1997 (11) TMI 326 - AT - Central Excise

Tribunal rules in favor of appellants on Modvat scheme interpretation, sets aside penalty

The Tribunal in this case ruled in favor of the appellants regarding the interpretation of the Modvat scheme. It held that the reversal of Modvat credit ... Penalty - Clandestine removal - Modvat - Intermediate products Issues:1. Interpretation of Modvat scheme regarding reversal of credit.2. Permission for storage of goods outside factory premises.3. Reversal of Modvat credit on exempted products.4. Imposition of penalty on the assessee.Analysis:1. The main issue in this case was the interpretation of the Modvat scheme regarding the reversal of credit. The appellants, who manufactured electric bulbs and tube lights, were availing the benefit of the Modvat scheme for raw materials used in production. The dispute arose when the department alleged that since the inputs were used in the manufacture of exempted products, the Modvat credit needed to be reversed. The Additional Collector and the Collector (Appeals) upheld this decision. However, the Tribunal found that the provisions of Rule 57D(2) were attracted in this case, where the inputs were used for the production of glass shells, which were then used for the manufacture of dutiable bulbs. The Tribunal concluded that the reversal of Modvat credit was not warranted for intermediate products like glass shells, but it was required for final exempted products. The jurisdictional Assistant Collector was directed to examine the actual utilization of inputs to determine the liability for Modvat reversal.2. The issue of permission for storage of goods outside the factory premises was also crucial in this case. The appellants had obtained permission to store duty-paid finished goods outside their factory premises, which they used to store non-dutiable intermediate products like glass shells and tubes. The Tribunal noted that even though the permission was initially for a short duration and the appellants continued the practice for years, the department had knowledge of this arrangement. The Tribunal held that the department's action of imposing a penalty on the assessee for utilizing this permission could not be sustained and needed to be set aside.3. Another significant issue was the reversal of Modvat credit on exempted products. The department alleged that since the glass shells were exempted products, the Modvat credit needed to be reversed. The Tribunal found that the lower authorities had not paid attention to the rules governing Modvat and had focused solely on the storage of glass shells outside the factory. The Tribunal clarified that where the final products were exempted, the credit needed to be reversed, but for intermediate products like glass shells used in the production of dutiable bulbs, the reversal was not warranted. The Tribunal set aside the order of reversal of credit and remitted the proceedings back to the Assistant Commissioner for redetermination of the quantum.4. Lastly, the imposition of a penalty on the assessee was also a crucial issue. The Tribunal set aside the penalty imposed on the assessee, noting that since the department had knowledge of the storage arrangement of goods outside the factory premises and had ignored the lapse of the assessee for years, the penalty could not be sustained. The Tribunal directed that the proceedings be remitted back to the Assistant Commissioner for redetermination of the quantum in accordance with its order.