2003 (9) TMI 582 - AT - Central Excise

Clarification on Modvat credit for Special Excise Duty components

The judgment addressed the challenge to the denial of Modvat credit for the Special Excise Duty component. It clarified the distinction between Basic and ... Cenvat/Modvat Issues:Challenge to denial of Modvat credit for Special Excise Duty component.Analysis:The appellants challenged the impugned order-in-appeal denying part of the Modvat credit availed. The case involved the receipt of Diet Pepsi Concentrate under specific Central Excise Tariff heading. The inputs were cleared by the supplier after payment of Basic and Special Excise Duty. The appellants availed the entire credit, including the Special Excise Duty component. However, rules specified that credit for Special Excise Duty could only be taken for specified goods. A show cause notice was issued for denying the Cenvat credit for the Special Excise Duty component. The Deputy Commissioner disallowed the credit, which was confirmed by the Commissioner (Appeals) due to a change in duty rates post-1-3-2000.The key issue revolved around the mandatory reversal of credit equivalent to the credit taken on inputs at the point of receipt in the factory when clearing the inputs outside the factory. The question arose whether the entire payment, comprising both Basic and Special Duty, could be categorized as Basic duty. It was emphasized that the character of each levy, Basic and Special, remains unchanged even when inputs are cleared from the factory. The reversal amount must cover both components, but this does not convert the entire amount into Basic duty. The identity of each payment category remains distinct. The appellants' attempt to change the Special Excise Duty component to Basic duty was deemed impermissible under the law. Case laws cited by the appellant did not support their argument, as the rate of reversal was based on the entry rate of inputs, and credit was allowed only for the Basic component post the abolition of Special duty. The Commissioner (Appeals) decision was upheld, rejecting the appeal.In conclusion, the judgment addressed the challenge to the denial of Modvat credit for the Special Excise Duty component. It clarified the distinction between Basic and Special Duty components, emphasizing that the character of each levy remains unchanged even during clearance of inputs outside the factory. The decision upheld the denial of credit for the Special Excise Duty component, as per the relevant rules and post-1-3-2000 duty rate changes.