JINDAL POLYMERS Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THE appellants herein who are a division of Jindal Polyester Ltd., are engaged in the manufacture of polyester/polymer chips falling under CET sub -heading 3907.80 on job work basis for M/s. Jindal Polyester Ltd. They received main inputs viz. DMT and MEG from M/s. Jindal Polyester Ltd. for the purpose of processing/job work in terms of Notification 214/86 -CE dated 25.3.86, on which no credit was taken by them. They also procured certain other inputs viz. furnace oil, ammonia, titanium oxide, etc., for use in processing of inputs received from M/s. Jindal Polyester and availed Modvat credit on the above inputs. The processed goods i.e. polyester/polymer chips were cleared without payment of duty under the said Notification to the parent manufacturer i.e. M/s. Jindal Polyester Ltd. The Department was of the view that credit was not admissible since Rule 57C of the Central Excise Rules provided that Modvat credit of duty paid on inputs used in the manufacture of final products cleared at nil rate of duty is not admissible if the provisions of Rule 57CC ibid are not followed, and the assessees did not follow the provisions of Rule 57CC. Hence a show cause notice dated 2.2.98 was issued to the assessees proposing recovery of Modvat credit of Rs. 36,45,107 availed during the period July to December 1998 and proposing imposition of penalty. A second show cause notice was issued on 25.8.99 proposing recovery of credit of Rs. 8,46,221 availed during the period January and February 1999 and also proposing penal action. The adjudicating authority upheld the charge in the notices and disallowed total credit of Rs. 44,91,828 under Rule 57 -1 of the Central Excise Rules, imposed a penalty of equal amount under Rule 57 -1(4) and Rule 173Q, and levied interest under Rule 57 -1(5) at the rate of 18%. Hence this appeal.

(2.) OPPOSING the contentions of the assessee, learned SDR, Rajeev Tandon explains that the appellants were operating under Notification 214/86 and that the non -availability of the declaration furnished under the Notification, on record, cannot lead to the conclusion that no such declaration was furnished by them, particularly when they had pleaded before the adjudicating authority that even if they had declared to the Department that they were availing the benefit of 214/86, they were not working thereunder. In other words, he submits that the assessees have not clearly denied filing of a declaration under Notification 214/86 and in view of the finding of the Commissioner that they were operating under 214/86, the plea of the assessees that they were not operating under the Notification is not to be accepted. Learned SDR seeks to distinguish the decision of the Tribunal in the case of Bajaj Tempo Ltd., relied upon by the assessees on the ground that Notification 214/86 which was relevant in that case, is different from Notification 214/86 (sic) [217/86] and, therefore, the ratio of the Bajaj Tempo decision cannot be applied to the facts of the present cases. He cites the Tribunal's decisions in the case of M/s. Orissa Extrusions Ltd. v. Collector of Central Excise reported in to support his plea that Modvat credit is not admissible on inputs used in the manufacture of final products cleared free of duty in terms of exemption Notification.

(3.) WE have carefully considered the rival submissions. We find that the appellants have not categorically denied the filing of a declaration under Notification 214/86. We, therefore, proceed on the basis that the appellants were operating under the Notification. Notification 214/86 exempts specified goods manufactured in a factory as job work and used in or in relation to the manufacture of specified final products (on which duty of excise is leviable whether in whole or in part) from the whole of excise duty leviable thereon. The polyester/polymer chips were cleared by the appellants without payment of duty to the parent manufacturer viz. M/s. Jindal Polymer Ltd. who further use them in the manufacture of polyester/polymer filament yarn which was cleared on payment of duty. Under these circumstances, we see force in the submission of the assessees that the ratio of the Tribunal's decision in the case of Bajaj Tempo Ltd. v. Collector of Central Excise, Pune in the context of Notification 217/86 requires to be applied to the present case also. In that case M/s. Bajaj Tempo who are manufacturers of motor vehicles, received inputs under the modvat scheme in respect of materials which they utilised in the manufacture of motor vehicle parts and IC engine; these motor vehicle parts and IC Engines were partly used in the further manufacture of motor vehicles in the same factory and partly sent under Chapter X procedure for further utilisation in the manufacture of motor vehicles in another unit belonging to the appellant, in terms of exemption Notification 217/86 dated 2.4.86 as amended. The Department raised the objection that the products cleared from their factory under Chapter X procedure in terms of Notification 217/86 are exempted and hence in terms of Rule 57C of the Central Excise Rules, Modvat credit taken in respect of duty paid on inputs utilised in the manufacture of these products cleared outside to another unit of theirs for further manufacture is not admissible, because the goods cleared are final products and they are cleared at Nil rate of duty by availing exemption under Notification 217/86. In view of this objection, Modvat credit taken on inputs utilised for the products cleared under Notification 217/86 for captive consumption in another unit of the appellant was ordered to be reversed. The Commissioner (Appeals) rejected the appeals of M/s. Bajaj Tempo, who filed appeals before the Tribunal. The issue involved in that case is whether Modvat credit can be denied when goods are manufactured utilising Modvat input in their factories but transferred to another unit for further manufacture of dutiable final products in the said other unit. The Tribunal came to the conclusion that Notification 217/86 stands on a different footing when it comes for consideration for the purpose of applying Rule 57C and it is not like any other exemption, where the intention is to forego levy on the products cleared from the factory. The Tribunal further held that the scope of Rule 57C is to be construed in the context of Modvat scheme and not to destroy that concept and that in the cases of disintegrated production, such credit is available by paying duty at each finished stage and taking credit of such duty in the other units down the line, whereas in the case of vertically integrated production units, the same benefit is sought to be conferred by averting payment of duty at each stage and postponing the availment of credit to the final stage of manufacture. The Tribunal allowed the appeals of the assessees with direction to restore credit to them. The relevant paragraphs of the Bajaj Tempo order are reproduced below: