2006 (11) TMI 85 - AT - Central Excise

Tribunal rules in favor of corrugated boxes manufacturer in Modvat/Cenvat credit case

BROWN KRAFT INDS. LTD. Versus COMMISSIONER OF CENTRAL EXCISE, THANE-II

The Tribunal ruled in favor of the appellant, a corrugated boxes/tubes manufacturer, in a case concerning alleged excess Modvat/Cenvat credit due to trade ... Cenvat/Modvat – Department alleged that appellant pay less duty and suppressed the fact with intent to availed excess credit and accordingly demanded for excess credit along with interest and penalty – Authority allow the appeal with consequential relief after considering the fact. Issues:1. Excess Modvat/Cenvat credit availed by the appellant.2. Allegation of passing on excess credit to the appellant.3. Denial of credit and imposition of penalty.4. Dispute regarding trade discounts and assessable value.5. Legality of demanding reversal of credit by the department.Analysis:1. The appellant, a manufacturer of corrugated boxes/tubes, was accused of not reversing excess Modvat/Cenvat credit due to trade discounts passed on by suppliers. The department claimed that post-discount, the transaction value decreased, resulting in excess credit to the appellant. The jurisdictional Assistant Commissioner issued a show cause notice for recovery of the excess credit, leading to the denial of Rs. 2,81,098 credit and imposition of an equal penalty.2. The Commissioner found that the appellant had indeed received excess benefits by not reversing the credit post-discount. The appellant's issuance of debit notes to suppliers for the higher value was acknowledged. The Commissioner highlighted the obligation to reverse excess credit when trade discounts affect the duty paid. The Commissioner noted this practice as a modus operandi for obtaining unauthorized benefits.3. The appellant argued that they correctly availed Cenvat credit based on duty amounts in Central Excise invoices. They contended that no evidence suggested unauthorized credit as duty payments were made as per rules. The appellant emphasized that trade discounts are a commercial aspect and can be given post-duty payment without affecting assessable value or duty paid. They disputed the Commissioner's reliance on a previous case and asserted no loss of duty to the department.4. The Tribunal agreed with the appellant, stating that there was no revenue loss as duty was paid correctly based on assessable value. The Tribunal emphasized that unless there was a short payment of duty or refund claimed by the supplier, the department could not demand credit reversal. The Tribunal upheld the validity of trade discounts and cash discounts as long as the correct duty was paid. Consequently, the demand for excess credit reversal and imposed penalties were deemed unsustainable.5. The Tribunal concluded that the department erred in demanding credit reversal and upheld the appellant's contention that they had paid the correct duty and taken credit accordingly. Both the orders demanding credit reversal were set aside, and the appeal was allowed with consequential relief, if any.