2008 (1) TMI 37 - AT - Central Excise

Appellate Tribunal rules in favor of appellant on modvat credit issue, rejects interest demand

The Appellate Tribunal CESTAT AHMEDABAD ruled in favor of the appellant in a case concerning the availment of modvat credit on inputs sent directly ... Credit was not denied on the ground of that the goods were directly received by the appellant other unit for the purpose of processing held by the tribunal Issues:1. Availment of modvat credit on inputs sent directly from one factory to another.2. Demand for interest on modvat credit due to direct transfer of inputs between factories.3. Interpretation of Rule 4(5) regarding utilization of modvat credit.Issue 1: Availment of modvat credit on inputs sent directly between factoriesThe appellant had two factories, one in Vadodara and another in Silvassa, where inputs were sent directly from Silvassa to Vadodara for processing on job work. The Revenue demanded interest on the modvat credit availed by the appellant, arguing that the inputs were not physically brought to the appellant's factory first, thus claiming the credit ahead of time. However, the Tribunal noted that both factories belonged to the appellant, and the direct transfer of goods did not warrant denial of credit. Had the inputs been physically brought to Silvassa first and then transferred to Vadodara, the appellant would have been entitled to immediate credit. Therefore, the Tribunal held that the appellant's direct transfer did not affect their entitlement to the credit.Issue 2: Demand for interest on modvat creditThe Revenue contended that interest was due on the modvat credit availed by the appellant for inputs sent directly to Vadodara factory without being physically brought to Silvassa first. The Tribunal acknowledged that the credit was immediately available due to the direct transfer, eliminating the need for interest confirmation. As a result, the Tribunal set aside the impugned order and allowed the appeal, providing consequential relief to the appellant.Issue 3: Interpretation of Rule 4(5) regarding modvat credit utilizationRule 4(5) allows an assessee to avail modvat credit on inputs received and sent for processing by job workers. The rule stipulates that if semi-processed goods are not received back within 180 days, the credit must be reversed. In this case, the appellant sent inputs directly from Silvassa to Vadodara for job work, bypassing the physical transfer to Silvassa first. Despite this deviation, the Tribunal clarified that the appellant's entitlement to credit was not affected by the direct transfer between their own factories. The Tribunal's interpretation emphasized that immediate credit availability negated the need for interest payment, ultimately leading to the appeal's success.This detailed analysis of the judgment from the Appellate Tribunal CESTAT AHMEDABAD highlights the issues surrounding the availment of modvat credit, the demand for interest, and the interpretation of Rule 4(5) in the context of direct transfer of inputs between factories.