Modvat Credit – availability of when special exemption granted to stainless steel coin blanks ad hoc under Section 5A (2) of Central Excise Act, 1944

PJ/Case Laws/2011-12/1463

Case: STEEL AUTHORITY OF INDIA LTD v/s COMMISSIONER OF C. EX., COIMBATORE

Citation: 2011 (274) E.L.T. 187 (Mad.)

Issue:- Modvat Credit – availability of when special exemption granted to stainless steel coin blanks ad hoc under Section 5A (2) of Central Excise Act, 1944 – question of law requiring authoritative pronouncement – Tribunal directed to state case to High Court.

Brief Facts:- Petitioner is a Government of India undertaking. Consequent to the introduction of Modvat scheme during March 1986, the petitioner participated in a Global tender and bagged an order for supply of 5250 mt of stainless steel coin blanks of the denominations of one rupee, fifty paisa and twenty five paisa to Indian Government Mint (IGM) during March 1993. During the relevant period, the blanking facility was not available in India. So an arrangement was made by the Petitioner to send cold rolled stainless steel strips manufactured in the Petitioner’s company abroad for conversion into stainless steel coin blanks and supplied to the Indian Government mint. In a way, an extent of 2610 mt was supplied. Subsequently, when banking line was installed in India, the balance quantity of 2640 mts of coin blanks were supplied from the banking line of the Petitioner.

Government exercising powers under Section 5A of the Central Excise Act, 1944 issued Notification dated 21.09.1994 that due to the circumstances of exceptional nature being satisfied that it is necessary in the public interest, exempted 2570 mt of Stainless steel coin blanks manufactured and supplied by reference case petitioner from whole of duty of excise.

Petitioner sought to avail Modvat credit in respect of manufactured goods, coin blank. The credit was denied on the ground that Rule 57-C of the Central Excise Rules non suited the appellant to claim such benefits, which order has been confirmed by the Tribunal.

The following questions of law were raised:

- Whether the Tribunal erred in not seeing the distinction between an exemption granted under Section 5-A (1) and Section 5-A(2) and therefore failing to see that since the ad hoc exemption dated 21.09.1994 having been issued under Section 5-A (2) did not render the final product exempt from excise duty or chargeable to nil rate duty?

- Whether the Tribunal erred in failing to notice that the language of Section 5-A (1) and Rule 57-C being similar, the provisions of Rule 57-C would not be attracted to a case where ad hoc exemption from payment of duty was granted by the Government under Section 5-A (2) of the Act?

Petitioner’s Contention:- Petitioner submitted that though the difference between the Notification under Section 5A(1) and 5A(2) has been amplified and argued, the Tribunal has not considered the same, but merely saying that Rule 57-C of the Central Excise Rules provides that the benefit would be available only when the goods manufactured are excisable goods and liable to levy excise duty and when the final product manufactured is not liable for excise duty and the rate of duty is Nil, the benefit under Rule 57-C is not availed, without considering the fact of such exemption, granted under Section 5A(2) of the Act.

Reasoning of Judgment:- The High Court held that with regard to the facts of the case and the legal questions raised, the questions of law referred by Revenue have to be adjudicated and an authoritative pronouncement has to be rendered on it. Hence, the Tribunal is directed to state a case and refer the questions of law referred to above for the opinion of this Court.

Decision:- Appeal disposed of accordingly.

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PJ/Case Laws/2011-12/1463

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