1993 (5) TMI 179 - AT - Central Excise

Tribunal rules on Modvat compliance: Procedural violations, not substantive, reduce penalty

Thermax Ltd. Versus Collector Of Central Excise

The Tribunal found that the appellants' actions constituted procedural violations rather than substantive non-compliance. The failure to declare the ... - Issues Involved:1. Manufacture of goods in unlicensed premises in contravention of Rule 174.2. Storage and clearance of goods from unapproved premises in contravention of Rules 9 & 49.3. Taking Modvat credit on inputs not brought inside the licensed factory, violating Rule 57G.4. Sending inputs to job workers without permission, contravening Rule 57F(2).5. Maintaining a parallel RG 23A register and suppressing material facts, leading to evasion of duty under Rule 57-I and Section 11-A of the Central Excise Act.Issue-wise Detailed Analysis:1. Manufacture of Goods in Unlicensed Premises:The appellants were found to have manufactured goods in the hired premises of Anant Machinery Ltd. (A.M.P.) without obtaining the required Central Excise licence, violating Rule 174. The investigation revealed that the appellants used A.M.P. for receiving inputs, sending them to job workers, and receiving fabricated goods back, which were then dispatched to customers. This activity was not covered under their L4 licence, leading to the allegation of manufacturing in unlicensed premises.2. Storage and Clearance of Goods from Unapproved Premises:The Department alleged that the appellants stored and cleared goods from A.M.P., which was not an approved place of storage, violating Rules 9 & 49. The investigation found that the appellants dispatched finished goods directly from A.M.P. to customers, making entries at the Chinchwad factory gate to create an impression of compliance. The appellants admitted to using A.M.P. for storage and dispatch without informing the Department, attributing it to a lack of awareness of procedural requirements post-1986 Modvat implementation.3. Taking Modvat Credit on Inputs Not Brought Inside Licensed Factory:The appellants took Modvat credit on inputs received at A.M.P., which were never brought into the licensed Chinchwad factory, violating Rule 57G. The Department argued that Modvat credit could not be availed if inputs were not received and processed in the licensed premises. The appellants contended that they followed a similar procedure under the erstwhile Rule 56c and that the omission to declare A.M.P. for Modvat purposes was not intentional.4. Sending Inputs to Job Workers Without Permission:The appellants sent inputs to job workers from A.M.P. without obtaining the necessary permission, violating Rule 57F(2). The Department emphasized that the rule requires processed goods to be returned to the factory taking Modvat credit for further manufacture. The appellants argued that they acted as manufacturers, paying duty on the finished goods, and the omission to seek permission was not with an intent to evade duty.5. Maintaining a Parallel RG 23A Register and Suppressing Material Facts:The Department alleged that the appellants maintained a parallel RG 23A register at A.M.P. and suppressed material facts regarding the receipt of inputs and dispatch of goods, leading to wrongful availing of Modvat credit amounting to Rs. 18,89,145 (basic) plus Rs. 8,658.58 (special). The appellants contended that the omission was not deliberate and that they paid substantial duty on the finished goods, negating any intent to defraud the government.Judgment:The Tribunal concluded that the appellants' actions constituted procedural violations rather than substantive non-compliance. The appellants' failure to declare A.M.P. for Modvat purposes and obtain necessary permissions was seen as an omission rather than a willful misstatement. The Tribunal held that there was substantive compliance with Modvat rules, as the declared inputs were used in manufacturing the final products, and duty was paid on the finished goods.The demand for reversal of Modvat credit was set aside, but the penalty was reduced from Rs. 10 lakhs to Rs. 5 lakhs, considering the appellants' major status and the need for a corrective measure rather than punitive action. The Tribunal emphasized that the appellants' actions, though procedurally incorrect, did not amount to an overt attempt to evade duty.