ROCHEES WATCHES LTD. Vs. COMMISSIONER OF CUSTOMS

JUDGEMENT

(1.) THESE appeals have been preferred against the common order -in -original dated 16 -11 -2001 vide which the Commissioner of Central Excise has confirmed the duty demand of Rs. 35,88,013/ - with equal amount of penalty for the period 1 -4 -2000 to 30 -8 -2000, against the appellants.

(2.) THE appellants are engaged in the manufacture of exempted as well as dutiable wrist watches and wrist watch cases. The wrist watches with maximum retail price (MRP) up to Rs. 500/ - per piece were exempted from levy of Central Excise duty vide Notification No. 6/2000 -C.E., dated 1 -3 -2000 whereas the watches with MRP exceeding Rs. 500/ - per piece continued to attract duty @ 16% adv. The appellants were also availing SSI exemption on wrist watch cases during the financial year 2000 -2001. They were availing Cenvat credit facility on all the inputs meant for use in the manufacture of dutiable as well as exempted wrist watches but maintaining combined records in respect of receipt, consumption and inventory of the inputs. They were, therefore, required to pay an amount equal to 8% of the value of the exempted wrist watches of MRP up to Rs. 500/ - in terms of Rule 57AD(2)(b), but they cleared the same without payment of duty during the period 1 -4 -2000 to 30 -8 -2000. They were served with a show cause notice dated 23 -3 -2001 vide which the duty demand of Rs. 35,88,013/ - was raised. Penalty was also proposed to be imposed on them. The demand of Rs. 77,560/ - on account of Cenvat credit in respect of wrist watch cases lying in their stock as on 31 -3 -2000 was also demanded. The appellants contested the correctness of that notice. They denied their liability to pay the duty amount and maintained that, the provisions of Rule 57AD(2) were not applicable to their case for having reversed the Cenvat credit in respect of exempted final products before clearances. They denied the suppression of any fact from the Department. The adjudicating authority did not accept the plea of the appellants and confirmed the demand of the amounts detailed above with equal amount of penalty, through the impugned order.

(3.) WE have heard both sides. The demand relates to wrist watches and wrist watch cases. In respect of wrist watches, the demand is of Rs. 35,10,453/ -. It has been raised on the ground that the appellants were not maintaining separate inventory of the inputs used in the manufacture of dutiable and exempted wrist watches and as such they were liable to pay 8% of the value of the exempted wrist watches, under Rule 57AD(2)(b) of the Rules. But it remains undisputed that the appellants had already reversed the Mod -vat credit taken on the inputs used in the manufacture of the exempted wrist watches and as such they cannot be said to have availed any Modvat credit in the eyes of law, in view of the ratio of law laid down by the Apex Court in Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur - 1996 (81) E.L.T. 3 (S.C.). In that case also there was exemption to the specified goods subject to the condition that no Modvat credit was taken on the inputs used in their manufacture and the same inputs were also utilised for the manufacture of dutiable and duty free goods by the assessee. The assessee did not maintain separate accounts nor segregated the inputs used for the manufacture of both these types of goods as should have been done by him under the Rules. But before clearing the duty free goods, the assessee reversed the Modvat credit by making the debit entry. The Apex Court in these circumstances observed that "the debit entry in the register indicated as if no credit was taken on such inputs". The law laid down in that case by the Apex Court is on four and very aptly applies to the case of the appellants, having almost identical facts and circumstances. Therefore, the appellants cannot be said to have availed Modvat credit in respect of the inputs used in the manufacture of duty free wrist watches and as such, no demand in terms of Rule 57AD(2)(b) of the Rules could be raised and confirmed against them.