1999 (5) TMI 210 - AT - Central Excise

Tribunal clarifies Modvat credit rules, upholds demand orders, remits penalty

BOMBAY DYEING & MFG. CO. PVT. LTD. Versus COMMISSIONER OF C. EX., MUMBAI

The Tribunal ruled that Modvat credit should be based on the actual quantity of inputs received, not just the quantity shown in documents. The appellants ... Modvat - Short receipt of Inputs - Demand - Limitation - Penalty Issues involved: Determination of Modvat credit based on actual quantity received vs. quantity shown in duty paying documents, invocation of extended period for demand confirmation, imposition of penalty, interpretation of Rule 57G and Rule 57A(4) regarding Modvat credit calculation.In the present case, the appellants, operating under the Modvat scheme, initially took credit on the quantity actually received, not on the basis of the quantity shown in duty paying documents. However, from a certain date, they started taking credit based on the quantity shown in the documents. The department later discovered a discrepancy in the quantity received, leading to a duty shortfall. The appellants voluntarily deposited the amount but were still issued a show cause notice, resulting in the present appeal and stay application (para 2).During the proceedings, the appellant argued that Modvat credit should be determined based on the duty shown in the invoice, not the actual quantity received. They contended that even if the received quantity exceeded the document quantity, credit should be limited to the latter. The appellant also disputed the invocation of the extended period and the allegation of suppression, emphasizing the minimal variation (para 4).The Tribunal analyzed Rule 57G and Rule 57A(4) which suggest that Modvat credit should be based on the actual quantity of inputs received and used in manufacturing the final product. It was observed that when goods are weighed on receipt, credit should be based on the lesser of the actual received quantity and the document quantity. The Tribunal noted that the department could allege suppression only if the assessee knowingly took excess credit without departmental knowledge (para 7-9).Referring to a Supreme Court judgment, the Tribunal found that the appellant had voluntarily rectified the credit discrepancy by depositing the amount. It was concluded that while the demand confirmation was justified, the penalty imposition was unwarranted. The Tribunal upheld the demand orders but remitted the penalty (para 10).Conclusively, the Tribunal disposed of the stay application in line with the decision on the demand and penalty issues (para 11).