1993 (4) TMI 170 - AT - Central Excise

Appellant wins Modvat credit case for drug manufacturing, penalty set aside, awarded Rs. 79,38,597.50

LUPIN LABORATORIES LTD. Versus COLLECTOR OF CENTRAL EXCISE, INDORE

The Tribunal ruled in favor of the appellant, a deemed public limited company, in a case concerning the eligibility of Modvat credit for inputs used in ... Modvat Credit scheme - Job work Issues Involved:1. Eligibility to Modvat credit of '7ADCA' used as an input in the manufacture of Cephalexin and Cefadroxil.2. Alleged wrongful availing of Modvat credit by the appellants.3. Compliance with procedural formalities and permissions under Rule 57F(2) and Notification No. 214/86.4. Invocation of the extended period of limitation and imposition of penalty.Detailed Analysis:1. Eligibility to Modvat credit of '7ADCA' used as an input in the manufacture of Cephalexin and Cefadroxil:The appellant, a deemed public limited company, engaged in the manufacture of bulk drugs, utilized 7ADCA as an intermediate product for Cephalexin and Cefadroxil. The Department contended that the appellant wrongfully availed Modvat credit on various items not used in the manufacture of the final products. However, the Tribunal found that the appellant had fully complied with all procedural formalities, and the entirety of raw materials was used in the manufacture of 7ADCA, which was subsequently used in the manufacture of final dutiable products, Cephalexin, and Cefadroxil. Therefore, the Tribunal held that there was no wrongful availment of Modvat credit.2. Alleged wrongful availing of Modvat credit by the appellants:The Collector issued a show-cause notice proposing disallowance of Modvat credit of Rs. 79,38,597.50 and imposing a penalty. The appellant contended that they had submitted all details to the authorities and sought guidance from time to time. The Tribunal observed that the appellant had filed appropriate declarations, sought and obtained permission under Rule 57F(2), and complied with all procedural formalities. The Tribunal concluded that there was no justification for denying the credit as the entirety of raw materials was used in the manufacture of final dutiable products.3. Compliance with procedural formalities and permissions under Rule 57F(2) and Notification No. 214/86:The appellant had filed a declaration under Rule 57G and sought permission under Rule 57F(2) for direct transportation of inputs to Ankleshwar for conversion into 7ADCA. The Tribunal noted that the appellant had complied with all procedural requirements, including filing declarations, obtaining permissions, and maintaining records. The Tribunal emphasized that substantial compliance with the provisions of law is sufficient, and the benefit cannot be denied for non-observance of technical requirements.4. Invocation of the extended period of limitation and imposition of penalty:The Collector invoked the extended period of limitation alleging suppression of facts and imposed a penalty of Rs. 5 lakhs. The Tribunal found that the appellant had kept the Central Excise authorities fully informed at every stage and acted in accordance with the agreed procedure. The Tribunal held that there was no justification for invoking the extended period of limitation or imposing a penalty, as there was no suppression of facts or wrongful availment of Modvat credit.Conclusion:The Tribunal set aside the impugned order, allowed the appeal, and granted consequential relief to the appellant. The Tribunal concluded that the appellant was entitled to the benefit of Modvat credit of Rs. 79,38,597.50 and set aside the penalty imposed by the adjudicating authority.