2004 (6) TMI 145 - AT - Central Excise

Tribunal Upholds Duty Demand on MODVAT Credit; Reduces Penalties Due to Insufficient Evidence in Leasing Case.

The Tribunal upheld the duty demand on M/s. Majestic Auto Ltd. for availing MODVAT credit on capital goods under Rule 57Q, as these goods were leased to ... Availability of MODVAT Credit of duty paid on capital goods - Demand and penalty - HELD THAT:- It is also not in dispute that the Appellant No. 1 have taken the Modvat credit of the duty paid on the capital goods in question and the premises in which the said goods are installed had been given on lease to the Appellant No. 2. This is also very clear from the Lease Agreement that the Lessee i.e. Appellants No. 2 shall enjoy the Demised Premises during the lease period without interruption by the lessor (i.e. Appellant No. 1). In terms of the Lease Agreement, the Appellants No. 2 enjoy the said premises and therefore it cannot be claimed to be the part of factory premises of the Appellants No. 1. In view of this the decision in the case of Pushpaman Forgings [2001 (10) TMI 223 - CEGAT, MUMBAI] and Board's Circular dated 27-9-96 are not applicable. Further the facts in Pushpaman Forgings are entirely different as they related to the applicability of Rule 57CC of the Central Excise Rules and charging of an amount equal to 8% of the sale price of the final products if the inputs (and not capital goods) were used in the manufacture of both dutiable goods and exempted goods. The Larger period of limitation is invocable for demanding the duty as the Appellants No. 1 never disclosed to the Department about leaving the capital goods, in respect of which Modvat credit had been availed of, in the factory premises of the Appellants No. 2. The approval of ground plan of the factory of the Appellant No. 2 does not mean that Department was aware of the said fact as the Appellants No. 1 had paid the duty in respect of certain machines. In conclusion, both appeals were disposed of with the duty demand upheld on M/s. Majestic Auto Ltd. and the penalty reduced, while the penalty on M/s. Hero Briggs & Stratton Auto Ltd. was set aside. Issues Involved: Availability of MODVAT Credit of duty paid on capital goods u/r 57Q of Central Excise Rules, 1944.Summary:The appeals involved the availability of MODVAT Credit of duty paid on capital goods under Rule 57Q of the Central Excise Rules, 1944. The appellants, M/s. Majestic Auto Ltd. and M/s. Hero Briggs & Stratton Auto Ltd., were at the center of the dispute. M/s. Majestic Auto Ltd. manufactured motor vehicles and parts/accessories, availing MODVAT credit for duty paid on capital goods. The issue arose when some machines and equipment, on which MODVAT credit had been availed, were left in a part of the factory leased to M/s. Hero Briggs & Stratton Auto Pvt. Ltd. The Commissioner confirmed the duty demand on these goods, leading to the appeals.The learned Advocate for the appellants argued against the demand of duty under various sections and rules. He contended that Section 11A of the Central Excise Act was not applicable to MODVAT rules at the relevant time. He also argued against the demand under Rule 57S, Rule 57U(4), and other provisions, citing legal precedents and interpretations. The advocate emphasized that the duty demand was not sustainable due to various legal and factual reasons.In response, the Senior Departmental Representative argued that the capital goods, for which credit was taken, were now in possession of M/s. Hero Briggs & Stratton Auto Ltd., and thus, duty was payable by them. He highlighted the provisions of Rule 57S and Section 11A invoked in the show cause notice to support the duty demand.The Tribunal considered the submissions of both sides. It noted that the appellants were separate legal entities, and the capital goods in question were now in the possession of M/s. Hero Briggs & Stratton Auto Ltd. due to the lease agreement. As per Rule 57Q and Rule 57S, the duty should have been discharged by the manufacturer who availed the MODVAT credit, as if the capital goods were manufactured in their factory. Therefore, the Tribunal upheld the duty demand on M/s. Majestic Auto Ltd. and reduced the penalty imposed on them. The penalty on M/s. Hero Briggs & Stratton Auto Ltd. was set aside due to lack of evidence of their involvement in the matter.In conclusion, both appeals were disposed of with the duty demand upheld on M/s. Majestic Auto Ltd. and the penalty reduced, while the penalty on M/s. Hero Briggs & Stratton Auto Ltd. was set aside.