1992 (11) TMI 191 - AT - Central Excise

Appellate Tribunal allows appeal on Modvat credit utilization, clarifies lack of one-to-one correlation

The Appellate Tribunal CEGAT, New Delhi allowed the appeal, setting aside the duty demand and penalty imposed on the appellant for utilizing Modvat credit ... MODVAT credit Issues:Admissibility of Modvat credit under Rule 57F(3) for duty paid on inputs in relation to final products made from various types of scrap and steel ingots. Interpretation of Rule 57F(3) regarding utilization of Modvat credit for payment of duty on final products manufactured from non-duty paid inputs. Allegations of non-disclosure, suppression of facts, and violation of Rule 57F(3) leading to demand for excise duty and penalty imposition.Analysis:The appeal before the Appellate Tribunal CEGAT, New Delhi involved the admissibility of Modvat credit under Rule 57F(3) of the Central Excise Rules, 1944 for duty paid on inputs in relation to final products, specifically steel ingots manufactured from various types of scrap. The issue revolved around whether Modvat credit could be utilized for payment of duty on final products made from non-duty paid inputs, such as scrap received under Chapter X procedure or imported scrap exempt from countervailing duty. The appellant, engaged in steel ingot manufacturing, availed Modvat credit on inputs purchased from the market, steel melting scrap under Nil excise duty, and imported shredded melting scrap. The dispute arose when a show cause notice proposed excise duty on steel ingots manufactured from non-duty paid inputs, alleging a violation of Rule 57F(3) and non-disclosure of material facts.The Collector of Central Excise confirmed the duty demand and imposed a penalty, citing Rule 57F(3) restrictions on utilizing Modvat credit for non-duty paid inputs. The Tribunal, after considering submissions and a trade notice clarifying Rule 57F(3), held that excess Modvat credit could be used for duty payment on final products made from non-duty paid inputs. Referring to a previous case, the Tribunal emphasized the lack of a one-to-one correlation between inputs and final products under the Modvat Scheme, allowing for the utilization of accumulated credit. Consequently, the Tribunal set aside the impugned order, allowing the appeal and providing relief to the appellants.In a separate judgment assenting to the decision, a Member highlighted that the appellant's steel ingots were manufactured from a combination of scraps, including duty paid inputs eligible for Modvat credit. The appellant's claim that all batches of steel ingots contained duty paid inputs, enabling the use of Modvat credit for duty payment, was accepted. The Member emphasized that the absence of allegations regarding exclusive use of non-duty paid inputs supported the appellant's compliance with Rule 57F(3). Consequently, the impugned order was deemed unsustainable, quashed, and the appeal was allowed, providing a favorable outcome for the appellant.