Invalid Endorsed Bill of Entry Disallows Modvat Credit, Penalties Overturned

KHANDELWAL LABORATORIES LTD. Versus COMMISSIONER OF C. EX., MUMBAI

KHANDELWAL LABORATORIES LTD. Versus COMMISSIONER OF C. EX., MUMBAI - 2006 (205) E.L.T. 541 (Tri. - Mumbai) Issues:
1. Disallowance of Modvat credit on the endorsed bill of entry.
2. Imposition of penalty for contravention of rules.

Analysis:
1. The case involves the disallowance of Modvat credit amounting to Rs. 18,89,616/- due to the use of an endorsed bill of entry that was deemed invalid for claiming credit under Rule 57G(3) of the Central Excise Rules. A penalty of Rs. 2,00,000/- was also imposed on the appellants for the rule contravention.

2. The Tribunal considered the precedent set by the Larger Bench in Balmer Lawrie & Co. Ltd. v. CCE, Kanpur, which established that endorsed invoices post-April 1, 1994, are not acceptable as duty paying documents for Modvat credit. Despite attempts to distinguish the case due to the nature of the document (endorsed bill of entry), the Tribunal found no substantial difference to deviate from the Larger Bench decision. Previous cases cited by the appellants were deemed irrelevant as they involved distinct circumstances not applicable to the present situation.

3. The Tribunal noted that the bill of entry in question lacked a declaration similar to those in previous cases where credit was allowed. The absence of a specific declaration from the importer regarding availing credit, coupled with the standard endorsement for MODVAT under Rule 57-A of the Central Excise Rules, led to the conclusion that the denial of credit was justified following the precedent established by the Larger Bench.

4. While upholding the disallowance of credit, the Tribunal exercised discretion in setting aside the penalty, deeming it inappropriate in this instance. Consequently, the appeal was partially allowed, with the denial of credit upheld but the penalty overturned.

In conclusion, the judgment reaffirmed the importance of adhering to established legal precedents in determining the admissibility of Modvat credit and highlighted the significance of proper documentation and declarations in such cases.