[Order per : P. Karthikeyan, Member (T) (Oral)]. - M/s. SRF Ltd. (SRF), manufactured dipped nylon tyre cord fabrics (DNTCF) and cleared on sale to M/s. Goodyear (Goodyear) on payment of duty during the period from 1-10-1996 to 31-3-99. In computing the assessable value for payment of duty they had not included the cost of dipping chemicals they had received free of cost from Goodyear. SRF had taken Modvat credit of duty paid on these chemicals. In the impugned order, Commissioner has confirmed the allegation that SRF had suppressed the fact of receipt of duty paid dipping chemicals free of cost, availment of the duty paid as credit and excluding the cost of chemicals from the value of dipped nylon tyre cord fabrics with intention to evade payment of duty; that the process of dipping of tyre cord fabrics in chemical solution amounted to manufacture of excisable goods; that the goods fell under Chapter sub-heading 59.02 of the CETA Schedule and that the differential duty was accordingly demandable in terms of proviso to Section 11 A(l). He decided the duty so liable to be paid by the appellants as Rs. 77,37,560/- and imposed equal amount of penalty under Section 11AC. He also demanded interest on the above duty amount. This appeal is against the above Order No. 67/05, dated 27-12-2005.
2. The impugned order has been passed following the remand order of the CESTAT vide Final Order No. 300/05 - NB(A), dated 15-2-2005 directing the Commissioner to examine the exigibility and classification of the impugned goods in the light of the decision of the Apex Court in the case of MRF Ltd. reported in (S.C.) and to pass a fresh decision on the other points relating to extended period and quantification of demand.
3. In the appeal before us the appellants have contested the exigibility of the goods, demand of duty, the penalty and the classification decided in the impugned order. When the appeal was taken up, the learned Counsel for the appellants pointed out that the crucial issue involved in the appeal is the correct valuation of DNTCF cleared to Goodyear using the dipping chemicals supplied free of cost by them. Inasmuch as duty had already been paid on the value of the impugned goods sans the cost of free supplies, the present demand was attributable to the cost of dipping chemicals. If the same was not includible in the value for payment of duty, other issues did not survive and they did not press them. They had started including value of free supplies from Goodyear from 1-4-99. We consider the appeal as modified accordingly, and take up this issue for consideration.
4. The learned Counsel has cited the decision of the Apex Court in International Auto Ltd. v. C.C.E., (S.C.) wherein the Apex Court had observed that ‘according to the Modvat scheme, it was the Modvat of such final product which would have to include the cost of the inputs and in respect of which Modvat credit could be taken at the time of clearance of the final product’. Manufacturer of the final product would be entitled not only to adjust credit on the inputs supplied by it to the intermediate purchaser under Rule 57F(2)(b), but also to the credit of duty paid by the intermediate purchaser, on the intermediate products.
5. The learned Counsel argued before us that the ratio of the above decision squarely applied to their case, and the impugned order was incorrect. He also submitted that the decision of the Tribunal in Jay Yuhshin Ltd. v. C.C.E., (Tri.-Del.) had considered a similar situation where the manufacturer of intermediate products (M/s. Jay Yuhshin Ltd.) operating under Rule 57F(4)(i) & (ii) [equivalent to Rule 57F(2)(b) discussed in the International Auto Ltd. case supra] had not included cost of components received free of cost from the manufacturer of final products, M/s. Maruti Udyog Ltd. (MUL) in the value of the intermediate product manufactured and cleared to MUL. It was argued before the Tribunal that the full duty had not been paid owing to their bona fide belief about the liability and since the differential duty involved had been paid subsequently, no penalty was imposable on the appellants. However, the Tribunal upheld the finding of suppression and sustained the penalty imposed on the appellants though the quantum was reduced. The learned Counsel submitted that the said order of the Tribunal had also been tagged along with the Civil Appeal filed by the International Auto Ltd. and that the Apex Court had set aside the decision of the Tribunal in Jay Yuhshin case. The Apex Court set aside the demand and vacated the penalty imposed on the petitioner in the Civil Appeal M/s. Jay Yuhshin Ltd. v. C.C.E., Delhi. The learned Counsel submitted that in view of the decision of the Apex Court the appeal deserved to be allowed.
6. The learned SDR endeavored to distinguish the instant case on facts from the International Auto Ltd case on the ground that SRF had availed Modvat credit of free supply materials whereas in the International Auto Ltd. case they had not taken input duty credit in respect of the inputs they had received free of cost from Telco. She defended the impugned order.
7. We have carefully considered the case records and the submissions by both the sides. We find that though the facts of the case before us are slightly different as pointed out by the learned SDR, the ratio of the decision of the Apex Court in the International Auto Ltd. case is applicable to the instant case. The Apex Court had made it clear that when supplier of intermediate product and the manufacturer of final product operated under Modvat Scheme, availment of credit on inputs by the manufacturer of intermediate products who received free supply of inputs/components parts was immaterial and that the manufacturer of the final product was eligible to utilize the credit of duty paid on inputs received as well as the intermediate product received under Rule 57F(2)(b) [replaced by Rule 57F(4)] for clearance of final product used. In the circumstances, we find that the impugned order is inconsistent with the ratio of above decision of the Apex Court (supra).
8. In the International Auto case, Telco had supplied components free of cost to International Auto Ltd. for manufacture and supply of floor plate assemblies. International Auto Ltd. had not taken credit and had not included the cost of free supplies in the value of the intermediary product. The Apex Court held that when the manufacturer supplied inputs free of cost under Rule 57F(2)(b) to the manufacturer of intermediate product who did not take credit of the duty, it was not necessary to include cost of such materials in the value of the intermediate product as the manufacturer of the final product Telco was eligible for the credit of duty paid on all inputs and the intermediate products for clearance of the final product excavators. In the instant case, SRF had received duty paid dipping chemicals on payment of duty and had taken credit. They had not included the cost of the dipping chemicals in the value of NDTCF cleared to Good year. The movement of the inputs was not under Rule 57F(4). The facts of the instant case are not identical to those of International Auto Ltd. to that extent. However even if SRF had paid duty on the correct value of the NDTCF, Goodyear could have availed credit of the same and it would have made no impact on the revenue that will accrue. Therefore, the impugned order is occasioned by the appellant’s failure to follow a revenue neutral exercise. Operation of the Modvat scheme on the manufacturer of final product had rendered the valuation dispute of the intermediate product in question of no consequence.
9. In the case of Jay Yuhshin Ltd. v. C.C.E., New Delhi reported in (Tri-Del.), MUL had supplied certain components free of cost under Rule 57F(4)(i) & (ii) to M/s. Jay Yuhshin Ltd. to manufacture intermediate products needed in the manufacture of cars. Jay Yuhshin did not include the value of free supplies for valuation of the intermediate products supplied to MUL. Jay Yuhshin had also taken credit of duty paid on the free supplies. The Tribunal decided that Jay Yuhshin should pay duty on the value of intermediate goods including the value of free supplies and upheld the demand and penalty. Following the above decision Delhi Bench of this Tribunal had passed the order in Jay Yuhshin Ltd. v. C.C.E., New Delhi reported as (Tri-Del) affirming the demand and penalty (though reduced the quantum). At the time of hearing of Jay Yuhshin’s appeal before the Tribunal, the DR had stated that the intermediate manufacturer would use the credit attributable to such free supplies for clearing other products (implying that it was not intended under the scheme). While disposing the Civil Appeal filed by Jay Yuhshin against this order the Apex Court had set aside both the demand and the penalty.
10. The facts of the above case are identical to those of the case on hand except that the goods had not moved to SRF under documents prescribed in Rule 57F(4). The free supply of dipping chemicals indicate the arrangement between Goodyear and SRF which ensured the supply to Goodyear of NDTCF manufactured with the free supplies. Movement of goods under Rule 57F(4)(i) & (ii) on payment of duty had served only this purpose in the case discussed in Jay Yuhshin Ltd. v. C.C.E., New Delhi reported as (Tri-Del.). They had started including value of free supplies from Goodyear from 1-4-1999. In the light of the ratio of the Apex Court’s decision cited by the ld. Counsel for the (appellants, we find that in the facts of this case, the demand of duty, interest and penalty in the impugned order are not sustainable. We vacate the orders to that effect. The impugned order is otherwise; affirmed as not challenged. The appeal is allowed on the above terms. The appellant shall not claim refund of the duty already paid on this account as undertaken by the Counsel on instructions.
(Operative portion pronounced in the open Court on 18-2-2007)