2001 (10) TMI 427 - AT - Central Excise

Tribunal allows Modvat credit on defective inputs, overturns penalty under Rule 173Q

The Tribunal ruled in favor of the appellants, allowing Modvat credit on defective Aluminium Wire Rods as inputs, aligning with the precedent set in ... Modvat on inputs - Penalty - Modvat - Duty paying documents Issues:1. Eligibility of defective Aluminium Wire Rods as inputs for Modvat credit under Rule 57A.2. Imposition of penalty under Rule 173Q.Eligibility of Defective Aluminium Wire Rods for Modvat Credit:The case involved manufacturers of Aluminium and articles thereof who had cleared defective wire rods to customers, which were returned and remelted to produce fresh final products. The Commissioner disallowed Modvat credit on the returned wire rods, stating they were not eligible inputs. The appellants challenged this decision, citing the Tribunal's decision in Hindalco Industries Ltd. v. CCE, Allahabad, where it was held that such defective wire rods were eligible inputs for Modvat credit. The Tribunal found the appellants' actions aligned with the principles set in the Hindalco case, allowing the Modvat credit on the Aluminium Wire Rods.Imposition of Penalty under Rule 173Q:The Commissioner had imposed a penalty of Rs. 25,000 under Rule 173Q, despite acknowledging the appellants' bona fide belief in the validity of the invoices used for Modvat credit. The Tribunal noted that the deficiencies in the invoices were technical in nature, and the Modvat credit was lawfully taken. Therefore, the penalty was deemed unjustified and set aside. The Tribunal emphasized that since the Modvat credit was validly claimed, Rule 173Q(1)(bb) of the Central Excise Rules, 1944, could not be invoked for penalty imposition.In conclusion, the Tribunal ruled in favor of the appellants on both issues. The decision allowed the Modvat credit on the Aluminium Wire Rods, following the precedent set by the Hindalco case. Additionally, the penalty imposed under Rule 173Q was deemed unwarranted and set aside due to the lawful nature of the Modvat credit claimed by the appellants. As a result, the impugned order was overturned, and the appeal was allowed with consequential reliefs granted to the appellants.