1992 (7) TMI 226 - AT - Central Excise

Tribunal upholds penalty for incorrect Modvat credit on returnable bottles under Rule 173Q

The Tribunal dismissed the appeal regarding the reversal of Modvat credit and upheld the penalty imposed under Rule 173Q. The appellants were found to ... Modvat credit - Input Issues Involved:1. Admissibility of Modvat credit on returnable bottles.2. Alleged suppression of facts and wilful mis-statement.3. Jurisdiction of the Additional Collector to issue show cause notice.4. Imposition of penalty under Rule 173Q of the Central Excise Rules, 1944.Issue-wise Detailed Analysis:1. Admissibility of Modvat Credit on Returnable Bottles:The appellants, M/s. Sreeram Drinks (P) Ltd., had availed Modvat credit on bottles used for packing their product (Mango Juice) during February 1988 to May 1988. The adjudicating authority disallowed this credit, holding that the bottles were returnable and their value was not included in the assessable value of the final product. The appellants contended that the bottles were integral to the final product and not mere packaging material, thus qualifying as inputs under Rule 57A of the Central Excise Rules. However, the Tribunal found that the bottles were indeed packaging materials, the cost of which was not included in the assessable value, making them ineligible for Modvat credit under the Explanation Clause in Rule 57A.2. Alleged Suppression of Facts and Wilful Mis-statement:The appellants argued that there was no suppression of facts or wilful mis-statement, as they had declared in their price lists that the cost of packing was not included in the product price. The Tribunal agreed, noting that the appellants had clearly stated in their price lists that the bottles were returnable and their cost was specified. Thus, the Tribunal concluded that there was no suppression or wilful mis-statement, and the extended period for recovery under Rule 57-I(1) was not applicable. The Tribunal emphasized that the normal six-month time limit should apply, as the department had sufficient information to determine the inadmissibility of the credit.3. Jurisdiction of the Additional Collector to Issue Show Cause Notice:The appellants challenged the jurisdiction of the Additional Collector to issue the show cause notice, arguing that such notices should be issued by the Collector. The Tribunal dismissed this argument, stating that the definition of 'Collector' in the Central Excise Rules includes the Additional Collector, thus granting the Additional Collector the authority to issue the notice under Rule 57-I. The Tribunal referenced the larger Bench decision in S. Kumar v. Collector, which upheld the inclusion of Additional Collectors within the scope of 'Collector' for all purposes.4. Imposition of Penalty under Rule 173Q of the Central Excise Rules, 1944:The adjudicating authority had imposed a penalty of Rs. 35,000 under Rule 173Q for the wrong availment of Modvat credit. The appellants contended that the penalty was unjustified. The Tribunal upheld the penalty, stating that the appellants had wrongly availed the credit, which justified the imposition of penalty under Rule 173Q(1)(bb). The Tribunal noted that the penalty amount was reasonable, being approximately 10% of the wrongly availed credit, and did not warrant any reduction. The Tribunal also clarified that the penalty was correctly imposed under Rule 173Q, despite the appellants' argument for applying Rule 209A.Conclusion:The Tribunal dismissed the appeal regarding the reversal of Modvat credit and upheld the penalty imposed under Rule 173Q. The Tribunal found that the appellants had wrongly availed Modvat credit on returnable bottles, but there was no suppression of facts or wilful mis-statement, limiting the recovery period to six months. The Tribunal also confirmed the jurisdiction of the Additional Collector to issue the show cause notice. The appeal was disposed of accordingly.