ORDER

Per Shri P.C. Jain :

Following are the relevant facts :-

1. The appellant, a Govt. of India Undertaking, is having two units - one at Damanjodi and another at Angul. In Damanjodi unit, it manufactures Calcined Alumina falling under Chapter 28 of the Schedule to the Central Excise Tariff Act, 1985, out of duty paid inputs on which modvat credit has been taken and at Angul unit it manufactures Aluminium metal falling under Chapter 76 ibid out of calcined alumina manufactured at, and dispatched from, Damanjodi.

2. During the material period 20.4.1989 to 24.7.1989, the appellant dispatched calcined alumina without payment of duty following the Chapter X procedure of the Central Excise Rules, 1944 in terms of Notification No. 217/86 dated 3.4.86 ( as amended). Modvat credit of duty paid on inputs for manufacture of Alumina (which in turn was utilised in manufacture of aluminium metal cleared on payment of duty) was not debited. Instead, the modvat credit earned at Damanjodi was utilised towards payment of duty on aluminium metal manufactured at Angul. Literally speaking, this meant transfer of modvat credit from Damanjodi unit to Angul unit.

3. By a notice dated 18.9.89, the appellant was called upon to show cause to the Assistant Collector as to why the input duty (modvat credit) amounting to Rs. 39,17,929.31 should not be recovered from it under rule 57I and penalty should not be imposed.

4. In its reply to show cause notice, the appellant submitted that it was under a bonafide belief that the duty paid inputs on which modvat credit was taken by it at Damanjodi could be utilised by it towards payment of duty on aluminium metal manufactured and cleared at Angul through the intermediate manufacture of calcined alumina. If this is not permitted, the very purpose of notification 217/86-CE would be defeated.

5. If further submitted that prior to and subsequent to the relevant period 20.4.1989 to 24.7.1989, the appellant had been following the procedure of (i) clearing cancined alumina on payment of duty by utilising the modvat credit of duty paid on inputs at Damanjodi, (ii) taking modvat credit at Angul of duty paid on cancined alumina and (iii) utilising the same for payment of duty on aluminium metal manufactured at Angul. No objection was and is taken to this procedure being followed by the appellant.

6. It is submitted by the appellant that by following the procedure as it did during the relevant period, no loss of revenue is caused except that the scriptory work of clearing calcined alumina on payment of duty from Damanjodi and again taking credit thereof at Angul is avoided. This is the precise object of Notification No. 217/86. It is, therefore, prayed that if Revenue's contention is accepted that cancined alumina has been cleared without payment of duty under Notification 217/86- CE and, therefore, modvat credit of duty paid on inputs used in cancined alumina needs to be reversed, then the appellant has no objection on paying duty on calcined alumina so that it can take credit again. In other words, the procedure followed by the appellant prior to or subsequent to the relevant period be allowed to be followed retrospectively (i.e. from 20.4.89) since there is no loss of revenue and it is merely a matter of procedure.

7. He also submits that in the case of Bajaj Tempo Ltd. vs. Collector of Central Excise 1944 (69) ELT 122 (T) it has been held that Revenue's contention of reversal of modvat credit in such circumstances is not tenable because Notification 217/86-CE has a specific purpose of avoiding cascading effect of duty on inputs used in dutiable final product through wholly exempted intermediate products used capatively by a manufacturer in the same factory or another factory.

8. Learned SDR, on the other hand, invites specific attention to rule 57C and submits that since cancined alumina is fully exempted, modvat credit is required to be retrenched as held by the West Regional Bench of the Tribunal in the case of Kirloskar Oil Engines 1994 (67) ELT 412 and confirmed by Larger Bench. He, therefore, prays for dismissing the appeal.

9. We have carefully considered the pleas advance from both sides. We observe that Notification 217/86-CE is sui-generis in giving relief to a manufacturer utilising the duty paid inputs in manufacture of dutiable final product through the process of wholly exempted intermediate product - as calcined alumina in this case. Its purpose is to avoid scriptory work as explained above by the learned advocate when the wholly exempted intermediate product is utilised capactively by the same manufacturer (either in the same factory or in another factory) in manufacture of dutiable final product. In the circumstances, procedure followed by the appellant during the relevant period was not wrong. Credit taken at Damanjodi of duty paid on inputs would be available for utilisation towards payment of duty on the final product (aluminium metal) at Angul because the two factories of the appellant - at Damanjodi and Angul - are to be treated as one. In the scheme of Notification 217/86-CE, if for the purpose of consumption of intermediate inputs, both the factories are treated as one, they have to be treated as one for the purpose of utilisation of modvat credit. If this is not allowed, the purpose of notification 217/86-CE will be defeated and it cannot be given effect in case like that of the appellants. It is well settled that procedural deviations shall not come in the way of availment of a substantive benefit. Procedures, in our opinion, should be allowed to be moulded according to the exigencies of each case in view of the foregoing settled principle, unless the procedure spelt out has a mandatory character. Kirloskar Oil Engines (supra) is distinguishable on facts.

10. Accordingly, we allow the appeal with consequential relief to the appellant.