Gowri Shankar, Member (T)
1. These appeals are taken up for disposal after waiving deposit of duty and penalty.
2. Each of the appellants is engaged in ship breaking and takes credit of the additional duty of customs paid on the importation of the ship, utilising that credit towards payment of duty on articles obtained as a result of breaking it. The tariff provides a heading in each of the chapters in Section XV, (covering base metals and articles of such metals) for goods of that chapter obtained by breaking up a ship. The jurisdictional authorities having concluded that materials other than those which were classifiable under any of these headings were not liable to excise duty, took recourse to Rule 57CC. This rule requires a manufacturer who uses common inputs in the manufacture of dutiable and excisable inputs to pay 8% of the price at which the exempted goods are sold. It appears that the Superintendent wrote to the Ship Breakers’ Association asking them to convey this view to its members by issuing such instructions to its members. Each of the appellants thereupon paid the amount in question by debit to the Modvat account, which Rule 57CC permits.
3. Subsequently, the matter came to the attention of the Board. In its Circular dated 23-10-1997 reproduced in 1997 (96) E.L.T. T7, the Board clarified that in the absence of any entry in the tariff describing the act of obtaining goods, other than those of Section XV of the tariff, as manufacture, they were not excisable and therefore the provisions of Section 57CC will not apply. On receipt of this clarification, each of the appellants reversed the entries that it had made in the Modvat account.
4. This resulted in issue of notice from the Superintendent, alleging that, in the absence of any lawful order, such reversal was not justified, demanding the amount as duty, and proposing to impose penalty. Adjudicating on the notice the Assistant Commissioner confirmed the demand and imposed penalty. This order having been confirmed by Commissioner (Appeals), the matter is before this Tribunal.
5. On merits there cannot be any dispute that the provisions of Rule 57CC would not apply in this case. The Assistant Commissioner has confirmed the proposal in the notice on his view that the Modvat credit can be taken only on the basis of documents prescribed in Sub-rule (3) of Rule 57G, or in compliance of an order under Section 11B of the Act. The Commissioner (Appeals) has dismissed the appeals against this order on this ground, and on the further ground that the Board’s clarification will only apply in pending cases and the question referred to in Board’s clarification was not pending.
6. An amount deposited under the provisions of Sub-rule (1) of Rule 57CC is clearly not Modvat credit. Modvat credit is the duty paid by a manufacturer on excisable goods, or capital goods, available for utilisation towards payment of duty on other goods in the manufacture of which those goods are used, governed by the provisions of the relevant rules. That obviously is not the nature of the payment under Rule 57CC. It has no relation to the duty paid on the inputs, or on the capital goods, levied on their manufacture in accordance with Section 3 of the Act and at the rates specified in the tariff. The Board has itself said that this amount cannot be taken as credit for this reason. The amount, in short, is neither duty eligible for taking credit, nor any other kind of duty. That being the case, neither the rules relating to Modvat credit nor Section 11B of the Act will apply to this payment. It is therefore not correct to deny it, as has been done, on the basis that duty paying documents were not produced or that a claim for its refund was not made. In the absence of anything to the contrary in the law either specifically or by implication, the appellants were entitled to do what they did.
7. Nor is there any basis for the reliance by the Commissioner (Appeal) on the reference in the Board’s circular. The circular clarified what, in any case, is evidently the legal position. A distinction cannot therefore be made between past cases and those pending. That would amount to saying that the law applies differently to each of them.
8. The appeals are allowed, and the impugned order set aside.