2008 (2) TMI 335 - AT - Central Excise

Court sets aside penalty on appellant for availing modvat credit on rejected goods

The Court set aside the penalty imposed on the appellant for availing modvat credit on rejected goods. The Court clarified that the reversal of credit ... Received goods back for re-conditioning or remaking - officers entertained a view that the credit availed by the appellant is required to be reversed - due procedure under the law was followed by them in availing the credit, which was required to be reversed only at the time of removal of the goods - admittedly the goods were still lying in the factory premises, no mala fide intention can be attributed to the appellant for evading any duty so as to justifiably invoke the penal action Issues:1. Availment of modvat credit on rejected goods.2. Reversal of modvat credit and imposition of penalty.3. Interpretation of Rule 16 of Central Excise Rules, 2002.4. Justifiability of penalty imposition.Analysis:1. The appellants, engaged in manufacturing excisable goods, availed modvat credit on goods received back as rejected. The officers found the goods were scrapped instead of being remade, leading to reversal of credit and interest payment by the appellants.2. Proceedings were initiated via a show cause notice proposing a personal penalty. The Assistant Commissioner confirmed credit reversal and interest payment but did not impose a penalty due to non-awareness of the rule. The Commissioner (Appeals) modified the order, imposing a penalty, leading to the current appeal.3. Rule 16 of the Central Excise Rules, 2002 allows credit of duty on goods brought back for reconditioning, subject to reversal if not manufactured before removal. The appellant argued reversal was not required as goods were still in the factory premises, and the credit reversal should occur only at the time of removal.4. The judge found no justification for imposing a penalty, as the appellant followed due procedure and reversal was to be done at the time of removal, with no mala fide intention to evade duty. The order imposing a penalty was set aside, restoring the Assistant Commissioner's decision on duty and interest without any penalty imposition.This judgment clarifies the interpretation of Rule 16 regarding the reversal of modvat credit on rejected goods, emphasizing the timing of reversal and the absence of mala fide intent in the appellant's actions.