R. Jayaraman, Member (T)

1. This is an appeal directed against the order in appeal bearing No. V-2(32 Ceta) 1668/88, dated 22-2-1989, rejecting the appellants' appeal against the confirmation of the demand amounting to Rs. 1,02,600/-being the modvat credit alleged to have been incorrectly availed of. There is no need to set out the facts of the case in detail. The confirmation of the demand and the rejection of the appeal are only on the ground that the Gate passes, under which the input materials viz. Naphthalic Anhydride, received by the appellants' factory, have been endorsed thrice by the recipients of the goods prior to receipt in the appellants' factory. The facts, which are not disputed by either side, are that the entire goods covered by the Gate Passes in original packed condition, have been received by the appellants' factory. But these goods have changed three hands duly endorsed by three recipients before they ultimately reached the appellants' factory. The show cause notice has been issued by the Superintendent on the ground as below :

"It is observed that the said gate passes were not issued in the name of SBS Organics Pvt. Ltd., Ankleswar. These gate passes were received after three endorsements by different parties. Therefore, you are not entitled to take modvat credit on the strength of gate passes endorsed for more than one time."

This is the main crux of the allegation, on the basis of which credit had been demanded and the demand has been confirmed.

2. Heard Shri Christian, and Shri Arya. Shri Christian pressed mainly on the point viz. whether modvat credit is permissible in respect of the inputs which had been received under Gate passes endorsed more than once before they reached the final user of the inputs. Shri Christian contended that under Rule 57(G) of the Central Excise Rules, it is envisaged that no credit shall be taken, unless inputs are received in the factory under the cover of a gate pass, an AR-I, a Bill of Entry or any other document as may be prescribed by the Central Board of Excise and Customs. In this case, it is not in dispute that the inputs have been received under the gate passes. He also referred to the Trade Notice No. 86/89, dated 12-5-1989 issued by the Baroda Collectorate, wherein, the Board had directed that two endorsements are permitted to be made on the Gate passes. According to the Trade Notice, original gate passes which has been endorsed once can be further endorsed once more, provided the entire goods covered by the gate passes are transferred to the third party in original packing. Shri Christian, contended that though in this case, endorsement is more than twice, it should not stand in the way of extension of credit, because of the fact that this is only a breach of the executive direction restricting the number of endorsements to 2. The main spirit behind the modvat scheme is to ensure that the credit of duty actually paid on the input materials is made available to the manufacturer of the finished product and this scheme is mainly intended to avoid the cascading effect of taxation of input. This has totally been missed and a narrow view is taken that input duty relief should not be given because the gate passes have been endorsed more than twice. So long as the department does not have any doubt regarding the duty paid nature of the goods, credit of duty cannot be denied only on the ground that the gate pass has been endorsed more than once or more than twice. He also contended that Rule 57G does not prescribe that the Gate pass should be only in the name of the claimant of the modvat credit. In this context, he also cited the decision of the CEGAT reported in 1986 (26) 657,Seems wrong - Ed. wherein, it has been held that the gate pass need not be in the name of the manufacturer availing of proforma credit and it need not be endorsed. He also cited the decision of this Bench reported in 1984 ECR 2632 (Cegat) and also 1986 (8) ETR 400 Cegat SRB (Tri.) in the case of