Gowri Shankar, Member (T)
1. By this order we propose to dispose of two appeals each by Mahindra & Mahindra, the assessee, Rajan Narayan, its Vice President and Mohan Raghavan, its Dy. General Manager.
2. M/s. Mahindra & Mahindra manufactures in its factory at Kandivli Engines for fitment to motor vehicles. Some of the engines so manufactured are fitted into the motor vehicle manufactured in that factory and cleared on payment of duty. The reminder is cleared on payment of duty to its factory at Nasik where it is again used for fitment to motor vehicle which are cleared on payment of duty. This appellant availed of the Modvat procedure and was therefore entitled to take credit of the duty paid on the components of these engines towards the payment of duty on the engines. It had declared in the relevant documents, details of the inputs used in the manufacture of engines as well as motor vehicles, and also declared engines as intermediate product in the manufacture of motor vehicles from the components and raw materials out of which engines and other part of the motor vehicles are made.
3. During the period with which we are concerned, the duty payable on the engines was less than the sum of the duty payable on the component used in the manufacture of these engines. Therefore after utilising the credit of the duty paid on these components towards the payment of duty on the engine, there was surplus. The appellant utilized the surplus of duty resulting from clearing the engines of the factory at Nasik for payment of duty on motor vehicles in its factory at Kandivli. This has been objected to by the department and the objection having been confirmed by the Commissioner, in addition to demanding duty imposed penalties on the assessee and its two officers, named above, the matter is before us.
4. The objection that is perceivable from the Commissioner’s order is that no part of the credit of the duty taken on inputs which are used in the manufacture of the engine which are cleared out of the factory can be used towards payment of duty on any finished product which emerges in the factory. Now, there is nothing in the Modvat rules specifically restricting what the assessee did. None of the rules say or suggest that this should not have been done. The real objection which is clear from paragraph 57 of the Commissioner’s order is that, to quote the Commissioner’s own wordings “credit in question is not allowable for payment of duty on the clearances of motor vehicles cleared from the same factory, as the said I.C. engines cannot be said to have been used in the manufacture of the said motor vehicle”. What in effect the Commissioner says is that of the utilization of the credit taken of the duty paid on a particular input must be limited towards payment of duty on a specifically identified finished product in or in relation to which that input is used. In other words what is referred to “one to one correlation” between the input of the finished product is necessary.
5. We are not able to accept the argument of the Departmental Representative that the provisions of Sub-rule (3) of Rule 57F, as it stood at the relevant time, give rise to the conclusion. The rule provided inter alia that credit of duty could be utilised towards payment of duty of the final product in or in relation to the manufacture of the final product which are intended to be used in Sub-rule (1) of Rule 57G. The term “inputs” and “final product” have been defined in Rule 57G as the excisable goods used in or in relation to the manufacture of the final product and as finished excisable goods respectively. Therefore so long as the duty paid on any of the goods used in or in relation to the manufacture of final product used in payment of duty in the excisable goods, there is compliance of Sub-rule (3) of Rule 57F. The use of the term “intended” in the Rule 57A is significant. If the rule did not contain this word, it could possibly be permissible to restrict the credit taken only to the particular final product in which the fact in or in relation to the manufacture of which the input on which credit is taken is actually used. If the credit however taken on the basis of the intention it would be evident that the credit of the duty paid on the input which can be taken towards payment of duty with the particular item of the finished product. To give an example, credit of the duty paid on the input which is received by a manufacturer at 12 noon can be utilised by it to pay duty on goods which is cleared at 12.15 p.m. It would be evident that the input in that situation is not, and could not have been, used in the manufacture of the finished product which has been cleared by applying the credit taken on the input. This is the universal practice and so far not objected. This is in fact the understanding of the department right from the beginning and this is the understanding which is communicated to the trade in the book Guide to Modvat by the Board in 1986, which consists of a series of question for which answers have been given. Answers to the question in question 16 is specific that there is no one to one correlation between the input used and the final product manufactured and credit may be taken as soon as the input is received. In the revised edition of the booklet in 1990, the answer to question 49 is that there is no one to one correlation of input and final product and that excess credit accumulated can be utilised towards payment of duty on final product manufactured out of non-duty paid inputs. It is therefore really not necessary for us to rely upon the Supreme Court judgment in paragraph 17 of the judgment in Dai Ichi Karkaria -1999 (112) E.L.T. 353 to the effect that there is no correlation of raw material and final product to hold that there is no basis for the Commissioner’s action.
6. Before formally allowing the appeal and setting aside the impugned order, we would like to observe that this kind of order that we have dealt with seeks to unsettle the issue which have been settled right from the inception of the Scheme. It is needless for us to explain that such action only gives to needless work all around. The object of this appears to be collect greater revenue in the jurisdiction of the Commissioner who has issued the order. The department would not in any case benefit in the long run, since such demand for duty which are contrary to law will be set aside by the Tribunal or the Court.
7. Appeals allowed. Impugned orders set aside.