2005 (2) TMI 235 - AT - Central Excise

Tribunal Decides MODVAT & CENVAT Credit Issues: Allows Export Credit, Requires Scrap Reversal, Denies Dismantling Charges.

The Tribunal ruled on three issues regarding MODVAT and CENVAT Credit. For the first issue, the Tribunal allowed MODVAT Credit for exported M.S. steel ... MODVAT/CENVAT credit on inputs exported under bond - availability of CENVAT credit on returned goods subjected to non-manufacturing processes - eligibility of credit for dismantling, re-erection and consumable charges - penalty for wrongful availment of CENVAT/MODVAT creditMODVAT/CENVAT credit on inputs exported under bond - MODVAT/CENVAT credit claimed on M.S. steel tubes which were processed and exported under bond is allowable. - HELD THAT: - The Tribunal followed its earlier decision in Rico Auto Industries Ltd. and the Board's Circular No. 283/117/1996-C.X. which clarify that inputs removed for export under bond may be exported without reversal of credit and the credit so taken can be utilised in the manner provided under the proviso to Rule 57F(4) of the Central Excise Rules. As the inputs in the present case were removed under bond under the Rules, denial of MODVAT credit was contrary to the Board's instruction and settled Tribunal precedent. [Paras 2, 3]Appeal by the assessee allowed on this point; MODVAT credit in respect of the M.S. tubes exported under bond is held to be allowable.Availability of CENVAT credit on returned goods subjected to non-manufacturing processes - CENVAT credit taken on goods returned to factory and subjected only to processes not amounting to manufacture must be reversed under Rule 16(2) of the CENVAT Credit Rules, 2002. - HELD THAT: - Rule 16(1) permits credit where goods on which duty was paid are received as inputs; sub-rule (2) mandates payment (reversal) equal to the CENVAT credit taken where the processes prior to removal do not amount to manufacture. It was undisputed that the processes here did not amount to manufacture. The fact that returned items became scrap does not negate the statutory obligation to reverse credit when no manufacture took place, because scrap arising does not convert a non-manufacturing process into manufacturing. [Paras 4, 5]Findings of the Commissioner (Appeals) allowing only duty on scrap set aside; assessee is liable to reverse the entire credit taken on receipt of the returned goods.Eligibility of credit for dismantling, re-erection and consumable charges - Credit is not allowable on charges described as dismantling and re-erection, including consumables, where no goods or capital goods have been received. - HELD THAT: - MODVAT/CENVAT credit is available on inputs or on capital goods. Charges paid merely for erection, dismantling, re-erection or consumables do not constitute inputs or capital goods and thus do not attract excise duty or entitlement to credit. Reliance on Eveready was distinguished because that case involved actual receipt of goods; the Division Bench authority in NTTF Industries establishes that design/development and similar service-type charges are not excisable goods and do not support credit. Accordingly, the impugned allowance of credit on dismantling and erection charges was set aside. [Paras 6, 7]Impugned Order insofar as it allowed MODVAT/CENVAT credit on dismantling, re-erection and consumable charges is set aside.Penalty for wrongful availment of CENVAT/MODVAT credit - Penalty for wrongful availment of MODVAT/CENVAT credit is imposable but the quantum set by the adjudicating authority is excessive and is to be reduced. - HELD THAT: - Although penalty is warranted because the assessee wrongly availed credit, the Tribunal exercised its discretion to moderate the penalty. It held that imposition of penalty equal to the amount of credit involved was not appropriate and substituted a reduced monetary penalty to meet the ends of justice. [Paras 8]Penalty imposed on the assessee reduced and fixed at Rs. 20,000/-. Appeals disposed accordingly.Final Conclusion: The Tribunal allowed the assessee's appeal insofar as MODVAT/CENVAT credit on M.S. tubes exported under bond was concerned, set aside the Commissioner (Appeals) on the question of non-reversal of credit for returned goods subjected to non-manufacturing processes and on allowance of credit for dismantling/re-erection/consumable charges, and moderated the penalty to Rs. 20,000. Both appeals disposed of in the terms indicated. Issues:1. MODVAT Credit eligibility for exported M.S. steel tubes.2. Reversal of CENVAT Credit on returned goods cleared as scrap.3. Availment of CENVAT Credit on dismantling and re-erection charges.Issue 1: MODVAT Credit eligibility for exported M.S. steel tubesThe appeal involved a dispute regarding the eligibility of MODVAT Credit for M.S. steel tubes exported after undergoing various processes. The appellant contended that as per Board Circular and Tribunal decisions, MODVAT Credit should be allowed. The Tribunal, citing the decision in Rico Auto Industries Ltd., held that MODVAT Credit cannot be disallowed if inputs are removed under bond, as clarified by Circular No. 283/117/1996-C.X. Consequently, the appeal by the assessee was allowed based on the Board's Circular and Tribunal precedent.Issue 2: Reversal of CENVAT Credit on returned goods cleared as scrapThe issue revolved around the reversal of CENVAT Credit on returned goods cleared as scrap, as per Rule 16(2) of the CENVAT Rules, 2002. The appellant argued that the returned goods were damaged beyond repair and converted into scrap, thus not subject to full credit reversal. However, the Tribunal disagreed, emphasizing that if the process applied does not amount to manufacture, the full CENVAT Credit must be reversed. The Tribunal set aside the Commissioner's decision and held the assessee liable to reverse the entire credit taken on the returned goods.Issue 3: Availment of CENVAT Credit on dismantling and re-erection chargesThe dispute centered on availing CENVAT Credit on dismantling and re-erection charges for purchased equipment. The appellant claimed credit based on the supplier's payment of Central Excise duty. However, the Tribunal ruled that as no new goods were received by the assessee, MODVAT Credit was not applicable to charges like dismantling and re-erection. Citing precedent and emphasizing that such charges are not excisable goods, the Tribunal set aside the Commissioner's decision on allowing MODVAT Credit for these charges. Additionally, a penalty of Rs. 20,000 was imposed on the assessee for wrongly availing MODVAT Credit.