PerS.L. Peeran:

This appeal is directed against the order-in-original dt. 17.6.93 passed by the Collector of Central Excise, Pune.

2. In this order, the ld. Collector has drawn the following issues for his determination:

i. whether conditions of the Notification No. 53/88-CE dt. 1.3.88 as amended, are fulfilled;

ii. whether MODVAT Credit availed, on the duty paid VAM can be treated as duty paid or otherwise;

iii. whether company has an option to pay duty on their own in case the goods are fully exempted from payment of duty.

The ld. Collector has noted that the assessee had been availing duty concession under Notification No. 53/88-CE dt. 1st March'88 as amended, for their product 'Polynol' i.e. Polyvinyl Alcohol and using VAM, the raw material, captively for the same. In view of this fact, the assessees are not required to pay any duty on VAM. Moreover, they were entitled for duty exemption under Notification No. 217/86-CE dt. 2.4.86, they have preferred to forgo the exemption for captive consumption on VAM available under Notification No. 217/86-CE dt. 2.4.86 and to pay the duty, it has been further noted that the assessees were well aware of this fact, which can be seen from para 4 of their letter dt. 18.1.91, addressed to the Chairman, CBEC, New Delhi. In view of this, the ld. Collector has held that the assessees are not entitled for the benefit of Notification No. 53/88-CE dt. 1.3.88. He has further held that the assessees had availed MODVAT Credit on VAM when used captively, it means that duty paid VAM is retained by them by way of availing MODVAT Credit and hence, VAM cannot be treated as duty paid and, therefore, the concessional rate of duty under Notification No. 53/88-CE dt. 1.3.88 cannot be made available as it falls to fulfil the condition of notification.

The ld. Collector has held that if a person deposited any amount in the name of excise duty, which is not leviable, by law, the amount so deposited cannot be in the nature of duty. Therefore, the ld. Collector has held that the question of granting any credit in respect of duty paid inputs or in respect of finished goods which have used the goods in respect of which the duty has been paid, does not arise.

The ld. Collector has also held that the assessees have not disclosed about this fact in their Classification List No. BMT/2/90 dt. 20.3.90 about their availing MODVAT Credit on VAM when used as raw material, for Polynol, which is the prime condition of the Notification No. 53/88-CE dt. 1.3.88 to avail concessional rate of 20% Adv., with an intent to evade the payment of duty at Tariff rate of 60% Adv. willfully. Therefore, the ld. Collector has held that since the inputs/raw material VAM, was fully exempted from payment of duty, assessee could not have filed any declaration under Rule 57A of the Rules, and they could not have taken any advantage of MODVAT Credit in respect of input which were exempted. Therefore, the ld. Collector has held that the entire attempt of the assessee, is to somehow take the benefit of the Notification. In that view of the matters, the ld. Collector has held that the charge of suppression has been proved beyond doubt and therefore, the assessee has contravened the provisions of Rule 173B, 9 (1) read with 173F, 173G of the Rules and duty amount of Rs. 92,93,422/- is rightly recoverable under Rule 9 (2) read with proviso to sub-section (1) of Section 11A of the Act. He has also imposed a penalty of Rs. 2 lakhs and redemption fine of Rs. 5 lakhs.

3. Addressing the argument for the assessee, the ld. Consultant, Shri Gautam D. Doshi submitted that they were entitled to the benefit of Notification No. 217/86-CE dt. 2.4 86. However, they had not availed the same and merely because the assessee had not availed the benefit, they cannot be denied the MODVAT Credit. Further he submitted that the department had not made this allegation in the show-cause notice, nor they were asked them to address any arguments on that point and, therefore, the