MEDOPHARMA Vs. SUPDT OF CENTRAL EXCISE MADRAS

JUDGEMENT

(1.) ALL these writ petitions relate to the propriety of claiming Modvat Credit on the inputs purchased by the petitioners from the open market without properly complying with Rule 57-G of the Central Excise Rules. The writ petition have been filed at various stages of the proceedings initiated by the respondents.<AT>W.P. No. 5036 of 1988</AT> has been filed by Medopharm, a partnership firm, challenging the order dated 7-3-1988, which is only a show cause notice seeking to recover the amount of Modvat Credit wrongly availed of, and proposing to impose penalty for the violation of the Rules.

(2.) W.P. No. 9006 of 1988 has been filed by the said Medopharm represented by its Managing Partner questioning the order of the first respondent dated 8-2-1988 made on an appeal, confirming the demand for the amount of Modvat Credit wrongly availed of by the petitioner and imposing a penalty for the violation of the Rules. W.P. No. 9007 of 1988 has been filed by Medopharm Pharmaceuticals by its Proprietrix against a similar order dated 8-2-1988 made by the Collector of Central Excise (Appeals). W.P. No. 9008 of 1988 has been filed by the said Medopharm represented by its partner against the order 8-2-1988 made by the Collector of Central Excise (Appeals). W.P. No. 9009 of 1988 has been filed by Managing Partner of Medopharm, against the order dated 8-2-1988 made by the Collector of Central Excise (Appeals). W.P. No. 9010 of 1988 has been filed by Medopharm Laboratories represented by its Proprietrix against the order dated 8-2-1988 made by Collector of Central Excise (Appeals). W.P. No. 10430 of 1988 has been filed by Medopharm Laboratories represented by its Proprietrix against the order dated 30-3-1988 made by the Collector of Central Excise. W.P. No. 10431 of 1988 has been filed by Medopharm Pharmaceuticals represented by its Proprietrix against the order dated 30-3-1988 made by the Collector of Central Excise (Appeals). W.P. No. 10432 of 1988 has been filed by Medopharm, a partnership firm, against the order of the Collector of Central Excise (Appeals) dated 17-5-1988. W.P. No. 10511 of 1988 has been filed by Alfred Berg & Co. (I) Private Limited, represented by its Director, for a Declaration to declare first proviso to Rule 57G(2) of Central Excise Rules, 1944, as unconstitutional. W.P. No. 9674 of 1989 has been filed by Medopharm, a partnership firm, for a mandamus to forbear the respondents from disallowing Modvat credits in respect of inputs purchased in the open market.

(3.) THE case of the petitioners as set out in<AT>W.P. No. 5036 of 1988</AT> may be noticed to understand the scope of the proceedings. THE petitioners are said to be a manufacturer of patent or proprietary medicines classified under Chapter 30 of the Central Excise Tariff; In the year 1986, the Central Government introduced a scheme known as Modvat, under which a manufacturer is allowed to take credit for the Excise-duty paid on the inputs and deduct the same from the excise duty payable on the final products. Rules 57A to 57P of the Central Excise Rules (hereinafter called "the Rules") deal with the procedure for availing the credit. Rule 57G enjoins upon the petitioner to send a declaration to the Assistant Collector of Central Excise indicating the final product and the inputs to be used in the manufacturer of the same and also to get an acknowledgement from the Assistant Collector. THE petitioners claim that they had filed such a declaration and obtained the acknowledgement. Consequently, they availed of the Modvat credit. Rule 57G lays down that the payment of duty on the inputs should be proved by Gate-passes or A.R. 1 forms or Bill of Entry or any other document. Rule 57G(4) lays down that monthly returns are to be submitted to the Superintendent of Central Excise and the documents evidencing payment of excise duty on the inputs should be made available for inspection. It is the contention of the petitioners that they have been submitting such returns. It is stated that in respect of certain inputs purchased are also covered by gate passes. In respect of purchase of printed boxes. Polythene jars and corrugated boxes from various persons in the open market the necessary documents were not filed. THE further contention is that paper and paper board which go into the manufacture of the Boxes and are excisable goods and they would have suffered excise duty at the time of removal from the factory. THE dealers who make the boxes cannot be expected to have the gate-pass entry. Similarly, polythene jars are excisable goods and if these jars are purchased from a factory, then only gate-passes will be available. THE petitioners contend that they purchased these goods (inputs) from dealers and not from manufacturers. THE petitioners are small scale industries and they cannot directly buy from manufacturers. THErefore, they contend that only the available documents were produced before claiming the Modvat Credit. Long after the availing of the Modvat credit the respondents had started taking proceedings for expunging the credit. THE main complaint against the petitioners is that they did not produce the gate-passes in proof of payment of excise duty on the inputs. Rule 57G which refers to gate-passes or A.R. 1, a Bill of Entry cannot be strictly applied to the case of the petitioners because gate pass and A.R. 1 are issued only when the goods are purchased from a factory. THE question of Bill of Entry will arise only in the case of imports of goods. Only when goods are purchased from a factory a Gate Pass or A.R. 1 is issued and goods can be purchased from a factory only when a person does a large scale business. Small manufacturers like the petitioners cannot purchase such inputs from factory and they can only buy from dealers. It is on these facts that the petitioners contend that the proviso the Rule 57G of the Rules must be either struck down or read down in such a way as not to insist on Gate Pass or A.R. 1 in all cases.