ORDER
V.P. Gulati, Member (T)
1. This appeal is against the order of the Collector of Central Excise (Appeals), Bangalore. Under the impugned order the learned lower authority has upheld the order of the original authority that the appellants are required to pay back the amount equivalent to MODVAT credit attributable to the inputs lying in stock or contained in the goods under manufacture or which stood manufactured on the date when they opted out of the MOD VAT Scheme and opted for the benefit of Notification 175/86. The learned lower authority in his findings has held as under :
“In the Appeal Memorandum, the appellants’ main contention is that there is no one to one co-relation in the usage of material and hence credit availed cannot be held as irregular and that there is no specific provision for demanding duty on the inputs held. Rule 57C specifies that no credit of the [specified] duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of duty of excise leviable thereon or is chargeable to Nil rate of duty. In this case, the appellants had opted out of Modvat Scheme and with an intention of availing the benefit of Notification 175/86. They opted out of Modvat Scheme with effect from 1-4-1990. The appellants had used the inputs on which credit was taken in the manufacture of goods which are exempted from duty. Accordingly, credit of duty cannot be allowed since the final product is exempt”.
The appellants have prayed for decision on merits, vide their letter dated 3rd June, 1995 based on the submissions made earlier by them. The learned Departmental Representative has adopted the reasoning of the learned adjudicating authority and has prayed for upholding the order of the learned lower authority. The appellants in their written submissions have urged as under :
“The Department held the view that duty was liable to be paid back on the quantum of inputs held by us in stock on that day. We, however, contended that this was not correct, because there is no provision under the Rules for claiming such amount. However, the Assistant Collector, held that, under Rule 57C, Duty Credit on inputs lying in Stock is to be paid back as the stocks were to be used in manufacture of goods which were not subject to duty.
We contended before the Collector of Central Excise (Appeals), that the view held by the Asst. Collector was wrong and that only the duty Credit as was available on the day of opting out of MODVAT would lapse and the duty credit demanded is not correct. But the Collector (Appeals) upheld the order of the Asst. Collector and confirmed the duty demand and this has been paid by us.
Our submissions here is that the view taken by the lower authorities is not correct and that at the time of opting out of MODVAT, demand of duty on the inputs is not intended in law and there is no provision for the same. We wish to bring on record a decision of the same Bench in a similar case relating to the same period, in the Appeal filed by M/s. Gangal Pharmaceuticals, Hubli, in Appeal No. E/161/92-MAS, decided on 11-5-1992″.
2. We have considered the pleas made by both the sides. The short issue that falls for determination is whether on the day when the appellants opted for benefit of Notification 175/86 the MODVAT credit attributable to the inputs lying in stock as well as those contained in the goods under manufacture and already manufactured and lying in stock with the appellants is required to be reversed. From the reading of the order of the learned lower authority and also from the submissions of the appellants the impression we gather is that the appellants are deemed to have opted out of the MODVAT Scheme the moment they opted for the benefit of Notification 175/86. We however find the Notification 175/86 places no such fetter in regard to availing of MODVAT credit nor there is any stipulation under Modvat Rules that those who avail of the benefit of Notification 175/86 cannot avail of the MODVAT credit. In fact in the opening para whereunder an exemption is provided under Notification 175/86 the following is set out :
(a) in the case of the first clearances of the specified goods upto an aggregate value not exceeding rupees thirty lakhs, –
(i) in a case where a manufacturer avails of the credit of duty paid on inputs used in the manufacture of the specified goods cleared for home consumption under Rule 57A of the said Rules, from so much of the duty of excise leviable thereon which is specified in the said Schedule (read with any relevant notification issued under Sub-rule (1) of Rule 8 of the said rules or under Sub-section (i) of Section 5A of the Central Excises and Salt Act 1944 (1 of 1944) and in force for the time being as is equivalent to an amount calculated at the rate of 10% ad valorem ;
(ii) in any other case from the whole of the duty of excise leviable thereon;
Provided that the aggregate value of clearances of the specified goods under Sub-clause (ii) of this clause in respect of any one Chapter of the said Schedule, shall not exceed rupees twenty lakhs (w.e.f. 14-4-1990).”
It is clear from this that in case the appellant have availed of the benefit of MODVAT credit in respect of the inputs, the benefit of Notification is restricted to a lesser amount. In the present case therefore since the appellants had availed of the MODVAT credit in respect of the inputs which were lying in stock and also which were contained in the semi-finished goods and finished goods on the day the appellants opted for the benefit of Notification 175/86, all that was required to be done was to restrict the benefit of Notification 175/86 in terms of para l(a)(i) rather than to ask the appellants to pay back the MODVAT credit as above.
The wordings of the notification makes it abundantly clear that where the benefit of MODVAT credit has been taken on the inputs, the benefit of notification would be as per para l(a)(i). The authorities appear to have lost sight of this provision. In our view, the authorities should have restricted the 556 EXCISE LAW TIMES [Vol.82 benefit to the extent as above rather than to have resorted to recovery in terms of Rule 57C of the MODVAT Rules read with Rule 57-I. In our view, the appellants were allowed duty free clearance of goods falling under Notification No. 175/86 in which inputs in respect of which MODVAT credit has been taken was utilised on a wrong interpretation of law. Departmental authorities had no option but to have allowed the exemption in respect of the goods manufactured out of inputs on which MODVAT credit had been taken to the extent as envisaged in the Notification No. 175/86 para l(a)(i) as reproduced earlier. This is therefore a case of short levy rather than a case where MODVAT credit taken on the inputs is required to be reversed. However, in case of the inputs which were lying in stock which were subsequently utilised for the manufacture of finished goods in that case also the goods manufactured out of these inputs, the benefit of notification could have been limited in terms of para l(a)(i) of the Notification No. 175/86 as above. The other course open in case the authorities felt that on the assessees opting out of MODVAT they had to be allowed the benefit of free clearance under Notification 175/86, the authorities could have recovered the duty on the inputs which were lying in stock at the time when these are taken into use for manufacture of the finished goods for clearance free of duty in terms of Notification No. 175/86. Under Rule 57F the inputs on which the MODVAT credit has been taken on clearance for home consumption when the unit would not be functioning under the MODVAT scheme the same could be allowed clearance on payment of duty. This we have held in a number of cases. In the case of M/s. Pinakini Beverages Ltd.in Appeal No. E/624/91 we have held so taking note of our earlier decision in the case of Collector v. Becon Weir Ltd. reported in 1994 (72) E.L.T. 657 and the ruling of the Larger Bench in the case of Kirloskar Oil Engines Ltd. reported in 1994 (73) E.L.T. 835. A copy of this order is enclosed for ready reference. In the case of M/s. Beama Manufactures (P) Ltd. in Appeal No. E/445/91 the Larger Bench following the earlier decisions cited supra has taken the same view, a copy of which is also appended for ready reference. Following our earlier decisions, we hold that no case for reversal of MODVAT credit in respect of the inputs lying in stock as such has been made out.