JUDGMENT
Jeet Ram Kait
1. This appeal has been filed by Steel Authority of India Ltd against the order in Appeal No. 1/97-CE (CBE)-ADG dated 04.07.97 on the ground that the Commissioner (Appeals) ought to have taken the fact into consideration that the exemption was granted to them on the coin blanks for the main purpose of keeping the overall value of the coin within their face value. Therefore, the intention of the Govt. of India in issuing the special Ad hoc exemption order under Section 5 A(2) of the Central Excise Act, 1944 was to limit the value of the coin blanks supplied by Salem Steel Plant within the intrinsic value of the coin produced by the India Govt. Mint. Further the whole transaction is between a Govt. of India Department (DEA) and a Public Sector Undertaking. It is the view of the appellants that the exemption order issued under Section 5A(2) of the CE Act, 1944 should not be construed as permanent exemption granted to excisable commodity since exemption order was issued for the limited period and for a particular quantity considering the circumstances of exceptional nature viz., keeping the intrinsic value of a coin within the face value. They have therefor,e requested that the exemption granted in a ad hoc order should not be construed as wholly exempted from duty or chargeable to nil rate of duty. They have also cited the decision of the Hon’ble High Court of Calcutta in the case of Dinesh Kumar Nevatia v. CC, reported in 1988 (38 (ELT 606 (Cal.) to the effect that in the case of exemption order issued under Section 25(2) of the Customs Act, the gods continue to be chargeable to duty but the manufacturer is only exempted from payment of such duty, was not considered by the Commissioner (Appeals). They have also cited the judgement of the Hon’ble Delhi High Court in the case of Bombay Conductors and Electrical v. Collector reported in 1986 (28) ELT 87 Del) in which the Delhi High Court have given a ruling to the effect that general exemption order issued under Section 5A(1) is in exercise of sovereignty that is legislative power. On the other hand, the Special Exemption order issued under Section 5A(2) is an executive order and it grants exemption in specific cases and not generally. They have also cited the CEGAT judgement in the matter of CCE Meerut v. Maruthi Foam Pvt. Ltd. reported in 1996 (850 ELT 157 (T) in which it was held that material cleared in terms of the notification, granting full exemption is treatable as duty paid under Section 5A of the CE Act, 1944. In view of the above cited cases regarding applicability of exemption order, issued under Section 5A(2) of the CE Act, 1944, the stainless steel coin Blanks is not to be construed as wholly exempt from duty or is chargeable to nil rate of duty. Therefore, the Cold Rolled Stainless Steel Strips and other inputs which are used in the manufacture of Coil Blanks should not be denied the benefit of MODVAT Credit under Rule 57A of the CE Act, 1944. They have also submitted that the Residue of Stainless Steel strips after the coin blanks have been cut out (blanking scissels) is declared as an excisable commodity and excise duty was paid at the time of this clearance. Therefore, the decision of the Commissioner (Appeals) to confirm the demand of duty for the entire quantity of CRSS – Strips used in the manufacture of coin blanks including the usage factor of 1.3003 was not just and proper. This has resulted in disallowance of Rs. 23,19,323. They have further submitted that even assuming but not conceding that Rule 57C comes into operation to deny the Modvat Credit in respect of inputs used in the manufacture of exempted final products, the blanking scissels which are declared as an excisable commodity in their classification list and which are cleared on payment of duty is not to be considered as an exempted product. Therefore the denial of the additional sum of Rs. 23,19,323 by means of a corrigendum is not justified. They have therefore requested to restore the dis-allowance of Rs. 1,09,10,599/- which was disallowed to them on the ground that they are not entitled for the Modvat Credit on their final product because their final product is exempted in view of the provisions of Rule 57C of the CE Rules, 1944.
2. The facts of the case are that M/s. Salem Steel Plant (hereinafter referred to as SSP) are manufacturers of Cold Rolled Stainless Steel (CRSS for short)/sheets, waste and scrap of Stainless Steel falling under chapter 72 of the Schedule to the CET, 1985 and Stainless Steel coin blanks falling under chapter 73 of the Schedule to the CET, 1985. They have availed Modvat Credit of duty paid on the inputs in terms of the provisions of Rule 57A of the CE Rules, 1944. During the period from 1.1.94 to 12.10.94 they have cleared 1896.270 MT of Stainless Steel coin blanks on payment of duty and afterwards they have cleared 743.833 MT of coin blanks without payment of duty as the ad hoc exemption order NO. 11/11/94 CX.4 dated 21.9.94 as amended, was issued by the Ministry of Finance. This order granted them exemption for a total quantity of 2,640 MT. Inasmuch as the appellants have cleared 743.833 MT of stainless steel coin blanks without payment of duty by availing the ad hoc exemption was felt by the department that Modvat Credit availed on the inputs used for manufacture of 743.833 MT stainless steel coin blanks was inadmissible in terms of the proviso to Rule 57C of the CE Rules, 1944. Therefore, show cause notice notice bearing OC No. 794/95 dated 7.4.95 was issued to the assessee by the Supdt. of Central Excise, Salem II Range for disallowing the credit of Rs. 85,91,276/- availed on the inputs used in the manufacture of 743.833 MT of stainless steel coin blanks which were cleared without payment of duty. After carefully going through the records of the case and also the submissions made by the appellants, the Assistant Commissioner of Central Excise, Salem Division, Salem vide order in original Serial No. 175/95 dated 2.8.95 disallowed Modvat Credit of Rs. 85,91,276/- availed by the appellants on the inputs used in the manufacture of 743.8333 MT of Stainless Steel coin blanks cleared by them without payment of duty under Rule 57I of the CE Rules, 1944. The Assistant Commissioner has given a detailed (SIC) from para 9 to 13 of his order in which he has very categorically analysed the provisions of Rule 57C of the CE Rules, 1944 and held that Rule 57C does not differentiate between the final product exempt from duty by Notification issued under Section 5A)(1) or 5A(2) of the CE Act, 1944. he has held that primary condition to take credit on input is that the final product should be dutiable. Conversely when no duty is paid on the final product, no credit is admissible on the inputs which have gone in the manufacturer of such final product under Rule 57C of the CE Rues, 1944. He also held that no credit of specified duty paid on the inputs used in the manufacture of final product shall be allowed if final product is exempt from the whole of duty of excise leviable thereon or chargeable to nil rate of duty, under Rule 57C of the CE Rules, 1944. He, therefore, after discussing and thoroughly analysing the provisions of the Rule 57C and the exemption issued under Section 5A(2) of the CE Act, 1944 held that Modvat Credit is not admissible to the appellants on the inputs to the extent used in the manufacture of final product clearance without payment of duty. After passing this order, the Assistant Commissioner issued a corrigendum dated 12.9.95 asking the appellants to delete para 14 & 15 of the order and substituted three paras which were re-numbered as 14, 15 and 16. In para 14 of the Corrigendum to the order in original dated 2.8.95 the Assistant Commissioner observed that on going through the work sheet attached to the Shoe cause notice it was seen in the quantification of the amount of input credit proposed-to be disallowed, there is some arithmetical error. The quantity of stainless steel strips used in the manufacture of coin blanks is the actual quantity of strips that is consumed and not the inputs (SS strips) contained in the coin blanks that had merged and hence the actual consumption of strips alone has to be taken as consumption and not the 76.90% of the total consumption as mentioned in serial No. 1.4 and II of the Annexure to the show cause notice and he has drawn a revised the work sheet showing the quantity of coin blanks cleared without payment of duty as 743.833 MT. He also gave a work sheet that the quantity of CRSS required for producing 1 MT of SS coin blanks is 1.30039 MT and he worked out a quantity of 967.273 MT of CRSS strips for production of 743.8333 MT of SS coin blanks (743.833 x 1.30039). He also worked out in the corrigendum the total amount which is required to be expunged in the following manner:
A. Amount to be expunged in respect of : 53,13,240.00
F 520.141 MT of CRSS (520.141 x Rs 68100 x 15% adv)
B. Amount of credit to be expunged in respect of : 47,27,101.00
Credit taken under RG 23A Part II Sl. 645/6,=12.94 on
447.132 MT of duty paid CRSS strips used in the manufua
facture of SS coin blanks which were cleared without payment of duty (actual credit taken)
C. Quantum of Modvat Credit already availed : 8,70,258.00
On other inputs) to be expunged on account of
despatch of coin blanks without payment of duty
From 24.10.94 to 31.12.94
Therefore, the total amount to be expunged 1,09,10,599.00
He disallowed the Modvat Credit to the tune of Rs. 1,09,10,599 availed by the appellants on the inputs used in the manufacture of 743.8333 MT of SS coin blanks cleared without payment of duty, vide the Corrigendum dated 12.9.95.
3. Aggrieved by the main order in original and the corrigendum thereto, the appellants filed appeal before the Commissioner (Appeals). Appellants cited before the Commissioner (Appeals) the judgement of the High Court of Calcutta in the case of Dinesh Kumar Nevatia v. Collector reported in 1988 (33) ELT 606 (Cal) and submitted that in the case of exemption order issued under Section 25(2) of the Customs Act, 1962, a parallel provision under Section 25(2) of Customs Act, 1962 exempts single transaction under similar circumstances. They further submitted that this does not exempt product as such and the product continue to be dutiable. Therefore, their product which is coin blanks continue to be dutiable even though ad hoc exemption was granted for the supply of coin blanks. They therefore submitted before the Commissioner (Appeals) that their product should be extended the Modvat Credit and Rule 57C may not come in their way. They also cited the judgement of the Tribunal in the case reported in 1992 (62) ELT 104 (T). In that judgement the Tribunal held that for availing credit there need not be any one to one correlation between the inputs and the final product. After going through various submissions made by the appellants, the Commissioner (Appeals) held that as per Rule 57C of the CE Rules, 1944 no credit of specified duty paid on the inputs used in the manufacture of final products shall be allowed if the final product is exempt from the whole of duty of excise leviable thereon or is chargeable to nil rate of duty. He further held that the primary condition to take credit on input is that the final product shall be dutiable. Conversely where no duty is paid on the final product, no credit is admissible to the input used in the manufacture of the final product. He also held that Rule 57C does not differentiate between final products exempted from duty by a Notification issued under Section 5A(1) or 5A(2) of the CE Act, 1944. He also held that though the ad hoc exemption is applicable to a specific manufacture, in case of the appellant what is exempted is only the product manufactured and not the manufacturer. He also held that ad hoc exemption was granted to M/s. SAIL for the manufacture and clearance of 2640 MTs of Stainless steel coin blanks and as such no Modvat Credit is admissible on the inputs to the extent used in the manufacture of Stainless Steel coin blanks and he disallowed the Modvat credit to the tune of Rs 1,09,10,599/- availed by the appellants on the inputs used in the manufacture of 743.833 MT of SS coin blanks, cleared without payment of duty and confirmed the total quantum demanded in the order in original No. 175/75 dated 2.8.95 and the corrigendum dated 12.9.95 issued by the Assistant Commissioner.
4. We have heard Shri Ponnuswamy, Assistant Manager appearing on behalf of the appellants. He reiterated the grounds of appeal and vehemently argued on the lines indicated in para 1 above and prayed for setting aside the order passed by the learned Commissioner (Appeals).
5. Shri GS Menon, learned SDR appearing on behalf of the Respondent defended the orders passed by the authorities below. He further submitted that the corrigendum has been issued only because of an arithmetical error and that cannot be the ground to find fault with the order of the original authority and prays for dismissal of the appeal
6. We have considered the submissions, examined the records including the show cause notice No. 794/95 dated 7.4.95, order in original dated 2.8.95, the corrigendum to the order in original issued by the original authority, dated 12.09.95 and the order in appeal dated 4.7.97. By the said show cause notice, the Supdt of Central Excise, II-Range, Salem asked the appellants to show cause to the Assistant Collector of Central Excise, Salem Division, why the credit of amount of Rs 85,91,276/- which was availed wrongly in their RG 23A Part II (as detailed in the Annexure to the show cause notice) should not be disallowed as ineligible under Rule 571 of the CE Rules, 1944 and also why penalty should not be imposed on them under Rule 173Q of the Ce Rules, 1944. The Show cause notice had given the details in the Annexure such as quantity of coin blanks cleared without payment of duty, the CRSS strips used for production of 743.8333 MT of SS coin blanks as 967.273 MT> He worked out the duty to the tune of Rs 85,91,276 instead of the actual amount of Rs 1,09,10,599/- as arrived at in the corrigendum. The appellants during the course of hearing the appeal on 24.09.2001, took a plea that duty demanded and confirmed by both the original authority and the lower appellate authority was more than the duty demanded in the show cause notice. The duty demanded in the show cause notice was to the tune of Rs 85,91,276/- whereas duty confirmed in the order in original dated 2.8.95 was also Rs 85,91,276. It was only through the corrigendum that the Assistant Commissioner demanded duty of Rs 1,09,10,599/- as he tried to cure the defect of calculating the Modvat Credit erroneously in the show cause notice. We find that the corrigendum to the order in original and the order in appeal traversed beyond the scope of the Show cause notice as the amount of credit held to be wrongly availed was mentioned as Rs 85,91,276/- and this was the amount disallowed by the order in Original. We note that the Hon’ble Supreme Court, the Hon’ble High Courts and the Tribunal in a number of rulings have held that order confirming demand of duty cannot traverse beyond the scope of the show cause notice and therefore, on this ground we set aside duty demand arrived at by the authorities below in terms of the corrigendum issued. However, so far as the availability of the Modvat Credit is concerned, we uphold the view taken by the authorities below that when the final product is not dutiable, Modvat credit is not admissible on the inputs in view of the provisions contained in Rule 57C of the Rules ibid. So far as availability of Modvat Credit is concerned, we have considered the whole matter and we find that in the show cause notice the credit amount of Rs 85,91,276/- which was availed in their RG 23A Part II (as detailed in the Annexure to the show cause notice) was sought to be disallowed as ineligible credit under Rule 571 of the Rules ibid. But no where, either on the show cause notice or the Annexure attached thereto, mentioned the Modvat Credit (which was required to be disallowed) was to the tune of Rs 1,09,10,599. We, therefore, hold that the order holding disallowance of Modvat Credit of Rs 85,91,276/- by the Assistant Commissioner vide his order dated 2.8.95 which was confirmed on the basis of the show cause notice dated 7.4.95 was correct and we confirm the same because under Rule 57C, if the final product is exempt whether under Section 5A(1) or under Section 5(2) of the Act, modvat Credit cannot be allowed on the inputs which have gone into the manufacture of such example final product. Appellants have cited the judgments of the Hon’ble Calcutta High Court in the case of Dinesh Kumar Nevatia v. CC (supra) and the Delhi High Court judgement in the case of Bombay Conductors and Electricals v. Collector and the Tribunal decision in the case of CCE v. Maruthi Foam Pvt Ltd (supra). We find that the facts mentioned in those cases are not similar to the facts in the present case before us and those judgments cited by the appellants are distinguishable and are not relevant to the issue, with which we are concerned. In view of our above findings, we uphold the view taken by the authorities below that Modvat Credit is not admissible on the duty paid on the inputs, when the final product is not dutiable, in view of the provisions contained in Rule 57C of the Rules ibid. We, therefore, restrict the amount of Modvat Credit to be disallowed to the appellants to the tune of Rs 85,91,276/- (as arrived at both in the Show cause notice and the Order in Original) availed by Steel Authority of India Ltd. on the inputs used in the manufacture of 743.833 MT of Stainless Steel Coin Blanks, cleared by them without payment of duty. Except for the above modification, the appeal is otherwise rejected. Ordered accordingly.
(Pronounced in Open Court on28.09.2001)