2004 (3) TMI 95 - HC - Central Excise

High Court upholds Tribunal decision denying deemed credit based on non-duty paid inputs

ANKUR STEELS KUROULI Versus CEGAT

The High Court ruled in favor of the department and against the assessee, upholding the Tribunal's decision to deny deemed credit based on the non-duty ... Cenvat/Modvat - Deemed credit - Merger of order - Supreme Court - Dismissal of SLP - Reference to High Court Issues Involved:1. Justification of denying deemed credit based on recognizability of non-duty paid inputs.2. Requirement of excise duty on an item that has already suffered excise duty.3. Competency of the Superintendent to recover wrongly availed Modvat credit.4. Applicability of the case of M/s. Machine Builders and others v. Collector of Central Excise to the applicants' case.Issue-wise Detailed Analysis:1. Justification of Denying Deemed Credit:The Tribunal held that deemed credit as per letter F. No. Ts/36/94-TRU, dated 1-3-94, can be denied if the inputs, such as re-rollable materials like old and used rails, wheels, crossties, sleepers, etc., are clearly recognizable as non-duty paid. The deemed credit order did not explicitly contain a clause requiring inputs to be duty paid. However, Rule 57G(2) of the Central Excise Rules mandates that inputs must be received under cover of specific documents evidencing payment of duty. The Tribunal found that the unserviceable rail materials were non-duty paid, thus denying the deemed credit.2. Requirement of Excise Duty on Previously Duty-Paid Items:This issue does not arise due to the conclusion on the first issue. The Tribunal's finding that no duty was paid on the unserviceable rail materials negates the need to address whether an item should suffer excise duty again by the passage of time without any change in its nature and character.3. Competency of the Superintendent to Recover Modvat Credit:The Tribunal did not discuss this issue in its order. The High Court observed that the question of the Superintendent's competency to recover wrongly availed Modvat credit was not raised by the assessee during the proceedings. The show cause notice was issued by the Superintendent under Rule 57(1) of the Central Excise Rules, and the assessee submitted to this jurisdiction. Rule 2(14) of the Central Excise Rules includes the Superintendent as a proper officer, thus validating his authority to issue the notice.4. Applicability of M/s. Machine Builders Case:The Tribunal relied on the Larger Bench decision in M/s. Machine Builders v. Collector of Central Excise, which held that deemed credit is available only for inputs that have suffered duty, even if documents evidencing payment of duty are not produced. The Tribunal found that the unserviceable rail materials were non-duty paid, thus aligning with the precedent set in the Machine Builders case. The High Court agreed with this reasoning, emphasizing that allowing deemed credit without duty paid on inputs would result in unjust enrichment and contradict the purpose of the Modvat scheme.Conclusion:The High Court answered the reference in favor of the department and against the assessee. The Tribunal's decision to deny deemed credit based on the non-duty paid status of the inputs was upheld. The issue of requiring excise duty again was deemed irrelevant, the Superintendent was confirmed as a competent authority to recover wrongly availed Modvat credit, and the applicability of the Machine Builders case was affirmed.