1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- 1. OTHER TAX REF. CIVIL No. 31 of 2004 M/S SHIVAGRICO IMPLEMENTS LTD V/S CCE JAIPUR 2. OTHER TAX REF. CIVIL No. 32 of 2004 COMMISSIONER OF CENTRAL EXCISE JAIPUR V/S M/S SHIVAGRICO IMPLEMENTS LTD Mr. VINEET MATHUR & Mr. RISHAB SHANCHETI, for the Commissioner of Central Excise. Mr. RAMIT MEHTA & Mr. AVINASH ACHARYA, for the assessee M/s. Shivagrico Implements. Date of Order : 11.2.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI DEO NARAYAN THANVI,J. ORDER ----- These two references have been called by this Court in different reference petition arising out of the common final order of the learned Customs, Excise & Gold (Control) Appellate Tribunal deciding three appeals, on the following question of law:- “Whether in the facts and circumstances of the case, the modvat credit on captive consumption of inputs can be availed by the assessee when it has fulfilled the conditions of payment of Excise Duty under S. 3A of the Central Excise Act when the goods were removed from the re-rolling Mill manufacturing inputs to forging factory under an invoice by making payment of the invoice price by a cheque in separate account though both the 2 factories are owned by the same person?” The question is said to be arising, on account of interpretation of Notification No. 58/97 CE, which reads as under:- “Iron and steel – Goods notified for purposes of credit of duty under Modvat – In exercise of the powers conferred by sub-rule (6) of rule 57A of the Central Excise Rules, 1944, the Central Government hereby declares the following inputs and the final products falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) namely:- _________________________________________________ S. Inputs Final products No. _________________________________________________ (1) (2) (3) _________________________________________________ Hot re-rolled products of non alloy All goods falling steel falling under sub-heading Nos. Within the said 7211.11, 7211.19, 7211.30, 7211.52, Schedule. 7211.59, 7211.60, 7211.92, 7211.99, 7213.90, 7214.90, 7215.90, 7216.10 and 7216.90 of the said Schedule and on which duty of excise has been paid under section 3A of the Central Excise Act, 1944 ( 1 of 1944) ___________________________________________________________ 2. The Central Government further declares that the duty of excise under the Central Excise Act, 1944 (1 of 1944) (hereinafter referred to as the said Act), shall be deemed to have been paid (hereinafter referred to as deemed duty), on the inputs declared herein and the same shall be equivalent to the amount calculated at the rate of twelve per cent of the price, as declared by the manufacturer, in the invoice accompanying the said inputs (hereinafter referred to as invoice price), and credit of the deemed duty so determined shall be allowed to the manufacturer of the final products. 3. The credit of deemed duty allowed in respect of the said inputs shall be utilised only towards payment of duty of excise leviable under the said 3 Central Excise Act on the said final products: Provided that the credit of deemed duty in respect of inputs cleared for export under bond shall be allowed to be utilised towards payment of duty of excise on any final products cleared for home consumption or for export, on payment of duty and where for any reason such adjustment is not possible by refund to the manufacturer subject to such safeguards, conditions and limitations as may be specified by the Central Government in the Official Gazette. Provided further that no such refund of credit of deemed duty shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties (Drawback) Rules 1971, or claims rebate of duty under rule 12 in respect of such duty. 4. The provisions of this notification shall apply to only those inputs which have been received directly by the manufacturer of the final products from the factory of the manufacturer of the said inputs under the cover of an invoice declaring that the appropriate duty of excise has been paid on such inputs under the provisions of section 3A of the said Act. 5. The provisions of this notification shall not apply to inputs where the manufacturer of the said inputs has not declared the invoice price of the said inputs correctly in the documents issued at the time of their clearance from his factory. 6. This notification shall come into effect on and from the 1st day of September, 1997. Explanation- For the purpose of this notification, “invoice price” means the price charged by the manufacturer of inputs and indicated in the invoice accompanying the said inputs, the payment for which is made directly by the manufacturer of the final products to the manufacturer of the said inputs by cheque drawn on his own bank account or by bank draft or by bankers' cheque.” The facts bereft of unnecessary details are, that the assessee M/s. Shivagrico Implements Ltd., SIL for 4 short, was availing the benefit of modvant credit in respect of re-rolled non alloy steel products, bars, flats, angles etc. classified under sub-heading no. 7214.90 of the Central Excise Tariff, manufactured in their re-rolling mills, when used in the manufacture of their final products- agricultural implements i.e. packaxe, pawarah, railway beaters etc., classifiable under Chapter 82 and 84 of the Central Excise, in their forging division. However, the benefit of deemed modvat credit at 12 percent of the price of the input, available under the Notification No. 58/97, was sought to be denied by the Department, on the ground, that they did not fulfil the conditions, subject to which the benefit of deemed modvant credit was available, under the said notification. Thereupon the controversy arose, and the two authorities below found the assessee to be not entitled to the credit, while the learned Tribunal set aside those orders, and found that the benefit of modvat credit could not be denied to the assessee, solely on the ground, that the duty paid inputs were captively used in manufacture of dutiable final products. It was not disputed that the price as declared by SIL in their invoices issued for captive consumption was the same as was declared in the invoice for outside sale. It is on this judgment, that the references have been called, on the above question. 5 It is not disputed even before us, that re-rolling division of the assessee, who had manufactured inputs, had been charged excise duty at 12%, being dependent on the capacity of the manufacturer. Thus, the factual position which un-disputedly arises is, that the two units being re- rolled unit, and the forging unit, do belong to the same assessee, who is said to be registered with the Central Excise as one unit. Both the units are belonging to the same company, and are situated at the same place. Likewise, re-rolling unit is charged excise duty on the goods manufactured by it, and such manufactured goods are sold by the re-rolling unit, not only to the forging, but also to the outsiders also, who also are using the same as inputs, and are availing modvat credits,and part of such production is being supplied to the forging unit of the assessee itself also against a proper invoice, at the same price, showing it to be duly excise duty paid, and the payment is being received from forging unit, by the re-rolling unit, through necessary cheques. It is notwithstanding above factual position that modvat credit is sought to be denied by the Department, on the ground that the Notification No. 58/97 postulates two different manufacturers; one being the manufacturer of the inputs, and the other being manufacturer of the final product, and that the transaction should be undertaken in the manner, strictly as provided by the explanation, 6 comprised in the said notification, and unless all the conditions co-exist, the assessee cannot be said to be entitled to modvat credit. We have considered the submissions, and find ourself unable to agree with the submissions. The learned Tribunal has discussed the matter thread bare, and has drawn distinction between the two types of the requirements; one being substantive, and the other being procedural, and after duly bifurcating them, from out of the notification, has found that substantive requirements are properly complied with, and even without finding as to what procedural requirement was lacking, it has been observed, that procedural requirements need not be strictly insisted upon to deny the modvat credit. At the outset we may say, that we are at one with the conclusions arrived at by the learned Tribunal. That apart, even we were to go to the notification, even from its reading, and re-reading, and still re-reading, we have not been able to find out, that the notification contemplates existence of the two independent units; one manufacturing inputs, and other manufacturing the final product, in the manner, as sought to be contended before us, i.e. the two units should be distantly located, and should be owned by different persons. The notification only 7 comprehends the definition, as to what shall be deemed excise duty paid invoice price, and parameters of calculating the modvat credit, and contemplates the requirement, about the inputs having been cleared after paying the proper duty under the provisions of Section 3-A of the Act, and also provides, that if the inputs having not been correctly declared in the document, then the credit would not be available. Even so far explanation is concerned on which much stress was led, all that it clarifies is what shall be the comprehensions of the 'invoice price' by providing it to mean, the price charged by the manufacturer of the input, and indicating in the invoice accompanying the said inputs, the payment for which is made directly by the manufacturer of the final products to the manufacturer of the said inputs, by cheque drawn on his own bank account, or by bank draft or by bankers' cheque. In our view, the explanation has the effect of only describing the meaning of invoice price, and it cannot be interpreted to mean to be having any effect, on the aspect, as to whether the modvat credit would be available to purchaser of input, who has purchased it as duly excise duty paid inputs, which are accompanied with the requisite documents. It has already been considered by the learned Tribunal, that this notification No. 58/97 has not been issued under Section 3A of the Act, but has been issued 8 under Sub-rule (6) of Rule 57-A. Yet another aspect of the matter is, that all said and done, the object of providing modvat credit is to avoid double taxation by way of excise duty on the same thing. Here in the present case, as is not disputed, that the manufacturer of the input is supplying the input to its forging division, so also to the other manufacturer of the final product, in the market as well, and the other manufacturer, are duly availing the modvat credit. In these circumstances, there is no earthly reason, not to allow the modvat credit to the forging division of the assessee; simply because the two units are owned by the same company, and/or are situated in the same premises. Even at the cost of repetition we are constrained to observe, that neither the notification No. 58/97, nor sub-rule (6) of Rule 57-A any-where contemplates the requirement of two independent units being existing at different places, and belonging to different persons, as a sine qua non, for entitlement of modvat credit. Any other interpretation would have the effect of out marketing the product (final product) manufactured by the forging unit of the assessee; as it would costlier by at least 12%, as compared to the final product, as manufactured by the others, who has purchased the input from the re-rolling unit of the assessee itself. Thus, taken from any stand point, in our view, it 9 cannot be said that the assessee could be denied the modvat credit on captive consumption of the inputs. The question, as formulated, is answered against the Department, and in favour of the assessee, and the order of the learned Tribunal is upheld. ( DEO NARAYAN THANVI ),J. ( N P GUPTA ),J. /Sushil/