2007 (3) TMI 547 - AT - Central Excise

Appellate court allows full Modvat credit despite input value reduction

The appellate court ruled in favor of the appellant, stating that the appellant was entitled to the entire Modvat credit despite the reduction in input ... Cenvat/Modvat - Availment of Issues involved: Interpretation of Modvat credit rules regarding reduction in value of inputs and its impact on duty credit eligibility.Summary:1. The appellant, engaged in manufacturing goods under various chapters, availed Modvat credit for duty paid by inputs manufacturer. After negotiating a reduction in input value, they issued a debit note to the supplier. A show cause notice was issued to recover excess credit due to reduced input value, which was confirmed with interest and penalty. 2. The Commissioner (Appeals) noted the appellant's argument that they had already claimed duty credit upon receiving inputs, and after negotiating lower prices, they only sought the difference in basic price from the suppliers, not the duty amount. The Deputy Commissioner's view on reversing duty credit was deemed unsupported by law, as there was no provision in Cenvat Credit Rules for reducing duty credit due to reduced input value post-receipt.3. The appellate authority observed that since the input value decreased, the duty paid by the supplier manufacturer was also reduced. Hence, excess duty paid by the manufacturer cannot be considered excise duty, and the appellant cannot claim credit for it.4. The judgment clarified that although the duty required on inputs was less due to reduced value, the inputs manufacturer had indeed paid the higher duty. Rule 57A allows credit for duty 'paid' by the manufacturer, not duty 'payable.' As the manufacturer did not claim a refund post-value reduction, the appellant was entitled to the entire Modvat credit. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant.