[Order per : Jyoti Balasundaram, Member (J)]. - Both the above appeals arise out a common impugned order and hence have been heard together and disposed of by a common order.

E/A No. 3695/90-B1

The Adjudicating authority has confirmed a duty demand of Rs. 14,72,585/- on various types of scrap such as Brass scrap, Aluminium scrap. Zinc scrap, Steel scrap etc. generated in the factory of the appellants who are inter alia manufacturers of Brass caps and tin coated steel bottom caps for use in the manufacture of electric Batteries (Dry) and cleared during the period from 1-3-1986 to November, 1997 for the reason that Modvat credit had been availed by the assessees on the inputs out of which scrap arose, thereby rendering the inputs non-duty paid in character, resulting in non-fulfilment of the conditions in Notifications granting exemption to various kinds of scrap (such as Notification 172/84 for Brass scrap, Notification No. 182/84 for Aluminium scrap, Notification No. 178/84 for Zinc scrap etc), that the scrap should arise out of inputs such as copper etc. on which duty was paid. A penalty of Rs. 1,50,001/- has also been imposed in relation to this demand. The impugned order also disallows Modvat credit of Rs. 3,05,105.52 P on Brass coils used in the manufacture of Brass caps during the period 1-3-1986 to 25-2-1988 but utilised towards payment of duty on brass torches. In addition, a penalty of Rs. 10,000/- has been imposed for wrong availment of Modvat credit.

E/A No. 4802/91-Bl

The Revenue is aggrieved by dropping of demand of Rs. 36,23,789.77 on Brass caps and Steel Bottom caps cleared by the manufacturers during the period 1st August, 1983 to 28th February, 1988 on the ground that the demand is barred by limitation. The Collector has also dropped the demand for the period from 1-3-1986 to 12-8-1988 (the show cause notice has been issued on 12-8-1988) for the reason that the manufacturers were entitled to credit of duty paid on Brass caps in their first unit while effecting clearance of final product from the second unit.

2. We have heard Shri V. Sridharan, learned Advocate and Shri R.D. Negi, learned DR. Our findings are recorded as under :

E/A No. 3695/90-B1 :

Demand on Scrap : The sole ground for confirming the demand on scrap is that the assessees had availed Modvat credit of duty paid on the inputs out of which the scrap arose in the course of manufacture of final products and therefore, the inputs became non-duty paid and hence Notification exempting scrap, was not attracted and hence duty was payable on various types of scrap. We find that the settled legal position as per the decision of the Tribunal is that taking of Modvat credit or proforma credit will not make the inputs non-duty paid in view of the Tribunal’s decision in the case of Metal Lamp Caps India Ltd. v. Collector of Central Excise, Bangalore reported in [(] which has been followed in several cases. We also note that the assessees’ stand that the demand on scrap of aluminium, zinc and brass pertains to the period prior to 2-11-1987 has not been rebutted and that it is only with effect from 2-11-1987 that various Notifications granting exemption to scrap were amended by incorporation of a condition that no Modvat credit should be taken on the inputs. Therefore, the present demand cannot be sustained and is hereby set aside. The penalty of Rs. 1,50,001/- imposed in relation to the demand on scrap is also set aside, as a consequence to the setting aside of the duty demand.

Denial of Modvat credit :

Credit of duty of Rs. 3,05,105.52 P paid on brass coils used in the manufacture of brass caps and steel bottom caps (components of Dry Cell Batteries) has been denied on the ground that credit was availed for payment of duty on clearance of torches from another manufacturing unit of the appellants. The objection of the Department is for the reason that brass caps and steel bottom caps made from brass coils on which credit has been taken, have been put to use in a factory (Dry Cell Battery Manufacturing Unit) other than the factory of manufacture of final product (torches) cleared by utilising credit of duty earned on brass coils. According to the Revenue, brass coils have not been used in or in relation to the specified finished excisable goods namely torches which has been declared as a final product by the Torch unit in which brass coil has been shown as an input, but used instead in the manufacture of undeclared final product namely brass caps and steel bottom caps which are themselves used in turn, in the manufacture of Dry Cell batteries.

2. We note that brass coil/sheet is an input for brass caps as well as for torches. It is thus in the nature of a common input. The issue relating to use of input in the manufacture of both declared and undeclared final products, has been the subject matter of several decisions of the Tribunal. In the case of Friends Wire Industries v. Collector of Central Excise, Chandigarh [], the Tribunal held that utilisation of credit on undeclared final product is not permissible and is to be paid either from PLA or in cash and further held that this credit should be restored to the RG 23A account (Modvat account) for utilisation for duty payment on eligible final product. In the case of Mukesh Engg Industries v. Collector of Central Excise, Bombay [], the Tribunal took the view that if Modvat credit is denied, duty may be paid from PLA whereas Modvat credit already availed is to be restored in RG 23A. Hence no Revenue implication is involved and merely a technical objection cannot extinguish the credit earned. The same view has been expressed in the case of Collector of Central Excise v. Kumar Auto Cast Ltd. reported in [ (T) = 1996 (13) RLT 227]. In a very recent decision of the Tribunal in the case of TELCO v. Commissioner of Central Excise, Jamshedpur reported in [1999 (33) RLT 609], the above decisions have been analysed and the majority view has been expressed as under :

“All the aforesaid cases were related to use of common input in the manufacture of both declared and undeclared final products. The Tribunal held in all these cases that Modvat credit could not be utilised to pay duty on undeclared final products and that duty should be paid on such undeclared final products from PLA or in cash. The Tribunal further held that when such payment is made from PLA or through cash, an equivalent amount should be recredited into the Modvat account so that the same could be used to discharge duty on declared final products. Alternatively, the Tribunal held that as such payment from PLA and recredit into RG 23A Part II account would be a Revenue neutral activity, no action is called for. The facts involved in the present appeals of TELCO are also the same. They had a common input for both declared and undeclared final products. Therefore, the decisions in these cases squarely cover their case also. As observed by the Tribunal in Mahindra and Mahindra Ltd. case, the objection of the department is technical. There could be an order to make payment of duty involved on undeclared motor vehicle parts through PLA but it has to be simultaneously with the restoration of an equal amount in RG 23A Part II for utilisation towards the duty on the declared final product namely, motor vehicles. Such an order will be an idle exercise as there is no revenue implication otherwise. Therefore, TELCO’s appeals merited acceptance, following the decisions of CEGAT in Mahindra & Mahindra and other cases. Accordingly, the appeals are required to be allowed with consequential relief to the appellants. “

3. In the present case also, the payment of duty involved on undeclared final product is simultaneous with restoration of an equal amount in RG-23A Part II for utilising towards duty of declared final product namely torches. There is no Revenue implication. Hence the ratio of the TELCO order (supra) applies on all fours to the facts of the present case and following the ratio thereof, we hold that the appellants are entitled to credit of the amount above mentioned and set aside the denial of the above credit. The penalty of Rs. 10,000/- imposed for alleged wrong availment of credit is also set aside.

4. E/A No. 4802/91 - Appeal by Revenue :

In this case, the show cause notice dated 12-8-1988 raised a demand of Rs. 36,23,789.77 P on brass caps cleared by the torch unit from 1-8-1983 to 28-2-1988. The demand notice has been dropped by the Adjudicating authority on the ground of time bar holding that under the Central Excise Tariff, as it stood prior to 1-3-1986, brass caps would have been classifiable under Tariff Item 68. Inter plant transfers of the caps would therefore, be exempt under Notification No. 118/75 which exempts goods falling under Tariff Item 68 for use within the factory of production and where such use is elsewhere then in the factory of production, the exemption is subject to following of Chapter X Procedure and even though such procedure was not followed by the assessees herein, the substantive benefit of the Notification cannot be denied. He has held that even if duty were to be paid on brass caps under Tariff Item 68, the other two units would take credit of the same and the Notification No. 201/79 and utilise it for payment of duty on batteries and therefore, there cannot be any intention on the part of the assessees to evade payment of duty and hence the proviso to Section 11A of the Act is not attracted. He has dropped the demand for the period subsequent to 1-3-1986 on the ground that since both brass caps and batteries fall under Heading 85.06 which is a notified heading for inputs and final products under the Modvat scheme and hence if duty had been paid on brass caps by the first unit, Modvat credit would have been taken by the other unit and therefore, there could be no intention to evade payment of duty.

5. The first contention of the Revenue is that brass caps fall under Tariff Item 31(3) and not under Tariff Item 68 of the Schedule to the erstwhile Central Excise Tariff and hence benefit of Notification No. 118/75 and Noti- fication 201/79 are not available and hence non-payment of duty on brass caps was with intention to evade payment of duty. This contention is not tenable - brass caps are not covered by Tariff Item 31(3) which covers three parts of storage batteries viz. containers, covers and plates. Parts of dry batteries which the appellants manufacture, are not covered by Tariff Item 31(3). Although the main heading of Tariff Item 31 refers to electric batteries and parts thereof, Tariff Item 31(3) covers only parts of storage batteries and cannot be extended to cover parts of dry cell batteries. It is admitted that the caps manufactured in the torch unit were transferred to the two battery units and hence the purpose for which the Notification stipulated Chapter X procedure to be followed, stands fulfilled. Further, failure to follow Chapter X procedure may be an error or omission on the part of the assessees, but it cannot amount to suppression and the question of suppression will arise only when an assessee wants to obtain a benefit not available to him under the law and will not arise when any exemption conferred by law is sought to be denied due to non-fulfilment of procedural requirement. The same position is applicable after 1-3-1986 when Modvat credit was available to the assessees. We, therefore, agree with the finding or the Commissioner that the demand on brass caps cleared by the torch unit is barred by limitation. Accordingly, we uphold his order and reject the appeal of the Revenue. The Cross objection is disposed of accordingly.