K.S. Venkataramani, Member (T)

1. This appeal is directed against the order dated 28-1-1988 passed by the Collector of Central Excise, Hyderabad, by which he had, under Rule 571 of the Central Excise Rules, 1944, ordered reversal of MODVAT credit of Rs. 9,39,540.66 availed of by the appellants on the ground that this was irregular availment of deemed MODVAT credit on steel scrap utilised by them in the manufacture of their final product. He also imposed on the appellants under Rule 173Q a personal penalty of Rs. 5,000/-.

2. The appellants are mini steel plant manufacturing iron and steel products falling under Chapter 72 of the Central Excise Tariff Act, for which one of the raw materials is steel scrap, which is purchased by them from outside. They filed a declaration under Rule 57G of the Central Excise Rules for the purposes of availing MODVAT credit of inputs on 18-6-1986 and obtained a dated acknowledgement from the jurisdictional Assistant Collector on 19-6-1986. On 30-12-1986 officers of Anti-Evasion Headquarters, Central Excise Collectorate, Hyderabad, visited the appellants factory. It was noticed by them that the appellants had availed of MODVAT credit amounting to Rs. 17,56,307.95 on a quantity of 4811.783 M.T. of scrap received by them prior to the date of filing the declaration. Therefore, a Show Cause Notice was issued and proceedings initiated against the appellants on a charge that they were not entitled to avail deemed duty credit in respect of the scrap received and utilised by them prior to the date of their filing the declaration under Rule 57G of the Central Excise Rules for the purposes of availing the MODVAT credit facility. On consideration of their reply to the Show Cause Notice and the oral submissions, the Collector found that they were eligible for the credit of deemed MODVAT credit during the month of March 1986, but that no deemed MODVAT credit of duty was permissible to them apart from this on the inputs received before the date of declaration on 19-6-1986. Accordingly, the Collector ordered the reversal of the excess amount of MODVAT deemed credit and imposed a personal penalty as stated above.

3. Shri Vaidyanathan, the learned Consultant appearing for the appellants, submitted that the Government of India by its direction issued under Rule 57G(2) dated 7-4-1986 had allowed deemed credit on steel scrap. The appellants herein came to know of it rather belatedly, and as soon as they became aware of such facility, they filed their declaration in respect of the steel scrap to avail of the same. The learned Consultant further urged that in terms of Rule 57H, relating to transitional provisions, credit can also be availed on such inputs used in the manufacture of final products which are cleared from the factory on or after 1-3-1986. In any case, the learned Consultant pointed out that the credit of duty availed was on 30-6-1986 in their R.G. 23-A Pt.II, and on this a Show Cause Notice has been issued only on 30-12-1986, beyond six months period, and as such, it was time-barred since the Department, being in the know of their availing of the credit, cannot seek to recover duty which is beyond six months. The learned Consultant further pleaded that there was no justification at all for the imposition of a personal penalty on the appellants herein for the offence, as there was no mala fides on their part.

4. Shri K.K. Bhatia, the learned S.D.R. appearing for the Department, contained that deemed credit is a facility that can be availed of by the manufacturer only after he had been granted the permission to operate under MODVAT credit scheme by the jurisdictional Assistant Collector on accepting his declaration for the purpose under Rule 57G and acknowledgement thereof. Therefore, there is no question of the manufacturer availing of such deemed credit during a period prior to the date of declaration. The Show Cause Notice also is not time barred, according to the learned S.D.R., because it has been sent