2005 (12) TMI 137 - AT - Central Excise

Appellate Tribunal Upholds Modvat Credit Eligibility & Remands Raw Material Shortage Dispute

The Appellate Tribunal allowed the Modvat credit disallowed for material handling equipment, confirming its eligibility. Duty for quality control samples ... Cenvat/Modvat - Capital goods - Samples - Dutiability - Demand - Shortage of inputs Issues:1. Disallowance of Modvat credit for material handling equipment.2. Confirmation of duty for quality control samples.3. Confirmation of demand for unexplained shortage of modvatable inputs.4. Confirmation of demand for shortages of raw material.5. Disallowance of credit due to accounting discrepancies.Issue 1: Disallowance of Modvat credit for material handling equipmentThe Appellate Tribunal found that the Modvat credit of Rs. 25,200/- disallowed to the appellant for 'Trolly Bin Hopper' was incorrect. Referring to previous judgments, the Tribunal held that material handling equipment is eligible for Modvat credit under Rule 57Q. Thus, the Tribunal allowed the credit, stating that it was admissible to the appellant.Issue 2: Confirmation of duty for quality control samplesA duty of Rs. 50,400/- was confirmed for quality control samples taken before the stage of accounting production. The appellant cited a Tribunal decision stating that control samples for laboratory tests and preservation for complaints investigation are not dutiable. Following this precedent, the Tribunal set aside the demand for duty on quality control samples.Issue 3: Confirmation of demand for unexplained shortage of modvatable inputsA demand of Rs. 2,905/- was confirmed for unexplained shortage of modvatable inputs found during physical stock taking. The appellant did not contest this demand due to its small quantum, leading to the confirmation of the said demand by the Tribunal.Issue 4: Confirmation of demand for shortages of raw materialA demand of Rs. 27,99,394/- was confirmed for shortages of raw material over a specific period. The appellant explained the process of raw material usage in manufacturing breakfast cereals and the discrepancies in production compared to the plan. The Tribunal decided to remand the matter to the Commissioner for further examination of the correlation of inputs in the stock ledger before deciding on the demand of duty.Issue 5: Disallowance of credit due to accounting discrepanciesThe Tribunal noted discrepancies in the accounting system adopted by the appellant, leading to the disallowance of credit. However, the Tribunal emphasized that if the appellant can explain the use of inputs from the stock ledger entries, the credit should not be disallowed. The matter was remanded to the Commissioner for further examination, with the opportunity given to the appellant to explain the entries before a decision is made. The issue of penalty was also left open for the Commissioner to decide based on the findings regarding Modvat credit.