2015 (11) TMI 44 - AT - Central Excise

Trader denied MODVAT credit for exports, penalties post-23.6.1996 only. Merchant exporter rebate denied.

M/s. KCP Ltd. Versus CCE, Chennai I

The Tribunal upheld that the appellant, acting as a trader, was not entitled to MODVAT credit for bought-out items exported without being used in ... MODVAT Credit - Rule 57Q - Capital goods - Held that:- Tribunal had directed in its order to compute the irregular MODVAT credit availed. This implies that the MODVAT credit relating to input as well as capital goods is to be ascertained in accordance with law for right application of law. - adjudicating authority is directed to afford reasonable opportunity of hearing to the appellant within three months from the receipt of this order for segregation of the input credit and capital goods credit if any availed verifiable from statutory record and verify the concerned declarations filed in that regard before the jurisdictional authority. If such detailed exercise is done, the authority may precisely work out the respective credits for applicability of the law distinctly appearing in two different Rules i.e., Rule 57I and Rule 57S of the Central Excise Rules, 1944. Penal provisions in Rule 57I through sub-rule (4) and in Rule 57U through sub-rule (5), were incorporated after 23.6.1996. This being the cut-off date there shall be no penalty for the period prior to that date is leviable in the course of re-adjudication under Rule 57I and Rule 57U respectively. If any other penal provision is attracted, appellant is entitled to reasonable opportunity of defense before imposition if any. When neither there was any plea in this regard before the Tribunal nor there was decision by the Apex Court on that aspect. Therefore subscribing to the view advanced by the appellant is not possible at this stage after the order of Tribunal merged in the order of Apex Court. Accordingly, time bar plea is rejected. Appellant pleaded that it is entitled to rebate. But such plea fails when the inputs were not used in manufacture but were exported as traded goods and even unpacking the same but dispatched as was received from suppliers. - Matter remanded back - Appeal disposed of. Issues Involved:1. Entitlement to MODVAT credit on bought-out items.2. Time-bar aspect of the proceedings.3. Penalty applicability for the period prior to 23.6.1996.4. Rebate entitlement for exported goods.5. Verification and segregation of input and capital goods records.6. Overlapping demand in re-adjudicated orders.Detailed Analysis:1. Entitlement to MODVAT Credit on Bought-Out Items:The Tribunal addressed the issue of whether the appellant was entitled to MODVAT credit for bought-out items exported without being used in manufacturing. The Supreme Court had previously ruled that the appellant, acting as a trader, was not entitled to such credit since the bought-out items were neither used in the manufacturing process nor even unpacked. The Tribunal upheld this view, noting that the appellant's role as a merchant exporter disqualified it from claiming MODVAT credit under the applicable rules.2. Time-Bar Aspect of the Proceedings:The appellant argued that part of the period covered by the denovo order was time-barred, referencing the adjudicating authority's original order which had dropped proceedings on the time-bar aspect. However, the Tribunal rejected this plea, stating that neither the Tribunal nor the Supreme Court had addressed the time-bar issue in their final decisions. As such, the Tribunal could not entertain the time-bar argument at this stage.3. Penalty Applicability for the Period Prior to 23.6.1996:The Tribunal noted that penal provisions in Rule 57I(4) and Rule 57U(5) were incorporated only after 23.6.1996. Therefore, no penalty could be imposed for periods prior to this date. The adjudicating authority was instructed to ensure that penalties were only applied for periods where the law permitted such actions.4. Rebate Entitlement for Exported Goods:The appellant's plea for rebate was dismissed by the Tribunal, as the goods in question were exported as traded items without being used in manufacturing. The Tribunal emphasized that since the appellant was found to be a merchant exporter, it was not entitled to any rebates that would apply to manufacturers.5. Verification and Segregation of Input and Capital Goods Records:The Tribunal directed the adjudicating authority to verify and segregate the MODVAT credit records for inputs and capital goods. This involved examining statutory records and declarations to ascertain the correct application of laws under Rule 57F, 57I, 57Q, 57S, and 57U. The adjudicating authority was tasked with recalculating the credits and determining the extent of utilized and unutilized credits, ensuring compliance with the relevant rules.6. Overlapping Demand in Re-Adjudicated Orders:The Tribunal acknowledged the appellant's claim of overlapping demand between Order-in-Original No. 8/2014 and Order-in-Original No. 11/2014. The adjudicating authority was instructed to examine this factual aspect during the re-adjudication process.Conclusion:The Tribunal remanded the matter back to the adjudicating authority for a detailed examination and re-adjudication. The authority was directed to segregate and verify the records, apply the appropriate laws, and ensure a fair hearing for the appellant. The Tribunal also maintained that no refunds should be processed until the re-adjudication was completed. The decision applied uniformly to all 22 appeals, including those with overlapping issues.