Commissioner of Central Excise, Madras vs CEGAT, Madras

R. Jayasimha Babu, J.—We have heard the Counsel for the Revenue. We have also perused the order of the Tribunal.

It is the submission of the learned Counsel that Modvat credit for inputs cannot be taken by a manufacturer, unless the person who sold the

inputs to the manufacturer of the final product had paid the duty and such payment was noted in the gate pass before the inputs were delivered to

the manufacturer of the final product. The Tribunal has found that the manufacturer, assessee in this case, has received the inputs, but at the time of

the receipt of the inputs, the amount of the duty paid by the manufacturer of the inputs had not been stated in the documents. The Tribunal has held

that notwithstanding that fact it would still be open to the assessee to take the Modvat credit on the inputs, if it is able to show by credible evidence

that the inputs so received by it had suffered the excise duty.

The scheme of Rule 57A considered alongwith the provisions of Rules 57E clearly indicates that the credit for duty paid, on excisable goods

used as inputs, is available to a manufacturer to the extent the inputs had suffered excise duty. It is not the time, at which the duty is paid by the

manufacturer for the inputs, that is material nor the mention of the same in the gate pass, but it is the actual payment of the duty. Rule 57A(1)

permits the manufacturer to take such credit on ""the goods used in the manufacturer of the said final products."" The pre-condition therefore is that

the goods should have been used in the manufacture. It is not the time of the receipt of the goods nor the time at which the duty is paid by the

manufacturer of the goods that determines the disability of the manufacturer of the final product to claim the benefit. That, it is the intention of the

law maker, is evident from a perusal of Rule 57E which provides for adjustment in duty credit. Rule 57E(1) provides that even after the

manufacturer of the final product has taken credit on any input and it subsequently so happens that there is refund of the duty paid by the

manufacturer of the inputs to such manufacture, the manufacturer of the final product is required to adjust that amount, i.e. in effect reduce the

amount of the credit and if that is not possible to pay the amount in cash to the revenue. Similarly, under Rule 57E Sub-clause (2) if after the

manufacturer of the final product has taken credit for the inputs, it so happens that any additional amount of duty is recovered from the

manufacturer of such inputs, then the manufacturer of the final product is to be allowed an additional credit equal to the amount of the duty so

recovered. If the manufacturer or importer of the input has passed on the extent of additional amount of duty to the manufacturer of the final

products.

What is therefore to be examined is the substance and not the statement made in the gate pass ,by itself in isolation, nor the time at which the

duty was paid, whether prior to or subsequent to the delivery of the inputs to the manufacturer of the final product.

Rule 57A does not prohibit a manufacturer of the final product from availing the benefit of Modvat credit on the excise duty paid on the inputs

solely by reason of the duty having been paid after the receipt of the inputs by the manufacturer of the final product. On the other hand, the scheme

of the Rule clearly indicates that the manufacturer of the final product should be given the full benefit of the duty paid on the inputs and the extent to

which such benefit is to be given if the actual amount paid irrespective of the time at which such payment was made. The only exception to this is

what is provided under Rule 57A Sub-clause (3) which deals with recovery of additional amount of duty from the manufacturer or importer of the

inputs on account of short levy or no levy by the reason of fraud, collusion or any wilful misstatement or suppression of fact or contravention of any

provisions of the Act or of the Customs Act, with intent to evade payment of duty.

We do not see any error in the order of the Tribunal. Petition is therefore dismissed.