2000 (5) TMI 372 - AT - Central Excise

Challenging penalty for Modvat credit: Burden of proof on revenue department

The appellant, an SSI unit, challenged the imposition of penalty for availing deemed Modvat credit under the Central Excise Rules. The court emphasized ... Modvat - Deemed credit Issues:1. Challenge to deemed Modvat credit availed by an SSI unit for manufacturing aluminium die cast articles.2. Allegation of contravention of Central Excise Rules and imposition of penalty.3. Interpretation of exemption notification regarding duty on input aluminium alloys.4. Burden of proof on the department to show non-payment of duty on inputs.5. Consideration of previous legal precedents in similar cases.Issue 1:The appellant, an SSI unit, challenged the show cause notice alleging contravention of Central Excise Rules and imposition of penalty for availing deemed Modvat credit. The Deputy Collector confirmed the demand and imposed a penalty, which was upheld by the Collector (Appeals). The appellant contended that the issue was covered by previous decisions favoring no penalty for deemed credit availment. The main contention was whether the appellant was eligible for deemed Modvat credit under the Government Order dated 12-7-1990.Issue 2:The appellant argued that the input aluminium alloys purchased from traders were eligible for deemed Modvat credit as no duty-paying document accompanied the inputs. The appellant relied on the absence of proof of duty payment by traders or manufacturers. The legal position from previous cases emphasized the burden of proof on the department to show non-payment of duty on inputs. The appellant's appeal challenged the imposition of penalty and sought a reexamination of the eligibility for deemed Modvat credit.Issue 3:The analysis of the exemption notification No. 180/88 dated 30-5-1988 was crucial in determining the eligibility of the appellant for deemed Modvat credit. The authorities contended that the input aluminium alloys were exempt from Central Excise duty under the notification, making them non-duty paid. The appellant argued that the conditions of the notification were not fulfilled, and hence, deemed credit was applicable. The legal interpretation focused on whether the inputs were wholly exempt from duty or recognized as non-duty paid.Issue 4:The judgment highlighted the necessity for the revenue to conduct an inquiry to verify whether the conditions of exemption notifications were satisfied regarding the inputs in question. The burden of proof was on the department to demonstrate non-payment of duty on the inputs purchased by the appellant. The absence of duty-paying documents accompanying the inputs purchased from traders raised questions about the duty liability and eligibility for deemed Modvat credit.Issue 5:The judgment extensively referenced previous legal precedents, including decisions in Machine Builders v. CCE and Crompton Greaves Ltd. v. CCE, to support the appellant's contention regarding deemed Modvat credit availment. The legal analysis emphasized the need for the revenue to establish the non-payment of duty on inputs and the conditions of exemption notifications to determine the eligibility for deemed credit. The judgment set aside the impugned order and remanded the case for a reexamination of the eligibility for deemed Modvat credit based on the manufacturer's compliance with the exemption notification.