Recovery of exempted goods price denied where only Modvat credit reversal was authorised under excise circular

Recovery of the price of exempted goods was not sustainable where no statutory provision authorised such demand. The binding Board circular clarified that, in cases of incorrect availment of input credit, the department could recover only the wrongly availed Modvat credit and not an equivalent percentage of the exempted goods' price. Rule 57CC of the Central Excise Rules, 1944, and Section 11A of the Central Excise Act, 1944 did not support recovery of the 8% amount itself. The operative effect was limited to reversal of the related credit, and the Revenue's appeal failed.

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Issues: Whether the Revenue could recover 8% of the price of exempted goods under Rule 57CC of the Central Excise Rules, 1944 when the Board's circular required only reversal of Modvat credit on inputs.

Analysis: The demand for 8% of the price of exempted goods was considered in the light of the Board's Circular No. 591/28/2001-Central Excise dated 16.10.2001, which clarified that where the assessee had not paid the 8% amount, the incorrect availment of corresponding input credit could be recovered. The Commissioner (Appeals) also relied on the view that, in the absence of any statutory provision authorising recovery of the 8% amount itself, such recovery could not be made under Rule 57CC of the Central Excise Rules, 1944 or under Section 11A of the Central Excise Act, 1944.

Conclusion: Recovery of 8% of the price of exempted goods was not sustainable; only reversal of the related Modvat credit was required, and the Revenue's appeal failed.

Ratio Decidendi: In the absence of a specific statutory provision authorising recovery of 8% of the price of exempted goods, the department cannot demand that amount and may proceed only to the extent of reversal of wrongly availed credit as clarified by the binding circular.

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