2003 (5) TMI 475 - Commission - Central Excise

Recovery of Modvat Credit: Admissibility under Central Excise Act

The majority opinion held that the application filed by M/s. Tube Products of India Limited is admissible under Section 32E of the Central Excise Act, ... Settlement of case - ‘Case’ - Definition of - Recovery of Modvat and Recovery of Central Excise duty - Distinction between Issues Involved:1. Admissibility of the application under Section 32 PA of the Central Excise Act, 1944.2. Definition and scope of the term 'case' under Section 31(c) of the Central Excise Act, 1944.3. Recovery of Modvat credit wrongly availed and its implications on levy, assessment, and collection of duty.Issue-wise Detailed Analysis:1. Admissibility of the Application:The applicant, M/s. Tube Products of India Limited, filed an application under Section 32 PA of the Central Excise Act, 1944, following the withdrawal of their appeal before CEGAT. The application was filed within 30 days of the CEGAT's order, as required under Section 32 PA(5). The department did not contest the reduction of duty liability to Rs. 3,95,425/-. However, the department's appeal was dismissed, and the applicant sought immunity from penalty, interest, and prosecution.2. Definition and Scope of 'Case' under Section 31(c):The primary contention was whether the proceedings involving the recovery of Modvat credit fall within the definition of 'case' under Section 31(c) of the Act. The applicant argued that the recovery of Modvat credit, which had been utilized to discharge duty on finished products, should be considered a proceeding related to levy, assessment, and collection of duty. The Bench observed that the term 'case' is defined under Section 31(c) as a proceeding relating to levy, assessment, and collection. The applicant's counsel cited previous cases where irregular availment of Modvat credit was admitted and settled by the Settlement Commission.3. Recovery of Modvat Credit and Implications:The SCN issued to the applicant proposed to disallow Modvat credit of Rs. 48,12,324/- availed during April 1992 to March 1996 under Rule 57-I(1) of the Central Excise Rules, 1944, and to recover an equivalent amount. The applicant admitted a duty liability of Rs. 44,16,899/- and sought a reduction of Rs. 3,95,424/- for inputs received from suppliers. The Bench considered whether the recovery of Modvat credit wrongly availed and utilized should be treated as a proceeding involving levy, assessment, and collection of duty. The applicant cited the case of Zenith Tin Works Pvt. Ltd. v. UOI, where it was held that erroneous credit under Rule 56A led to short levy of duty on finished products. The Bench noted that the SCN did not invoke Section 11A of the Act but only Rule 57-I, which deals with recovery of credit incorrectly availed.Separate Judgments Delivered by Judges:Judgment by K.P. Sridhara Raman:The Member concluded that the proceedings for recovery of an amount equivalent to the excess credit incorrectly availed and utilized do not fall within the definition of a 'case' under Section 31(c) of the Act. He emphasized that an erroneous credit remains erroneous regardless of when it is detected and dealt with. He also noted that the SCN did not propose to recover any duty as short paid on the final products but only the erroneous credit.Judgment by N. Rajagopalan:The Vice-Chairman disagreed with the Member's conclusion, stating that the application satisfies the definition of 'case' under Section 31(c) of the Act. He argued that the Modvat scheme is part of the process of levy, assessment, and collection of duty, and the recovery of wrongly availed credit is interrelated with the assessment of duty on finished products. He cited previous cases settled by the Settlement Commission involving Modvat credit and emphasized that Modvat credit is another form of duty.Judgment by K.V. Vaidyanathan:The Vice-Chairman, agreeing with N. Rajagopalan, held that recovery of Modvat credit wrongly availed and utilized is akin to recovery of Central Excise duty. He referred to the Hon'ble Supreme Court's judgment in the case of Dai Ichi Karkaria Ltd., which described the Modvat scheme as part of the process of levy and collection of excise duty. He concluded that the application filed by the applicant is admissible under Section 32E of the Act and allowed the application to proceed.Majority Order:In accordance with the majority opinion, the application is allowed to be proceeded with under Section 32F(1) of the Act. The applicant is directed to pay the balance amount of Rs. 31,66,899/- within 30 days and report compliance. The Bench of the Settlement Commission acquires exclusive jurisdiction to exercise the powers and perform the functions of the Central Excise Officer in relation to this case.