2005 (11) TMI 120 - AT - Central Excise

Tribunal Remands Appeal on Limitation & Quantum, Upholds Input Credit Reversal

The Tribunal allowed all appeals by way of remand, directing the Commissioner to re-adjudicate the issues of limitation, shortages, and quantum of ... Cenvat/Modvat - Demand - Limitation - Extended period - Cenvat/Modvat Issues Involved:1. Demand of duty dropped by the adjudicating authority on the point of time bar.2. Confirmation of demand of duty and imposition of personal penalties on the manufacturing unit and co-appellants.3. Quantum of reversal of input credit.4. Shortages of inputs and raw materials.5. Limitation period for demand of duty.Detailed Analysis:1. Demand of Duty Dropped on the Point of Time Bar:The revenue's appeal is centered on the adjudicating authority's decision to drop the demand of duty amounting to Rs. 2,94,37,443/-, Rs. 27,95,393/-, and Rs. 1,42,85,850/- on the grounds of time bar, holding that the extended period of five years under the proviso to Section 11A of the Central Excise Act, 1944, is not applicable. The Commissioner concluded that there was a genuine doubt and confusion about the interpretation of Rule 57C, and the proportional reversal was known to the jurisdictional Central Excise Officers, which influenced the decision on the limitation.2. Confirmation of Demand of Duty and Imposition of Personal Penalties:The assessee's appeal challenges the confirmed demands of Rs. 91,236/-, Rs. 68,116/-, and Rs. 2,25,598/- along with personal penalties of Rs. 1 lakh and Rs. 3 lakhs under Rule 173Q. Other co-appellants also appealed against personal penalties of Rs. 50,000/-, Rs. 40,000/-, Rs. 10,000/-, and Rs. 10,000/- imposed upon them. The Commissioner confirmed the demands based on shortages of inputs and raw materials and non-accounting of goods in the RG-I register.3. Quantum of Reversal of Input Credit:The appellants were reversing credit proportionate to the inputs contained in the exempted final products rather than the entire quantity of inputs used. The Commissioner held that the assessee was required to debit the credit for the entire quantity of inputs used in the manufacture of exempted final products. The Tribunal upheld this finding, emphasizing that inputs used, not contained in the final products, are not entitled to credit. The Commissioner's interpretation of Rule 57C and Rule 57D(i) was deemed correct, requiring full reversal of credit for inputs used in exempted products.4. Shortages of Inputs and Raw Materials:The demand of Rs. 91,236/- was confirmed due to shortages of bottles and raw materials. Statements from various personnel were recorded, leading to show cause notices and subsequent demands. The appellants contended that the shortages were due to the inputs lying at various places within the factory premises. The Tribunal remanded this issue for re-adjudication by the Commissioner, considering the appellants' arguments.5. Limitation Period for Demand of Duty:The Commissioner dropped the demand on the ground of limitation, citing that the proportional reversal practice was known to the jurisdictional officers. However, the Tribunal found that the Commissioner did not provide detailed content from the cross-examinations of the officers or establish whether the knowledge was in their official capacity. The Tribunal noted that the reversal formula was not disclosed to the revenue by the appellants, and the mere filing of RT-12 returns did not indicate proportionate reversal. The Tribunal remanded this issue for re-decision by the Commissioner, emphasizing the need for a clear establishment of knowledge and its timing.Conclusion:The Tribunal allowed all appeals by way of remand, directing the Commissioner to re-adjudicate the issues of limitation, shortages, and quantum of reversal, taking into account the appellants' arguments and ensuring compliance with legal precedents. The Tribunal upheld the Commissioner's findings on the merits regarding the reversal of input credit but required further examination of the limitation period and related issues.