SIVAMANI AND CO. Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) M/s. Sivamani and Co. Private Ltd. (M/s. SCPL, for short) are a first stage dealer registered with the department. They purchased HR steel coil sheets, HR Steel coil plates and MS plates from various manufacturers and supplied cuttings thereof to M/s. Sri Renganathar Industries (P) Ltd. (M/s. SRIL, for short). In the invoices issued by SCPL to SRIL, these cuttings were described in the same way as the goods were described in the invoices under which they were purchased by the former from manufacturers. Similarly, the tariff entries shown in the invoices issued by SCPL to SRIL were also the same as those shown in the parent invoices under which the former purchased the goods from the manufacturers. More significantly, the invoices of SCPL displayed proportionate duty on the cuttings. Modvat credit of this duty was taken by SRIL. This was objected to by the department saying that SCPL being a registered dealer was not entitled to deal in any scrap classifiable under Heading 72.04 of the CETA Schedule. Obviously, the department proceeded on the premise that the cuttings of sheets and plates supplied by SCPL to SRIL were nothing but scrap in the hands of the latter. In a show cause notice, the department proposed to disallow, the above credit to SRIL and to impose a penalty on them for irregular availment of credit. In the same notice, the department sought to penalise M/s. SCPL under Rule 209A of the Central Excise Rules, 1944 for alleged abetment of offence committed by SRIL. The proposals were contested by the parties. The adjudicating authority disallowed Modvat credit of Rs. 3,98,434/ - to SRIL under Rule 57AH(2) of the Central Excise Rules, 1944 read with Section 11A(1) of the Central Excise Act, 1944, imposed equal amount of penalty on them under Rule 51AH(2) and also imposed penalty of Rs. 4 lakhs on SCPL under Rule 209A. Aggrieved by this decision of the original authority, both the parties preferred appeals to the first appellate authority. But these appeals did not succeed. Hence the present appeals.

(2.) I have carefully examined the records including the copies of the relevant invoices and the relevant Modvat declarations produced by the appellants' Counsel. I have also considered the submissions of ld. Counsel and ld. SDR. M/s. SRIL took the credit in question after filing a declaration under Rule 57G of the Central Excise Rules, 1944 declaring their inputs as HR coil cuttings, MS plates, etc. and showing these items as falling under Heading 72.08. The invoices of SCPL under which these goods were received by SRIL also described the goods in the same way and showed them as classifiable under Heading 72.08. According to the Revenue, since these goods were received by SRIL as scrap in terms of purchase orders placed on SCPL, and were melted in their furnace, they could only be considered as scrap in the hands of SRIL. They were taking Modvat credit of the duty paid on scrap classifiable under Heading 7204, which was never declared by them under Rule 57G. From another angle, the department would say that SCPL, being a registered first stage dealer, were not entitled to deal in scrap. They were only authorised to deal in MS sheets, plates, etc., falling under Heading 72.08 and, therefore, they were not authorised to pass on Modvat credit on any material other than these to anybody. I am told that the department has been proceeding against M/s. SCPL separately to recover duty on the above cuttings on the premise that they were engaged in manufacturing activity.

(3.) The immediate question before me is whether M/s. SRIL are entitled to avail Modvat credit on the cuttings of plates, sheets, etc., supplied by SCPL. It is not in dispute that these are cuttings of plates, sheets, etc., falling under Heading 72.08. The Revenue has no case that the thickness of the plates, sheets, etc., was reduced in the activity of cutting. Obviously, the cutting process resulted in reduction of area only. Though thickness is a parameter relevant to classification of these goods under Chapter 72 of the CETA Schedule, area is irrelevant. Sheets, plates, etc., classifiable under Heading 7208 are so classifiable in reduced area also. Hence the cuttings supplied by SCPL to SRIL cannot be treated differently from the sheets, plates, etc., from which they were cut. In selling the cuttings to M/s. SRIL, SCPL were only dealing in sheets, plates, etc. Hence the cuttings were correctly declared by SRIL. As the department has no case that SRIL took Modvat credit of duty in excess of what was paid on the cuttings by SCPL, there is no dispute in terms of the quantum of credit. In the circumstances, I hold that M/s. SRIL were taking Modvat credit on cuttings of plates, sheets, etc., classifiable under Heading 72.08 as declared by them under Rule 57G and were not taking credit on scrap (Heading 7204) as alleged by the department. They were eligible for the credit. It would follow that no offence can be attributed to SCPL in connection with the regular availment of credit by SRIL.