ORDER
Gowri Shankar, Member (T)
1. The application by Mahindra & Mahindra Ltd. is for waiver of deposit of duty of Rs. 17,37,319/-(being the balance of the original demand of Rs. 1,52,37,319/- after deducting the amount already paid of Rs. 1.35 crore) and penalty equal to the duty. The other applications are for waiver of deposit of penalties as follows:
Mehta Trading Corporation
Rs. 50 lakhs
Kohinoor Trading Company
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M.H. Steel Corporation
Rs. 1 lakh each
Loha Ispat Limited
B. Melaram & Sons
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Rs. 50,000/- each
Ayushman Steels Ltd.
2. Mahindra & Mahindra Ltd., the assessee, is engaged in the manufacture of steel castings. For this purpose, it acquires scrap, mills laid sown in its induction furnace and utilises the molten metal for casting of the goods in question. It had based orders on various, dealers for supply of cold-rolled cold annealed steel (CRCA) for utilisation under furnace. The scrap was supplied to it among others by Mehta Trading Corporation and Agrasha Enterprises, who either purchased it from the persons at whose premises the scrap emerged, purchases from other dealers such scrap. The basis for the notice issued to the assessee and dealers is that the scrap which they supplied to the assessee and on which the Modvat credit was taken was not duty paid. The notice proposed to recover the duty taken as wrongful Modvat credit by the assessee and proposed penalty on the dealers under Rule 173Q(1)(bbb) for issuing wrong documents leading to credit. The basis for the charge in the notice appears to be as follows. The scrap that the dealers obtained was either duty paid, or non-duty paid, such as the cold and used articles of steel enroute from the first stage dealer or as the case may be, the manufacturer of the scrap to the premises of the assessee, the scrap was “bundled” i.e. pressed hydraulically into tubes with the result that the identity and nature of the scrap contained in these tubes could not be ascertained. The prima facie conclusion from these facts in the notice is that what was supplied to the assessee was scrap on which no duty had been paid.
3. So far as the assessee is concerned, virtually all the duty except Rs. 17 lakhs having been paid, we do not think there is any requirement of further deposit of duty. As regards the penalty on the assessee, it utilised the scrap that it purchased from various dealers and that it took the credit on duty shown to have been paid on such scrap. Prima facie the Commissioner has been unable to show any conscious involvement by the assessee or knowledge in any substitution. The departmental representative was unable to emphasise that the scrap that the assessee received was not CRCA scrap; among the scrap that was found in the premises was one umbrella handle; among the suppliers of the scrap to the assessee is B. Melaram & Sons who makes ships and sells such scrap. These facts may prima facie suggest that the assessee received at least some quantity of scrap other than duty paid scrap. However, as we have noted, there is nothing to show its conscious involvement, and the fact that the Commissioner has specifically found that none of the employees of the applicant to whom notice was issued proposing penalty was involved in the alleged substitution prima facie strengthens the waiver. We, therefore, waive deposit of the penalty on the assessee.
4. We now turn to the dealers. The contention of the Counsel for Agrasha Enterprises that it did not issue any invoices under Rule 57GG and for that it merely issued commercial invoices for the scrap that it purchased from the other dealer and sold it to the assessee could not be reverted by the departmental representative. If that is the case, there is prima facie no scope for invoking the provisions of Rule 173Q(1)(bbb). The contention of the Counsel for Mehta Trading Corporation is essentially that it was not given an opportunity to present its case properly. He says that a very large number of documents (around 40,000) were relied upon in the notice, and some of these documents were received by the applicant on 20th September, 2001 four days before the hearing that the Commissioner held on 24th. The reply that it filed to the show cause notice reached the Commissioner on 12th November and has not been taken into account in his order passed on 15th November. It is further contended that the reply contains exhaustive data showing the disposal of both types of scrap – non-duty paid as well as duty paid that this applicant received, and establishes that what was supplied to the assessee was only duty paid goods. The Commissioner has found that this applicant was needlessly delaying the proceedings asking for documents. The fact remains however that the show cause notice listed 62 documents including various files, registers, etc., copies of none of which were supplied to any of the noticee and that they unnecessarily approached the Assistant Commissioner for inspection. The letter dated 20th September, 2000 of the Assistant Commissioner to the applicant indicates supply of some of the documents. We, therefore, find prima facie merit in the contention that this applicant was not given sufficient opportunity of being heard on its case. The contention of the Advocate for M.H. Steel Corporation and Kohinoor Trading Company is that there is nothing to show that it changed the nature of the scrap that it received. The report of the auditor appointed by the assessee did not show the presence of any bale (bundle) in its furnace. The contention of the Counsel for B. Melaram & Sons is that it sends the scrap that it manufactured for breaking ship under invoices issued under Rule 52A and there is no question of substitution in the scrap. The contention in the application of Loha Ispat Ltd. and Ayushman Steels Ltd., which were not represented before us, is that there is no material to show that they have engaged the transaction.
5. Apart from the consideration that we have narrated above, it is difficult for us to hold prima facie that the supply to the applicant by these dealers of material on which no duty has been paid had been established to the required degree of probability by the Commissioner. The notice and the order of the Commissioner laid considerable emphasis upon the fact that what was supplied to the assessee was in many cases not CRCA scrap but consisted of other types of scrap such as M.S. steel scrap, cold and rusted scrap, etc. The description of goods in general terms of steel scrap is not incompatible with that scrap being CRCA scrap. Even otherwise the significance of the emphasis upon the CRCA scrap is not very clear. As the departmental representative strongly reiterated the emphasis, it is possible and in fact has been so accepted by the assessee – that the scrap other than CRCA can be used in its furnace. There is however no contravention of law in the assessee having received and utilised scrap other than the CRCA scrap. That is a matter between it and the suppliers. The department’s interest would arise only in a situation where scrap of whatever amount that the assessee received or shown not to be duty paid and supplied under documents showing its payment of duty on which the assessee took credit. We are not of the view that this requirement has been satisfied. In other words, the mere presence of non-duty paid scrap and duty paid scrap in the premises of the dealers who supplied material to the assessee, and that the fact that somewhere along the way the scrap lost its identity as CRCA cannot themselves prima facie justify that what was supplied was scrap on which duty was not paid.
6. We, therefore, waive deposit of the penalties imposed on the other applicants and stay their recovery.