ORDER
P.G. Chacko, Member (J)
1. M/s. Silicate India (Appellant in Appeal Nos. E/262/2003 and E/264/2003), M/s. Kiran Silicates Pvt. Ltd. (Appellant in Appeal No. E/263/2003) and M/s. Nannilam Silicate (P) Ltd. (Appellant in Appeal No. E/265/2003) are manufacturers of Sodium Silicate. M/s. Silicate India (SI, for short) despatched 105.8 MTs and 48.975 MTs of soda ash to M/s. Kiran Silicate (P) Ltd. (KSL, for short) and M/s. Nannilam Silitcate (P) Ltd. (NSL, for short) respectively in September, 1992 for conversion to soluble glass on job work basis in terms of Rule 57F of the Central Excise Rules, 1944. The job workers viz. KSL & NSL processed the input and supplied respectively 190.44 MTs and 88.155 MTs of soluble glass to “SI”. The principal manufacturer (SI) found the goods defective and returned the same to the job workers for re-processing. KSL & NSL could not re-process the soluble glass and, therefore, they treated it as “waste” and sold it to third parties on payment of duty at the rate of 5% by availing SSI concession. For this payment of duty, both KSL & NSL made use of Modvat credit taken on their own inputs. Meanwhile, SI recovered their cost of soda ash from KSL and NSL by issuing debit notes in March, 1993. Show cause notices were issued to the 3 parties by the department in September, 1993 and the same were contested. Against SI, the lower authorities confirmed demand of duty of Rs. 1,24,243.50 on 190.44 MTs of soluble glass (which was ultimately disposed of by KSL) and imposed a penalty of Rs. 10,000/-. Appeal No. E/262/2003 is against this decision.
2. The authorities also demanded duty of Rs. 57,521/- from SI on 88.155 MTs of soluble glass (which was ultimately disposed of by NSL) and imposed a penalty of Rs. 5000/- on them. Appeal No. E/264/2003 is against this decision. Against KSL, the lower authorities confirmed demand of duty of Rs. 33,409/- on the ground of wrong utilisation of input duty credit and also imposed a penalty of Rs. 2000/-. This decision is under challenge in Appeal No. E/263/2003. Appeal No. E/265/2003 is a similar appeal filed by NSL against a demand of duty of Rs. 15,429/- based on a finding of irregular availment of input duty credit as also against a penalty of Rs. 1000/-.
3. After examining the records and hearing both sides, I find that, though all the three units were manufacturers of sodium silicate, KSL & NSL were working as job workers of SI (principal manufacturer). While the principal manufacturer was not an SSI unit, the job workers were SSI units. These SSI units, upon finding that they were unable to reprocess the soluble glass returned by the principal manufacturer, disposed it of as “waste” on payment of duty @ 5% (concessional rate applicable to SSI unit). For a non-SSI unit, the applicable rate of duty was 15%. The lower authorities have demanded the differential duty on the soluble glass [@ 10%] from SI. This demand is under challenge in the appeals filed by SI. I find that SI recovered their cost of soda ash (input supplied to job workers for conversion into soluble glass) from KSL & NSL by issuing debit notes to them in March, 1993. This conduct of SI had the effect of breaking the chain of transactions under Rule 57F and consequently disentitled themselves to the benefit of the said rule. Hence the removal of soluble glass from the factory of SI to the premises of KSL & NSL was in the nature of removal of an intermediate product for home consumption, which should have been accompanied by payment of duty. As SI was not an SSI unit, they should have removed the goods from their factory on payment of duty at the tariff rate (15%). The lower authorities have demanded duty only @ 10% inasmuch as duty @ 5% had already been paid by KSL & NSL. The demand of differential duty on soluble glass removed by SI to KSL & NSL is sustainable on facts as well as in law. However, as rightly pointed out by the appellants’ counsel, the authorities ought to have allowed abatement of duty from sale price of soluble glass in terms of Section 4(4)(d)(ii) of the Central Excise Act while determining the assessable value of the goods and for quantification of the demand of duty. Apparently, they overlooked the fact that this benefit was allowed by the Tribunal’s Larger Bench in the case of Srichakm Tyres Ltd. v. CCE, Madras, 1999 (108) E.L.T. 361 (Tribunal) affirmed by the Apex Court in 2002 (142) E.L.T. A279. The lower authorities have imposed penalties on Silicate India under Rule 173Q. The facts of this case do not indicate that SI had intent to evade payment of duty. When they removed soluble glass to KSL & NSL, they were obviously expecting to get the goods re-processed under Rule 57F. It was only upon finding that the job workers were unable to re-process the goods that SI abandoned it and recovered their cost of soda ash from the job workers. In these circumstances, the penalties imposed on SI are on the higher side. In the result, Appeal Nos. E/262/2003 & E/264/2003 filed by SI get disposed of in the following manner :-
(a) It is held that SI is liable to pay the differential duty on soluble glass removed from their factory to the premises of KSL & NSL and subsequently disposed of by the latter on payment of duty at concessional rate.
(b) The original authority is directed to re-quantify demand of duty after allowing the benefit of Section 4(4)(d)(ii) of the Central Excise Act to the assessee.
(c) The penalties imposed on the appellants are reduced by 50%.
4. M/s. KSL & NSL were independent manufacturing units which were engaged in the manufacture of sodium silicate. They were eligible for Modvat credit of the duty paid on their own inputs and were entitled to utilise such credit for payment of duty on their own final product. In the facts of the case, they cleared soluble glass (an intermediate product in the manufacture of sodium silicate) to their own customers on payment of duty at concessional rate. They were entitled to utilise input duty credit for this payment of duty. Hence the demand of duty raised on KSL & NSL on the ground of irregular utilisation of input duty credit cannot be sustained. Their utilisation of input duty credit for payment of duty on soluble glass was regular. In the circumstances, no penalty was liable to be imposed on any of these parties on the ground of irregular availment of Modvat credit. In the result, the Appeal Nos. E/263/2003 & E/265/2003 must succeed and the same are allowed with consequential reliefs.
(Operative part of the order was pronounced in open Court on 12-7-2005)
