RAYMOND SYNTHETICS LTD. Vs. CCE, ALLAHABAD

JUDGEMENT

(1.) THE above appeal arises out of the order of the Commissioner of Central Excise, Allahabad who has confirmed a duty demand of Rs. 50,77,918/ - against the appellants, holding that they had wrongly availed modvat credit of the above amount during the month of November 1991 and imposed a penalty of Rs. 52 lakhs under Rule 173Q of the Central Excise Rules. The brief facts of the case are that the appellants are engaged in the manufacture of polyester oriented yarn, polyester filament yarn and polyester textured yarn falling under Headings 54.02 and 54.03 of the Schedule to the CETA 1985. On 30.7.1991, they filed a declaration under Rule 57G indicating POY, PEY and PTY as final products and poly ethylene terephthalate (polyester polymer chips) as inputs. On 31.7.1991, they filed an application for permission to remove inputs or partially processed goods under Rule 57F(2) and/or Notification 214/86 -CE along with an undertaking that the duty liability would be discharged on the finished goods. This application clearly mentioned that the inputs viz. DMT and MEG would be supplied directly to the job worker (M/s. Garware Plastics and Polyester Ltd.) for conversion into PP chips which would be returned to the appellants. By letter dated 19.8.1991, the Range Superintendent sought clarification on certain points including maintenance of records and generation of waste. By reply dated 26.8.1991, the appellants explained the procedure which would be followed by them for inputs to be directly supplied to job workers - -they explained that the consignee's name would be shown as M/s. Garware Plastics and Polyester Ltd. A/c. M/S. Raymond Synthetics. It was also explained that methanol and water would be generated as by -product during conversion of DMT and MEG into PP chips. The Assistant Commissioner granted permission to remove materials under Rule 57F(2) by his letter dated 11.10.1991 the appellants took modvat credit of Rs. 50,77,918.90 on the basis of gate passes issued by M/s. Bombay Dyeing (supplier of DMT) and M/s. India Glycol (supplier of MEG) to the job workers on 11.1.1995. The appellants were issued a show cause notice proposing recovery of modvat credit under the provisions of Rule 571 read with proviso to Section 11A on the grounds inter -alia that:

(2.) THE notice was adjudicated by the Commissioner who confirmed the duty demand and also imposed a penalty of Rs. 52 lakhs, holding that M/s. Garware Plastics and Polyesters Ltd. were not job workers since they had cleared PP chips under Notification 53/88 -CE and not under Notification 214/86 -CE and that the appellants had not followed all the procedures since there was no permission when inputs were sent to M/s. Garware Plastics and Polyesters Ltd. The extended period of limitation was applied, holding that the appellants had suppressed the fact that M/s. Garware Plastics and Polyesters Ltd. had cleared PP chips without payment of duty under the provisions of Notification 53/88 -CE.

(3.) THE crux of the matter lies in determining whether M/s. Garware Plastics and Polyesters Ltd., were job workers of the appellants herein or they were independent manufacturers. The Department relies upon the letter dated 16.6.1992 of M/s. Garware Plastics and Polyesters Ltd. to the Superintendent of Central Exchange, Aurangabad to support its finding that M/s. Garware Plastics and Polyesters Ltd. are not job workers for the appellants. In this letter, M/s. Garware Plastics and Polyesters has informed the department that they have not manufactured polyester chips under Rule 57F(2) procedure on account of M/s. Raymond Synthetics for the reason that M/s. Raymond Synthetics neither submitted copy of permission to Aurangabad Range Collectorate nor did they submit any undertaking in terms of Notification 214/86 -CE to Assistant Commissioner of Central Excise, Aurangabad till 17.10.1991, and that the polyester chips supplied by them to the appellants till 17.10.1991 were exempt from duty under Notification 53/88 -CE dated 1.3.1988 as amended. However it is the option of the job worker to clear goods either in terms of Notification 214/86 or Notification 53/88 or on payment of duty, and this does not affect the eligibility of the principal manufacturer to modvat credit. We find that the appellants herein had applied for permission to remove inputs under Rule 57F(2) and/or Notification 214/86, in which M/s. Garware Plastics and Polyesters Ltd., Aurangabad were shown as job workers, and permission was ultimately granted on the basis of such application, by Assistant Commissioner's letter dated 11.10.1991, the gate passes of M/s. India Glycol Ltd. for supply of MEG show as consignee, M/s. Garware Plastics Polyesters Ltd. A/c Raymond Synthetics Ltd. and GP1s issued by M/s. Bombay Dyeing and Manufacturing Ltd. Company for supply of DMT show consignee as Raymond Synthetics Ltd. care of M/s. Garware Plastics and Polyesters Ltd. sending of inputs directly to the job worker is permitted in terms of Trade Notice No. 147/86 dated 8.7.1986 and in fact, the facility of sending inputs directly to the job worker was extended by the department when it granted permission on 11.10.1991. Such procedure has also been approved by the Tribunal in the case of Lupin Laboratories reported in : 1994 (71) ELT 914 :, 1993 (48) ECR 50 (T). There is no dispute that the inputs were received back by the appellants after processing by M/s. Garware Plastics and Polyesters Ltd. and hence movement of inputs directly to M/s. Garware Plastics and Polyesters Ltd. without prior permission is to be considered as only a procedural lapse, in the above context, and procedural non -compliance of Rule 57F(2) cannot stand in the way of substantive benefit of modvat credit as held by the Tribunal in the case of Collector of Central Excise, Bombay v. Roshan Tin Printers reported in : 1994 (74) ELT 325. It is also significant to note that this is not a case where two persons have taken credit on the basis of the same documents - -M/s. Garware Plastics and Polyesters have not taken any credit and it is only the appellants who have availed credit. Clearance of by -product, Methanol on payment of duty by M/s. Garware Plastics and Polyesters Ltd. is in accordance with the proviso to Rule 57F(2), and the use of other inputs, (in this case catalysts and packing materials) by M/s. Garware Plastics and Polyesters Ltd. is also not prohibited under Rule 57F. We also find that the appellants had filed a declaration under Rule 57G showing PP chips as inputs and POY, PFY and PTY as their final products. It is not the case of the Department that DMT and MEG supplied to M/s. Garware Plastics and Polyesters were not converted into PP chips and that the PP chips were not used in the manufacture of the appellants' final products and hence non -declaration of DMT and MEG as inputs for PP chips does not affect the appellants' eligibility to credit, particularly when they had clearly stated in their application under Rule 57F(2) that DMT and MEG will be converted into PP chips by M/s. Garware Plastics and Polyesters. We, therefore, hold that the appellants have not contravened any of the provisions of the Rules relating to availment of modvat credit, and are entitled to credit of the amount in question. Accordingly, we set aside the duty demand and penalty and allow the appeal on the merits of the issue, without recording any finding on the appellants' plea that the demand is barred by limitation.