Special Tools (P) Ltd. vs Commissioner of Central Excise, Ghaziabad

Surya Prakash Kesarwani, J.—Heard Sri A.P. Mathur, learned counsel for the appellant and the learned standing counsel for the respondents. The appeal was admitted vide order dated 19-7-2004 on the following substantial questions of law:

"Whether the Hon''ble Tribunal was justified in rejecting the alternative plea of the appellants that their claim ought to have been considered in terms of Rule 173H of the Central Excise Rules 1944, merely because the same was not taken earlier?"

Learned counsel for the appellants submits that the Tribunal has committed a manifest error of law in rejecting the alternate plea of the appellant that their claim ought to have been considered in terms of Rule 173-H of the erstwhile Central Excise Rules, 1944 and it could not have been rejected merely on the ground that it was not claimed by the appellants earlier.

Learned counsel for the respondent supports the impugned order of the Tribunal [2004 (166) E.L.T. 399 (Tribunal)].

Briefly stated the facts of the present case are that the appellants took Modvat credit on certain goods which were their final products. The case of the appellant was that certain goods manufactured and sold by them to M/s. Subrose Ltd. were defective and as such they were received back in the factory and sent back to them under the cover of invoice issued under Rule 57F(i)(ii) of the Rules. However, according to the department, the Modvat credit was not admissible and as such show cause notices were issued by the jurisdictional authority requiring the appellants to show cause as to why Modvat credit so taken by them amounting to Rs. 1,04,974.70 and Rs. 90,839.66 may not be disallowed in terms of the provisions of Rule 57A read with Rule 57-G of the Rules. By an Order-in-Original No. 66/97, dated 28-10-1997, the Assistant Commissioner, Central Excise Division-II, Ghaziabad disallowed the Modvat credit of Rs. 1,04,975/-. By another Order-in-Original No. 13/98, dated 20-2-1998, the Modvat credit of Rs. 90,839.66 was also disallowed.

Against the aforesaid two orders-in-original, the appellants preferred appeals before the Commissioner, (Appeals) Customs and Central Excise, which were rejected by a common order passed in Appeal No. 133-134, dated 17-3-1999.

Aggrieved with this order, the appellants preferred Appeals being Appeal No. E/1484 and 1485 of 1999 before the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi, which were allowed by the Tribunal and the matter was remanded by Final Order No. A/186-187/2001/NB, dated 30-1-2001 for limited purpose of ascertaining as to whether defective parts returned by the appellants'' Customers had, infact, been reprocessed by the appellants in their factory in the same manner as they used to process their raw-material for manufacture of their final products in the normal course and if it is found that the appellant''s had undertaken such reprocessing, they will be eligible for the Modvat credit in question.

The appellants accepted the aforesaid final order of the Tribunal dated 30-1-2001 and participated in the remand proceedings for the aforesaid limited purpose. The Deputy Commissioner, Central Excise Division-II, Ghaziabad considered the matter in detail in compliance to the final order of the Tribunal. He afforded three opportunities of personal hearing to the appellants and thereafter visited their factory premises on 31-7-2001 to have a first hand knowledge about the process being carried out by the appellants on the goods in question received by them. The adjudicating authority, however, found that the same process was not being carried out by the appellants and the processing conducted by them for rectification did not amount to manufacture. Consequently, the Adjudicating authority disallowed the Modvat credit vide order-in-original Nos. 45-46 of 2001, dated 26-11-2001.

Aggrieved with this order, the appellants preferred an appeal before the Commissioner (Appeals), Customs and Central Excise, Ghaziabad, which was dismissed by order dated 23-5-2003.

Aggrieved with this order, the appellants filed an appeal No. E/2172/2003-NB(SM) before the Customs, Excise and Service Tax Appellate Tribunal, New Delhi, which was dismissed by Final Order No. A/1421/2003-NB, dated 17-11-2003 [2004 (166) E.L.T. 399 (Tri.-Del.), against which the present appeal has been filed.

We find that in the impugned order, the Tribunal has recorded the following findings of fact:

"The learned counsel has not contested the correctness of the findings recorded by the adjudicating authority that the processes being carried out by the appellants on the defective goods for rectification was not the same which were being adopted by them in the manufacture of their final products. That being so, the appellants had been rightly disallowed the Modvat credit. The contention of the learned counsel that the claim of the appellants under Rule 173H should have been in the alternative consideration as they made a request before the adjudicating authority in this regard, cannot be accepted. No such plea was taken by them even in their reply to the show cause. There was no such direction by the Tribunal while remanding the case that the alternative plea of the appellants in terms of Rule 173H will be considered by the adjudicating authority. Even after the remand when the adjudicating authority afforded 3 effective opportunities to the appellants, they did not make any request in writing giving detailed reasons and the grounds for considering their claim under Rule 173H. They only submitted flow charts in respect of the various processes that had been taken by them to rectify the defective goods, which was duly considered by the adjudicating authority, but no request for considering the claim under Rule 173H was ever filed. Therefore, for the first time at this stage, they cannot be permitted to urge for the consideration of their claim under the said Rule.

In view of the discussion made above, I do not find any illegality in the impugned order and the same is upheld. The appeal of the appellants is dismissed."

Thus, the findings recorded in the order-in-original and the order of the Commissioner (Appeals) that the process being carried out by the appellants on the defective goods for rectification was not the same which were adopted by them in their manufacturing of final products, has been accepted by the appellants before the Tribunal. The appellants accepted the final order of the Tribunal dated 30-1-2001, whereby the case was remanded to the Adjudicating authority for limited purpose as mentioned above. In their reply before Adjudicating Authority, which has been reproduced in the Order-in-Original No. 45-46 of 2001, dated 26-11-2001 the appellants took the stand that Rule 173H is not applicable in their case. Thus, for the first time in second round of litigation they contended before the Tribunal that their claim under Rule 173H should have been considered in alternative. Under the circumstances, it was not open for the appellants to raise the aforesaid plea before the Tribunal in the second round of litigation.

The remand was made by the Tribunal vide its final order dated 30-1-2001 for limited purpose and that order has attained finality. It was not open for the appellants to raise altogether a new plea before the Tribunal in the second round of litigation and that too contrary to their own stand taken before the Adjudicating Authority. Thus, the Tribunal has not committed any error of law in rejecting the alternate plea of the appellants. The impugned order of the Tribunal suffers from no infirmity. In view of the above discussions, the appeal fails and is hereby dismissed. The question of law is answered against the appellant-assessee and in favour of the respondent-department.