2008 (8) TMI 239 - HC - Central Excise

Court rejects Modvat credit claim on exported goods without excise duty payment

MEWAR POLYTEX LTD. Versus UNION OF INDIA

MEWAR POLYTEX LTD. Versus UNION OF INDIA - 2009 (236) E.L.T. 448 (Raj.) Issues:Challenge to Tribunal's order allowing Revenue's appeal and setting aside Commissioner's order disallowing Modvat credit and imposing penalty under Rule 173Q(1)(bb) of Central Excise Rules, 1944.Analysis:1. The appeal challenged the Tribunal's order which set aside the Commissioner's decision disallowing Modvat credit of Rs. 5,37,799/- and imposing a penalty under Rule 173Q(1)(bb) of the Central Excise Rules, 1944. The substantial questions of law framed were whether Modvat credit could be availed on indigenous inputs used in goods exported under Advance Licence Scheme and whether availing drawback under the Export Scheme forfeited the claim to Modvat credit under the Central Excise Act, 1944.2. The show cause notice alleged the assessee wrongly claimed Modvat credit on inputs used in exported goods, which was not admissible. The Assessing Officer confirmed the demand, which was set aside in appeal but reconfirmed later. The dispute centered around the eligibility of the assessee to claim Modvat credit on exported goods.3. The assessee argued that no wrong declaration was made, as Modvat credit was not claimed when goods were exported against bond without excise duty payment. The Revenue contended that Modvat credit was wrongly claimed, and the orders disallowing the credit did not require interference.4. The Court noted that the assessee exported goods without excise duty payment, then claimed Modvat credit on the same inputs used in manufacturing those goods. The Revenue argued that Modvat credit should only be claimed on goods subject to excise duty, not on duty-free exports.5. After hearing both parties and considering the submissions, the Court observed that the Modvat credit was wrongly claimed by the assessee through subterfuge and impermissible technicalities. The Court highlighted that the finished products did not suffer excise duty, making the Modvat credit inadmissible.6. The Court analyzed Rule 57A, emphasizing that Modvat credit should be utilized for excise duty on final products. Since the exported goods did not attract excise duty, the assessee was not entitled to claim the credit. The Court concluded that the credit was wrongly availed and rightly ordered recovery.7. The Court further discussed the declaration made by the assessee regarding Modvat credit, stating that the benefit should not have been availed for inputs used in exported products. The Court rejected the assessee's interpretation that the benefit could be claimed immediately after the declaration, as it could lead to misuse of Modvat credits.8. Ultimately, the Court held that the assessee wrongly claimed the Modvat credit, confirming the demand and penalty imposed. The appeal was dismissed, affirming the Tribunal's decision.