1993 (7) TMI 195 - AT - Central Excise

Tribunal clarifies duty rate for Modvat credit reversal, prevents tax cascading

MAHINDRA & MAHINDRA LTD. Versus COLLECTOR OF CENTRAL EX., BOMBAY

The Tribunal ruled that under Rule 57F(1)(ii) of the Central Excise Rules, the reversal of Modvat credit should be at the prevailing duty rate upon ... Modvat - Credit availed inputs cleared as such Issues:Interpretation of Rule 57F(1)(ii) of the Central Excise Rules, 1944 regarding the reversal of Modvat credit at the rate of duty prevailing on the date of removal of inputs not manufactured by the Assessee for home consumption.Detailed Analysis:The case involved a Reference Application by M/s. Mahindra & Mahindra Ltd. challenging an order related to the availing of Modvat credit for certain inputs. The dispute arose when the applicants sought to clear certain inputs brought under the Modvat scheme for home consumption, contrary to the requirement of utilizing them in the manufacture of specified final products. The department contended that the applicants should be treated as manufacturers of inputs and pay the appropriate duty at the prevalent rate upon clearing the inputs for home consumption. The duty demand was confirmed through adjudication and appeal, leading to the present Reference Application before the Tribunal (CEGAT, Bombay).The main question for reference was whether under Rule 57F(1)(ii) of the Central Excise Rules, it is permissible to demand the reversal of Modvat credit at the rate of duty prevailing on the date of removal of inputs for home consumption, rather than restricting the reversal to the duty credit actually taken by the Assessee. The arguments presented by both sides focused on the divergent view taken by the North Regional Bench in a previous case involving a similar issue.The Tribunal analyzed the purpose of the Modvat scheme, emphasizing that it aims to prevent the cascading effect of taxation on inputs and ensure that duty credits are used in the manufacture of final products. Rule 57F(1)(ii) allows for exceptional cases where inputs can be cleared for home consumption with the Collector's permission, introducing a deeming fiction that treats such inputs as if they were manufactured in the receiving factory. The Tribunal concluded that the duty must be paid at the prevailing rate on the date of input clearance, in line with the deeming fiction and the scheme's objective to discourage stockpiling of inputs.Regarding the decision of the North Regional Bench, the Tribunal disagreed with the proposition that the rate of duty applicable should be based on the time of clearance of goods if the Assessee also manufactures the same inputs. The Tribunal highlighted that the Modvat scheme is designed for receiving duty-paid inputs, and if the Assessee manufactures the inputs, the need for Modvat credit would not typically arise.Despite expressing reservations about the reasoning of the North Regional Bench, the Tribunal acknowledged the existence of a divergent view and agreed that the matter warranted a reference to the High Court for an authoritative interpretation of the legal question raised. Consequently, the Tribunal allowed the reference for seeking the High Court's views on the issue presented in the case and directed the Registry to send the necessary documents to the High Court of Bombay promptly.