

1. In order to decide the instant appeal, let us take stock of the facts which are not in dispute. These are as follows: The Appellant herein is engaged in the manufacture of bars and rods of mild steel falling under Chapter 72 of the Central Excise Tariff Act, 1985. These bars and rods of mild steel are manufactured from reliable and re-rollable old and discarded rails, wheels, fish plates, etc. The aforesaid raw materials/inputs are purchased by the Appellant from Railway authorities in the auction held by the Railways, without melting the same and are duly registered with the Central Excise Department. The Appellant is also registered under the Central Excise Act. While removing the bars and rods of mild steel from its factory premises after its manufacture, at the time of sale, the Appellant faced Excise duty thereupon. However, the Appellant wants MODVAT credit of the duty which was already paid by the Railways on the rods, wheels, fish plates, etc., when the Railways initially purchased the same and which the Railways sold to the Appellant after using the said products for a number of years. It is also a matter of record that at the time of purchase of the discarded rods, wheels, fish plates, etc., from the Railways in auction, the Appellant did not pay any Excise duty. As pointed out above, the Appellant wants credit of the Excise duty which was paid by the Railways when they originally purchased the aforesaid material. The question, therefore, that arises for consideration on the aforesaid facts is as to whether the Appellant is entitled to claim the credit of the said duty paid by the Railways.

2. The statutory regime that covers the field is contained in Rule 57G of the Central Excise Rules, 1944 (hereinafter referred to as Rules), and two notifications dated 13-7-1992 and 1-3-1994. Rule 57G makes the following reading:

"RULE 57G. Procedure to be observed by the manufacturer. - (1) Every manufacturer intending to take credit of the duty paid on inputs under Rule 57A, shall file a declaration with the Assistant Collector of Central Excise having jurisdiction over his factory, indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products and such other information as the said Assistant Collector may require, and obtain a dated acknowledgment of the said declaration.

(2) A manufacturer who has filed a declaration under Sub-rule (1) may, after obtaining the acknowledgment aforesaid, take credit of the duty paid on the inputs received by him:

Provided that no credit shall be taken unless the inputs are received in the factory under the cover of a Gate Pass, an A.R.1, a Bill of Entry or any other document as may be prescribed by the Central Board of Excise and Customs [constituted under the Central Boards of Revenue Act, 1963 (54 of 1963)] in this behalf evidencing the payment of duty on such inputs:

Provided further that having regard to the period that has elapsed since the duty of Excise was imposed on any inputs, the position of demand and supply of the said inputs in the country and any other relevant considerations, the Central Government may direct that with effect from a specified date, all stocks of the said inputs in the country, except such stocks lying in a factory, Customs area [as defined in the Customs Act, 1962 (52 of 1962)] or a warehouse as are clearly recognisable as being non-duty paid, may be deemed to be duty-paid and credit of duty in respect of the said inputs may be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing the payment of duty:

Provided also that the manufacturer shall take all reasonable steps to ensure that the inputs acquired by him are goods on which the appropriate duty as indicated in the documents accompanying the goods, has been paid.

(3) A manufacturer of the final products shall maintain, -

(a) an account in Form R.G.23A, Parts I and II;

(b) in respect of duty payable on final products, an account-current with adequate balance to cover the duty of excise payable on the final products cleared at any time.

(4) A manufacturer of the final products shall submit to Superintendent of the Central Excise the original documents evidencing the payment of duty along with extracts of Parts I and II of form R.G.23A every month and the Superintendent of Central Excise shall, after verifying their genuineness, deface such documents and return the same to the manufacturer."

3. As per the second proviso to Rule 57G(2), when considerable time has elapsed since the duty of Excise was imposed on any inputs, it is deemed that the duty was paid thereupon and credit of the duty in respect of the said inputs can be allowed at such rate and subject to such conditions as the Central Government may direct, without production of documents evidencing the payment of duty.

4. It is in exercise of this power contained under the aforesaid proviso, that Notification dated 13-7-1992 was issued on the subject of "MODVAT-Deemed credit in respect of re-rollable material (Chapters 72 & 73)". As per this notification, in respect of ingots and re-rollable materials of iron or steel purchased from outside and lying in stock on or after the 7th day of July, 1992 with the re-rollers may be deemed to have paid duty at the rate of Rs. 920/- per tonne, and the credit of duty under Rule 57A of the said rules in respect of such ingots and re-rollable materials used, without undergoing the process of melting, is allowed at the aforesaid rate, i.e., at the rate of Rs. 920/- per tonne.

5. Notification dated 1-3-1994 is also issued in exercise of powers conferred under second proviso to Rule 57G(2) of the Rules, as per which in respect of the same very material, viz., ingots and re-rollable materials of iron and steel purchased from outside and lying in stock on or after 1-4-1994, it is again deemed that duty has been paid thereupon and the credit of the duty is allowable under Rule 57A of the said Rules at the rate of Rs. 920/- per tonne. The only conditions are that the material is used without undergoing the process of melting and the goods which are manufactured fall under Chapter 72 or 73 of the Schedule to the Central Excise Tariff Act, 1985.

6. The Appellant herein was issued three show cause notices dated 28-7-1994, 19-9-1994 and 14-11-1994 to show cause as to why the request for claiming the MODVAT credit be not rejected. He filed reply to these show cause notices. Thereafter, the matter was heard by the Assistant Commissioner of Central Excise (Lucknow) in respect of these show cause notices which resulted in Order-in-Original dated 27-3-1996. The adjudicating authority accepted the claim of the Appellant by the said order.

7. A perusal of the said order would show that a finding of fact is arrived at by the adjudicating authority that there was no melting of the aforesaid inputs while manufacturing the bars and rods of the iron and steel. The adjudicating authority also recorded a finding that the goods in question which were purchased by the Appellant as scrap from the Railways and became inputs for it to manufacture its own goods were not dutiable. Further no evidence was produced by the Revenue to the effect that they were exempt from the Excise duty when purchased by the Railways originally. The adjudicating authority remarked that once the goods were dutiable, there was a presumption that duty was paid unless the Department is able to show that the Railways was exempt from payment of Excise duty. In support of this legal proposition, the adjudicating authority, referred to the judgment of this Court in the case of 'Collector of Customs v. K. Mohan Company' MANU/SC/0118/1989MANU/SC/0118/1989 : [1989 (43) E.L.T. 811 (S.C.)]. The adjudicating authority thereafter applied the aforesaid Notifications dated 13-7-1992 and 1-3-1994 and held that in these circumstances, the deeming provisions contained in those notifications would get attracted and the Appellant shall be entitled to the MODVAT credit at the rate of Rs. 920/- per tonne which is the rate specified in the said notifications.

8. Not satisfied with this outcome, the Revenue preferred appeal before the Commissioner. The Commissioner allowed the appeal and set aside the Order-in-Original which was passed by the Assistant Commissioner.

9. We have gone through the said order dated 6-11-1996 passed by the Commissioner. The only reason for denying the MODVAT credit to the Appellant, which is contained in the said order, is that the purchase bills of scrap from Railways in auction do not indicate the rate and amount of duty paid on the scrap/inputs at the time of clearance/sale by the Railways and thus, it was clear that no duty had been paid on inputs. On that basis, it is concluded that the question of availment of deemed credit does not arise.

10. We may point out at this stage itself that the aforesaid reasons given by the appellate authority are clearly erroneous inasmuch as there was no such obligation on the part of the Appellant to pay the Excise duty at the time of purchase of the material from the Railways. On the contrary, the Appellant was claiming MODVAT credit on deemed basis, viz., the Excise duty that was paid by the Railways at the time of purchase of the said material which was sold as scrap to the Appellant herein. This claim, as already pointed out above, was attracted on the basis of the aforesaid two Notifications dated 13-7-1992 and 1-3-1994 coupled with Rule 57G(2) of the Rules. That aspect, we find, has not even been touched upon or dealt with by the Commissioner. Same error, we find, is in the order of the Customs, Excise and Gold (Control) Appellate Tribunal (hereinafter referred to as 'CEGAT') where appeal was preferred by the Appellant against the order of the Commissioner and the CEGAT also dismissed the appeal observing that the Appellant had not paid any duty at the time of purchase of the material from the Railways.

11. The Appellant had challenged the order of the CEGAT before the High Court of Allahabad. The High Court vide the impugned judgment MANU/UP/0083/2004MANU/UP/0083/2004 : [2005 (188) E.L.T. 367 (All.)] has dismissed the appeal of the Appellant and while doing so, it has again fell into the same error as was committed by the CEGAT or the Commissioner, viz., denying the deemed MODVAT credit to the Appellant on the ground that the Appellant had not paid duty on the unserviceable raw material.

12. We find from the facts of this case, which are not in dispute, the Appellant satisfies all the eligibility conditions contained in notifications dated 13-7-1992 and 1-3-1994 for availing the deemed MODVAT credit. We thus, allow this appeal and set aside the orders passed by the High Court, the CEGAT and the appellate authority and restore the order of the Assistant Commissioner which had allowed the said credit to the Appellant. No costs.

