Rs.6,000/- is in respect of collections of about Rs.40,000/- made by the appellants towards charity. Learned counsel submits that the Supreme Court has held that dharmada (charity) charges are not liable to be added to the assessable value of goods. He, however, admitted that no evidence has been produced to show that these collections had actually been utilized for charitable purpose. The demand being small, the learned counsel does not press it either.
6. We have heard the learned Departmental Representative. He submits that the appellants could not have availed of both exemption from central excise duty under notification No. 1 /93 as well as taken modvat credit. The authorities were, therefore, right in denying them the modvat credit. With regard to the valuation of goods manufactured on job work basis for SAIL, he submits that since the goods have been treated as comparable goods and the assessable value of SAIL adopted, no deduction from the price charged by SAIL is required to be made. In this connection, he draws our attention to the decision of the Tribunal in SAIL v. CCE, Jamshedpur [1997 (90) E.L.T. 502 (Tribunal)] and submits that the Tribunal has held in paragraph 10 that the cost of transportation from the railway siding upto the boundary or exit point of the factory premises cannot be deducted in arriving at the assessable value. He, therefore, submitted that addition to the ex-work price to the extent required will have to be upheld. At this point, learned counsel for the appellants drew our attention to the findings in the order-in- original that in the appellants case transportation of the goods was not by railways at all and therefore additions on that count are not to be considered while fixing their assessable value. With regard to the demand of duty on account of denial of modvat credit of welding electrodes learned DR submits that the demand is fully justified as the use of the electrodes is admittedly for the purpose of maintenance and repair of the capital goods and not in any way in the manufacture or in relation to the manufacture of the finished goods in question. Since credit was also not permissible as ‘capital goods’ during the relevant period the appellants were not justified at all in availing themselves of credit on welding electrodes.
7. We have perused the records and have considered the submissions made on behalf of both the sides. The appellants could not have simultaneously availed themselves of exemption as small scale unit and also taken credit of duty paid on inputs. It is clear that the appellant was not a small-scale unit at all. Accordingly the proper thing to do is to deny small-scale exemption to the appellant altogether and to subject all the goods to central excise duty after allowing the relief as available under the modvat scheme. The assessments and duty demands are required to be re-done on this basis. In respect of the demand of duty on goods manufactured for SAIL on job work basis the issue regarding addition to the ex-factory price remains covered by the aforesaid Tribunal’s decision in the case of SAIL. No data is available in the records as to whether SAIL was making collections in respect of these consignments also towards railway packing railway distribution charges etc. particulars as to what were the collections made by the appellants towards packing, delivery etc. are also not available on record even though there is a statement that the goods were being transported by the truck. In these circumstances the facts on the actual cost and collections made are required to be taken into account and the matter decided afresh. The demand of Rs.16,151.42 on account of availing of modvat credit on welding electrodes is required to be confirmed and as that claim was not legally tenable at all during the relevant period. Both the sides have also taken note of this. Accordingly, that demand is confirmed. In respect of the demand of Rs.5,946.87 on collections made towards charity, it is admitted that no evidence about its use for charitable purpose has been produced. The appellants counsel also is not pressing this issue. Accordingly, that demand also is confirmed.
8. In view of the above discussions, the duty demands in respect of welding electrodes and dharmada charges are confirmed. The rest of the demands shall be re-considered and re-worked in remand proceedings. The case is, therefore, remitted to the Assistant Commissioner for passing fresh order after giving the appellants an opportunity to present their case.