1997 (5) TMI 241 - AT - Central Excise

Tribunal Decides on Credit Reversal Notice and Modvat Denial Appeal

The Tribunal held that the communication from the Department outlining grounds for credit reversal satisfied Rule 57-I requirements, serving as a valid ... Reference to High Court - Modvat - Reversal of credit Issues:1. Whether Modvat credit can be reversed without complying with statutory requirements and without providing a valid notice and an opportunity for representation and hearing.2. Whether Modvat credit can be denied due to wrong classification of inputs under the Central Excise Tariff by the supplier.Analysis:1. The case involves the appellant, engaged in manufacturing synthetic rubber, who procured bags declaring them under Chapter Heading 48. The Department alleged the bags were paper reinforced bags under Chapter sub-heading 3923.90, not declared by the appellant, leading to a Modvat credit issue. The appellant contended the communication from the Department was not a Show Cause Notice. The Tribunal held the communication served as a notice as it outlined the grounds for credit reversal, satisfying Rule 57-I requirements. The appellant sought reference to the High Court based on divergent views within the Tribunal on this issue.2. The appellant argued that Modvat credit denial required a Show Cause Notice by the Assistant Collector, emphasizing the lack of a personal hearing opportunity in the communication. The Department, however, asserted the Assistant Collector considered the appellant's representation, ensuring natural justice principles were followed. The denial of Modvat credit was justified due to the appellant's failure to declare the inputs correctly under Rule 57G. The Department contended that no legal issue was present, advocating for the rejection of the reference application.3. The Tribunal examined whether the communications directing credit reversal constituted a valid Show Cause Notice under Rule 57-I. It concluded that while the communication fulfilled the requirements of a notice, the second issue raised by the appellant regarding input classification was factual, not legal. Consequently, the Tribunal referred the legal question to the Hon'ble Allahabad High Court for clarification, directing the Registry to prepare a statement of facts for submission. The reference application was resolved accordingly, distinguishing between legal and factual issues raised by the parties.