ORDER
G.N. Srinivasan, Member (J)
1. This is an appeal filed by the assessee against the decision of the Commissioner of Central Excise (Appeals) made in Order No. SDK (449) 158/98 dated 26.02.98 whereunder the appellate authority has held that appellants were not entitled to the benefit of modvat credit. Under the law as it is existed then that for obtaining credit against an invoice issued by a secondary dealer should be registered and reject the claim of the assessee for the benefit of the modvat credit in respect of invoice No. 05036 dated 06.04.94.
2. The appellant is engaged in the manufacture of cotton yarn, cotton fabric, man made yarn and man made fabric following under chapter 52, 54 and 55 of the Central Excise Traffic Act 1985. The appellants were availing benefit of modvat credit in conformity with Section AA of Chapter V of the Central Excise Rules. It is stated in the Memorandum of Grounds of Appeal as follows:
“3. During the month of April and June, 1994, the Appellants availed of the credit of MODVAT on Polyester Staple Fibre (hereinafter referred to as PSF) falling under S.H.5501.20 based on Central Excise invoices of manufacturers viz. Terene Fibres India Ltd. (hereinafter referred to as TFIL) in favour of M/s. Reliance Industries Ltd. (hereinafter referred to as RIL) who in turn have raised invoice in favour of M/s. Emsons (Agencies) Pvt. Ltd. on A/c The Simplex Mills Co. Ltd. (hereinafter referred to as M/s. Emsons A/c Simplex), the details of which are as given below:
Excise invoice of TFIL (manufacturer) – Stands in favour of RIL, who have raised commercial invoice favouring M/s. Emsons A/c. Simplex (i.e. the Appellants). The invoice of RIL in favour of Emsons A/c Simplex has been endorsed by RIL as under:
“The entire consignment covered under this invoice is endorsed to M/s. Simplex Mills Co. Ltd.”
The total credit of Modvat of Rs. 2,26,666/- (Rs. 1,47,018/- + 79,648/-_ availed of based on invoice No. 50036 dtd.6.4.1994 and 50717 dtd. 1.6.1994 was proposed to be denied by the Ld. Supdt. based on the following allegations:
(i) The Appellants were not entitled for the Modvat credit of duty paid on the inputs, availed of by them based on the invoices, since the invoices were not in the name of The Simplex Mills Co. Ltd. (i.e. the Appellants), but the same were in favour of RIL who are also manufacturers of the said PSF and hence they cannot be treated as wholesale distributor or dealer for sale of the said PSF manufactured by TFIL and also that endorsed invoices are not permissible documents for availment of credit. It was further alleged that PSF was not directly dispatched to the Appellants but the same was dispatched through RIL/Emsons, who in turn raised invoice in the Appellants’ favour.
(ii) The credit cannot be availed of based on original copies of invoices as duplicate copies alone were valid for availment of credit of modvat.”
3. On the basis of the reply and the arguments made by the Advocate for the assessee, the Additional Commissioner passed an Order-in-Original rejecting the claim of the assessee in paragraph 8.3. He held us as follows:
“8.3 In terms of Notification No.:15/94 C.E.(NT) dated 30.03.94, Government prescribed the invoice issued by any of the following persons as a valid document for availing Modvat Credit.
1) A manufacturer from his factory or depot
2) A wholesale distributor/dealer of manufacture.
3) An importer from his godown.
In the instant case M/s. Reliance Industries Ltd., have job contract with M/s. Terene Fibre (I) Ltd. and M/s. Terene Fibres (I) Ltd. have manufactured the Polyester Staple Fibre against the PTA/MEG received from M/s. Reliance Industries Ltd., Hence the raw material had not been purchased by M/s. Terene Fibres (I) Ltd., but they have received it from M/s. Reliance Industries Ltd., such as case there is no transaction or a buyer and seller as M/s. Reliance Industries Ltd. are the owner of the raw material inputs. M/s. Reliance Industries Ltd. cannot be considered as wholesale dealers of M/s. Terene Fibres (I) Ltd., and therefore the invoice issued by M/s. Reliance Industries Ltd. cannot be accepted as valid documents for availment of Modvat Credit.”
4. Against this an appeal was filed to the Commissioner (Appeals), who by the impugned order rejected the claim of the assessee in respect of the invoice 50036 issued by M/s. Terene Fibres (I) Ltd., in favour of Reliance Industries Ltd. In paragraph 7 of the impugned order the Commissioner (Appeals) held as follows:
“7. However, a different position would prevailed with respect to the invoice No. 50036 issued by the manufacturer in favour of M/s. Reliance Industries Ltd. The said M/s. Reliance Industries Ltd., has issued another invoice in favour of M/s Emsons (Agencies) Pvt. Ltd., on account of Simplex Mills. The said M/s. Emsons Ltd., have then also issued an invoice in favour of the appellants unit covering any identical consignment while referring to payment of duty on the bill as per Reliance Industries Ltd., and invoice of the manufacturing unit. If he claim of the appellant that M/s. Emsons Ltd., were only acting as financier, the invoices should have been issued by M/s. Reliance Industries Ltd., in favour of the appellants unit on account of M/s. Emsons Ltd., and not the other way round. Therefore in this transaction two intermediatory have come into play i.e. M/s. Reliance Industries Ltd. and M/s. Emsons Ltd., before the goods have entered the appellants unit for benefit of modvat credit. This situation is not authorised under Notification 15/94 relevant at the time. In such cases only if the invoice has been issued by an intermediatory who is a dealer of the manufacturer, these invoices would be recognisable as an authorised document under Rule 57G for availability of modvat credit. The citations referred by the appellants in support of their claim for benefit do not cover a situation of this nature where two intermediatory have been involved in the transaction. The appellants have also not made out a case in support of their claim that the said Ms. Terene Fibres should only be treated as an extension of M/s. Reliance Industries Ltd. The said units were separately registered under the central excise law and, therefore, any claim in this regard is not substantiated. I, therefore, find that the appellants were not entitled for benefit of modvat credit under the law as it existed then for credit against an invoice issued by a secondary dealer and accordingly reject the appellants claim for benefit of modvat credit on this invoice.
5. The appellant argues before me that the show cause notice dated 6.10.94 proceeds on the following circumstances:
“It is observed from the modvat input invoices on which the assessee has availed modvat credit that they have availed modvat credit on the strength of sale note bearing No. 090011 issued to them by M/s. RIL against the original invoice No. 050036 dated 6.04.94 issued by M/s. Terene Fibres India Ltd., in the name of M/s. Reliance Industries Ltd., Since M/s. RIL has not directly sold the goods to M/s. Simplex Mills Co. Ltd., Bombay-11 and the assessee has availed modvat credit on the strength of sale Note of M/s. RIL mentioned above, the modvat credit of Rs. 1,47,018.00 (Basic Rs. 1,27,842.00 + Addl. Rs. 19,176.00) availed by the assessee is not permissible to them.”
6. He states that the sale note referred to in the show cause notice is in respect of the invoice No. 050036 and that he further states that both authorities have gone on a wrong footing namely the ownership of the goods in question. Goods in question he states that there cannot be talk of ownership of the goods. But excise duty is levied on the manufacture. This has been amply made clear by the decision of the Supreme Court in the case of Emire Ind. 1985 (20) ELT 179 and followed by the same court in the case of Ujagar Prints 1989 (39) ELT 493 (SC).
The learned DR would reiterate the orders passed by the lower authority. When I go through the Order-in-Original I am sorry to comment that the Addl. Commissioner who passed the same has ignored to take note of what is stated in show cause notice, which is the basis of case of the department. Moreover the show cause notice does not state as to how assessee was not permissible to take modvat credit which should have bene disclosed in the show cause notice. If the show cause notice does not give the basis for denial I am afraid tax or duty cannot be demanded because assessee has to show as to why the tax should not be given. It is the elementary matter taxing authority should mention the proposed grounds under which duty is sought to be demanded. When such grounds are not disclosed to the assessee, such an assessee will or should file his reply to the adjudicating authority asking why the grounds disclosed to him did not give sufficiency to the authority to demand tax from such an assessee. Any quasi judicially authority before passing any order prejudicial to any assessee has to give its tentative proposal to the assessee as to why he is demanding duty. Whenever the adjudicating authority passes an order demanding duty or deny modvat credit it will act prejudicial to the interest of the assessee. The order passed by the adjudicating authority will have civil consequences, in fact, it acts prejudicial interest of the assessee. Such an order, before it is made, should be preceded by issue of a proper show cause notice mentioning the grounds under which the tax is demanded or modvat credit is sought to be denied. In the instant case before me show cause notice simply state the non-availability of the modvat credit to the assessee and it is not permissible on that count. It does not disclose the grounds under which the modvat credit is sought to be denied. This would not have enabled the assessee to file a proper reply. In the Order-in-Original the adjudicating authority has chartered a different route altogether in paragraph 8.3 of the order in original. It talks of ownership and duty on the transferability of the goods. The order in original in paragraph 7 extract above goes on entirely in different route. I therefore hold that the proceedings initiated by the lower authorities in the circumstances are wrong in law and therefore set aside.
6. Hence I allow the appeal with consequential relief, if any.