2014 (2) TMI 277 - AT - Central Excise

Tribunal grants partial appeal, emphasizes evidence verification for Modvat credit claim.

The tribunal partially allowed the appeal, remanding the matter for verification of the Modvat credit claim of Rs.35,68,324. It emphasized the importance ... Denial of Cenvat/Modvat credit for input used in manufacture - Admissibility of credit where original bill of entry not on record but departmental verification/endorsement exists - Effect of delayed entry in RG 23A (part II) and existence of vested right to credit - Remand for verification of statutory records and entries - Levy of penalty in absence of mens rea or intention to evadeDenial of Cenvat/Modvat credit for input used in manufacture - Whether Modvat/Cenvat credit on the diesel engine (bought-out item forming part of a DG set) was rightly denied - HELD THAT: - The Tribunal found that a DG set functions only as a composite of alternator and diesel engine, and the diesel engine therefore constituted an input for the manufacture/clearance of the DG set on which duty had been paid. Consequently, denial of Modvat credit on the diesel engine was not sustainable. The reasoning emphasises that where an item is an integral input to the finished product on which duty has been paid, credit cannot be refused on that basis. [Paras 3]Credit on the diesel engine allowed; denial set aside and appellant succeeds on this count.Admissibility of credit where original bill of entry not on record but departmental verification/endorsement exists - Whether Modvat/Cenvat credit could be disallowed because only a photocopy of the bill of entry was filed - HELD THAT: - The Tribunal examined the produced copy of the bill of entry and noted the departmental verification endorsement by the Superintendent dated 22-08-1997, and that the original along with the photocopy had been produced for verification. The presence of the official verification endorsement on the bill of entry was held to be conclusive for allowing the claimed credit, notwithstanding the Revenue's objection about reliance on a photocopy. [Paras 6]Denial of credit on the ground that only a photocopy was filed is set aside; appellant succeeds on this count.Effect of delayed entry in RG 23A (part II) and existence of vested right to credit - Remand for verification of statutory records and entries - Whether failure to record the credit in part II of RG 23A within six months defeats the right to avail Cenvat credit, and whether the claimed credit requires further verification - HELD THAT: - The Tribunal accepted the appellant's submission that receipt of the input was recorded in part I of RG 23A and that such an entry evidences that the right to credit had accrued when duty was paid and the input entered the factory. The Tribunal relied on the principles in Eicher Motors Ltd. (para 5 & 6 extracted) to hold that a statutory scheme cannot be applied so as to defeat rights already accrued under the earlier position. However, because the factual question whether the relevant entry appears in part I of the Register needed verification, the Tribunal remanded the matter to the adjudicating authority for verification of the entry and related evidence in respect of the claim of Modvat credit of Rs.35,68,324/-. The Tribunal directed cooperation by the appellant and permitted allowance of credit upon satisfactory verification. [Paras 9, 10, 13]Matter remanded for verification of the RG 23A entries and evidence; if verified, the claimed Modvat credit to be allowed.Levy of penalty in absence of mens rea or intention to evade - Whether the penalty imposed should be sustained despite the appellant's success on the credit disputes - HELD THAT: - The Tribunal concluded that levy of penalty in circumstances where there was no intention to evade tax was unwarranted. Given that the appellant succeeded on the substantive credit claims (in part) and that there was no finding of deliberate evasion, the Tribunal exercised its discretion to waive the penalty. [Paras 11, 12]Penalty of Rs.1,00,000/- waived.Final Conclusion: The appeal is allowed in part: Modvat/Cenvat credit on the diesel engine is permitted; credit disallowed for want of an original bill of entry is restored on the basis of departmental verification; the larger claim of Modvat credit is remanded for verification of RG 23A entries and evidence and is to be allowed if verified; the penalty is waived. Appeal disposed accordingly. Issues:1. Denial of Modvat credit for a diesel engine used in a DG set.2. Disallowance of Modvat credit due to the submission of a photocopy of the bill of entry.3. Dispute regarding the recording of input credit in the statutory record within the specified timeframe.4. Levy of penalty unjustified due to success in denying credit.Issue 1: Denial of Modvat credit for a diesel engine used in a DG setThe appellant claimed Modvat credit for a diesel engine used in a DG set, which was denied by the Revenue. The appellant argued that the diesel engine was an essential input for the functioning of the DG set, and therefore, the denial of Modvat credit was unwarranted. The tribunal agreed with the appellant, stating that the diesel engine had become an input for the DG set, and thus, the denial of Modvat credit was not justified.Issue 2: Disallowance of Modvat credit due to the submission of a photocopy of the bill of entryAnother issue arose when Modvat credit was disallowed due to the appellant submitting a photocopy of the bill of entry instead of the original. The appellant contended that both the original and photocopy were presented to the Superintendent for verification. The tribunal examined the bill of entry and noted that it had been verified by department officials, leading to the conclusion that the appellant succeeded in this dispute as well.Issue 3: Dispute regarding the recording of input credit in the statutory record within the specified timeframeThe appellant faced a dispute regarding the recording of input credit in the statutory record within the prescribed 6-month period. The appellant argued that the recording of the input in part 1 of the RG 23 Register granted them the right to the credit, even if the entry in part 2 was not made within the specified timeframe. The tribunal agreed with the appellant, emphasizing that the right to credit accrues when duty is paid on the input, and there was no statutory bar to deny the credit based on the recording timeframe.Issue 4: Levy of penalty unjustified due to success in denying creditLastly, the appellant contested the levy of a penalty of Rs.1.00 Lakh, arguing that it was unwarranted since they had succeeded in all three counts of denying credit. The tribunal agreed with the appellant, stating that the penalty without intention of evasion was unjustified, and therefore, waived the penalty.In conclusion, the tribunal allowed the appeal partly, remanding the matter for the verification of the claim of Modvat credit of Rs.35,68,324. The tribunal emphasized the importance of verifying evidence for the claim and ensuring that the appellant receives the benefit of Modvat credit where applicable.