1996 (5) TMI 233 - AT - Central Excise

Court Upholds Recovery for Wrongful Availing of Modvat Credit on Non-Duty Paid Scrap

The judgment upheld the recovery under Rule 57-I of the Central Excise Rules for the wrongful availing of Modvat credit on non-duty paid scrap used as ... Modvat - Deemed credit Issues:The judgment involves the wrongful availing of Modvat credit of duty on inputs, recovery under Rule 57-I of Central Excise Rules, and the imposition of a penalty.Wrongful Availment of Modvat Credit:The appellants manufactured iron and steel articles and availed Modvat credit for duty on inputs. The order held that the credit was wrongly availed as the scrap used was non-duty paid, leading to recovery under Rule 57-I. The requirement for earning Modvat credit is that inputs should be accompanied by documents evidencing duty payment. The government can waive this requirement under certain circumstances as per Rule 57G(2). However, the order specified that deemed credit would not apply to scrap clearly recognizable as non-duty paid.Merits and Larger Bench Decision:The issue on merits was settled by a Larger Bench decision stating that scrap not subject to duty payment is considered non-duty paid. Therefore, the demand for recovery was deemed sustainable based on this decision.Limitation and Show Cause Notice:The appellants argued that the demand, issued beyond six months, was time-barred as there was no charge of suppression or misstatement. They contended that the Superintendent's remarks did not serve as a formal show cause notice. However, the records showed that the irregularity was pointed out in the assessment memorandum within the time limit under Rule 57-I.Conclusion:The judgment found that the demand was effectively made within the normal time limit, rejecting the argument of being time-barred. The show cause notice was considered a culmination of the process initiated by earlier correspondence. The penalty imposed was set aside due to a grey area in the interpretation of the deemed credit order. The appeal was disposed of accordingly, upholding the recovery under Rule 57-I but canceling the penalty on the appellants.