1999 (3) TMI 219 - AT - Central Excise

Court overturns decision on non-duty paid copper scrap, emphasizing duty payment for Modvat credit eligibility

The court allowed the appeal, overturning the Collector (Appeals) decision, as the consignment of copper scrap was found to be non-duty paid based on the ... Modvat - Copper scrap received from ordnance factory Issues:- Entitlement to Modvat credit without duty paying documents on a consignment of copper scrap.- Interpretation of Notification No. 172/84 and Notification No. 178/88.- Burden of proof on the department to establish goods as non-duty paid.- Validity of a letter determining duty paid status.- Claim for Modvat credit based on exemption notification.Entitlement to Modvat Credit:The appeal questioned the entitlement of the respondent to take Modvat credit without duty paying documents for a consignment of copper scrap received from an Ordinance Factory. The Government of India's order allowed credit on specified commodities without duty paying documents if the scrap was not clearly recognizable as non-duty paid. The department disputed this, claiming the goods were non-duty paid based on a certificate from the factory exempting the goods from taxes. The respondent argued that the goods were scrap of copper classifiable under a specific heading, thus eligible for credit.Interpretation of Notifications:The Collector (Appeals) accepted the respondent's contention, stating that the scrap arising from duty paid goods cleared at a nil rate of duty should be considered duty paid for Modvat credit purposes under Notification No. 172/84. However, the appellate judge found this reasoning flawed. Notification No. 172/84 exempted copper waste and scrap from duty if manufactured from specific goods, while Notification No. 178/88 granted exemption if made from copper on which excise duty had been paid. The judge highlighted the requirement for duty payment on inputs for Modvat credit eligibility, emphasizing that the purpose was to benefit inputs with actual duty payment.Burden of Proof and Validity of Determination:The Assistant Collector's letter stating the scrap was deemed duty paid for Notification No. 178/88 was questioned for validity. The judge doubted the Assistant Collector's authority to determine duty paid status and emphasized the limited scope of such clarifications. The burden of proving goods as non-duty paid fell on the department, as per Rule 57G, and the judge criticized the Collector (Appeals) for ignoring this fundamental requirement.Claim Based on Exemption Notification:The respondent's changing stance on the applicability of Notification No. 172/84 raised doubts about the duty paid status of the goods. The judge noted that the appeal was based on a claim for exemption, indicating non-duty paid status. Reference to tribunal decisions highlighted the need for verification when goods were prima facie covered by an exemption notification. The judge rejected the broad proposition that deemed credit cannot be denied without evidence from the department, emphasizing the importance of the assessee's initial claim regarding exemption notification.In conclusion, the judge allowed the appeal, setting aside the Collector (Appeals) order based on the lack of duty payment on the goods as per the exemption notification, emphasizing the importance of complying with the duty payment requirement for Modvat credit eligibility.