PUNJAB TRACTORS LTD. Vs. COMMR. OF C. EX.

JUDGEMENT

(1.) THE appellants herein are engaged in the manufacture of different models of tractors. Model Swaraj 720 and Swaraj 724 (of less than 25 HP) were exempted from payment of duty in terms of Notification 68/83, dated 1 -3 -1983 while Model Swaraj 735 and Swaraj 855 (of 25 HP or more) were leviable to duty. Prior to 1 -3 -1983, components used as original equipment parts (except bearings, bolts, screws, tools etc.) were wholly exempt from payment of duty vide Notification 167/79, dated 19 -4 -1979 and No. 249/82, dated 1 -11 -1982. The appellants standardised more than 600 out of 700 components used in their tractors and procured most of the components without payment of duty for fitment in the exempted and dutiable varieties of tractors. With effect from 1 -3 -1986, the benefit of exemption to components used in their manufacture of tractors was withdrawn; the exemption for tractors of below 25 HP continued. The benefit of Modvat Scheme which was introduced on 1 -3 -1986 in respect of components was not available if such components were fitted in the exempted variety of tractors in view of the language of provisions of Rule 57C which provides that "no credit of specified duty paid on the inputs used in the manufacture of a final product...shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty."

(2.) THE appellants had a genuine difficulty in segregating their components for the exempted variety and dutiable variety of tractors due to standardisation and hence requested the Collector by letter dated 25 -3 -1986 for permission to bring duty paid components, avail Modvat credit and debit duty payable on components used in exempted tractors whenever such tractors were cleared from the factory. Permission to maintain a common account of components, subject to the condition that duty leviable on components used in the manufacture of exempted variety of tractors would be debited in RG 23A was granted vide letter dated 27 -3 -1986 and the appellants started following this procedure. On 3 -4 -1986, Notification 239/86 granting exemption to parts of motor vehicles and tractors when used as original equipment parts falling under Chapters 45, 48, 68, 73, 85 or 87 of the Schedule to the Central Excise Tariff was issued. This notification restored the position exist prior to 1 -3 -1986 as regards the components. Due to procedural difficulties, the appellants sought permission to follow the procedure of paying full payment of duty even on components/parts used in the exempted Variety of tractors and taking Modvat credit of duty paid, irrespective of their use, in respect of components/parts purchased from units other than SSI units in view of Notification 239/86. The appellants were informed under cover of letter dated 17 -4 -1986 that their above request was being forwarded to the CBEC for consideration and thereafter, the appellants, followed the procedure set out in the. letter dated 11 -4 -1986 and filed monthly RT12 returns accordingly. The appellants were informed by letter dated 1 -10 -1986 that permission for allowing utilisation of credit of duty paid on inputs used in the manufacture of exempted tractors had been refused, and therefore, they made a representation to the CBEC once again requesting that the procedure suggested by them for procurement of components may be accepted; the representation was rejected and communicated to the appellants vide Government's letter dated 3/13 -12 -1986. Since the appellants required sometime to switch over to new procedure for segregating inputs/components for fitment in the exempted tractors under Notification 239/86 and the dutiable variety (for which they were entitled to avail of credit), they requested permission to continue their earlier practice till 1 -3 -1987

(3.) WE have heard Shri V. Lakshmi Kumaran, learned Advocate and Shri R.K. Sharma, learned DR. There is no dispute that the inputs in respect of which credit has been availed by the appellants, have been actually used in the manufacture of exempted variety of tractors. It is also a fact that according to the provisions of Rule 57C of the Central Excise Rules, no such credit is admissible if the final products are fully exempt from duty. Therefore, the demand for reversal of Modvat credit is sustainable, in the light of the Apex Court judgment in the case of Chandrapur Magnet Wires Pvt Ltd. : 1996 (81) E.L.T. 3 (S.C.) - The same view has been taken by the Larger Bench of the Tribunal in the case of Kirlosker Oil Engines Ltd. reported in, 1994 (73) E.L.T. 835 which view has been followed in the case of JCT Ltd. v. Collector of Central Excise, Chandigarh : 1998 (99) E.L.T. 393. The appellants' submission is that once credit is taken under the Modvat Scheme, the inputs are deemed to be manufactured by the appellants and thereafter, the demand on inputs, if any, would be in terms of Rule 57F(1)(ii) and applying the provisions of this Rule, there is no further requirement on the part of the appellants to follow Chapter X procedure to avail exemption under Notification 239/86 granting exemption to components, if used, in the manufacture of tractors of less than 25 HP and hence, once credit was taken, there was no need for any reversal. However, this submission is not well founded since Rule 57F(1)(ii) covers a case of removal of inputs while the appellants use the inputs in the manufacture of final products and therefore, it is Rule 57F(1)(i) which is attracted.