2006 (12) TMI 388 - AT - Central Excise

Tribunal overturns demand & penalty, affirms Modvat credit claim, stresses record-keeping.

The Tribunal allowed the appeal, setting aside the order upholding the demand and penalty for availing ineligible Modvat credit. The appellants ... Demand - Cenvat/Modvat Issues:- Appeal against order upholding demand and penalty for availing ineligible Modvat credit.- Allegation of short receipt of raw materials by the appellants.- Submission of evidence regarding dispatch of goods to job workers and receipt of processed goods back.Analysis:Issue 1: Appeal against order upholding demand and penalty for availing ineligible Modvat creditThe appeal was directed against the order-in-appeal dated 10-11-2004, which confirmed the demand and penalty imposed on the appellants for availing ineligible Modvat credit. The officers found that the appellants had availed excess credit due to the quantity of inputs not received by them from the manufacturer. The appellants contended that they had received the entire quantity of inputs and dispatched them to job workers, subsequently availing Modvat credit. The adjudicating authority and Commissioner (Appeals) upheld the demand and penalty. However, the learned Advocate for the appellant argued that the show cause notice was based on incorrect premises as the appellants had indeed received and dispatched the inputs as per records. The Tribunal found merit in the appellant's submissions, set aside the impugned order, and allowed the appeal with consequential relief.Issue 2: Allegation of short receipt of raw materials by the appellantsThe central issue revolved around the allegation of short receipt of raw materials by the appellants in their factory. The authorities compared the quantity mentioned in the invoices with the actual quantity received by the appellants. The discrepancy in quantities led to the demand for recovery of excess credit availed. The appellants argued that they had dispatched the entire quantity of inputs to job workers and received back processed goods, as evidenced by statutory records and job work challans. The Tribunal noted that the authorities had not considered the evidence presented by the appellants in detail and had dismissed their contentions summarily. The Tribunal, after a thorough examination of the records and submissions, concluded that the appellants had indeed received the full quantity of goods as per invoices and had complied with statutory requirements. The allegation of short receipt was not substantiated, leading to the setting aside of the impugned order.Issue 3: Submission of evidence regarding dispatch of goods to job workers and receipt of processed goods backThe appellants provided detailed evidence regarding the dispatch of goods to job workers and the subsequent receipt of processed goods. They maintained statutory records, including job work challans, debit entries in RG 23 Part II, and recording in Form V register, to demonstrate the flow of goods. The job workers returned the processed goods to the appellants, further supporting the appellant's claim of having received and utilized the inputs. The Tribunal observed that the lower authorities had not delved into the details of this evidence and had not conducted a thorough investigation, such as checking the job worker unit. The failure to explore this crucial aspect weakened the revenue's case, as they could not provide any evidence to substantiate the allegation of short receipt. The Tribunal accepted the appellant's evidence, emphasizing the importance of statutory records and compliance with procedures. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.