2004 (2) TMI 248 - AT - Central Excise

Tribunal grants Modvat credit to manufacturers, emphasizing statutory objectives over technicalities

The Tribunal allowed the appeal filed by the manufacturers of medicines and bulk drugs, setting aside the Commissioner's order denying Modvat credit under ... Cenvat/Modvat Issues:1. Modvat credit availed by the appellants.2. Denial of credit by the Commissioner under Rule 57-I.3. Imposition of penalty under Rule 173Q.4. Reasonableness of the time period for availing Modvat credit.5. Maintenance of RG 23A for availing credit.Analysis:1. The appellants, manufacturers of medicines and bulk drugs, mistakenly continued to avail total exemption under Notification No. 217/86 for intermediate bulk drugs despite approval for NIL rate of duty for final products. The Commissioner denied the credit taken by the appellants under Rule 57-I and imposed a penalty of Rs. 20,000 under Rule 173Q.2. The Commissioner's denial of credit was based on two grounds: a) Modvat credit must be taken within a reasonable period, as per the Modvat Scheme, and 18 months was deemed unreasonable, citing relevant case law; b) The belated credit taken without maintaining RG 23A at the time of input receipt was considered impermissible as it hindered the Department's ability to verify duty payments and input usage.3. The appellants argued that they informed the department before belatedly taking credit, supported by duty paying documents verified by the Department. They contended that the Commissioner's reasoning on the time period for credit availing lacked merit and emphasized that denial based on failure to maintain RG 23A was excessive procedural formalism.4. The Tribunal observed that the appellants took credit after a delay caused by waiting for a departmental reply, attributing any delay to the department. The Tribunal found that the denial of credit on grounds of time period and RG 23A maintenance was unjustified, emphasizing that the machinery of the statute should be interpreted to promote the scheme's purpose rather than technicalities.5. Ultimately, the Tribunal allowed the appeal, setting aside the Commissioner's order and ruling in favor of the appellants. The judgment highlighted the importance of interpreting statutes to fulfill the scheme's objectives and rejected technical reasons for denying substantive benefits, thereby overturning the denial of Modvat credit to the appellants.