1999 (11) TMI 584 - AT - Central Excise

Appellate Tribunal Overturns Duty Demand and Penalty for Modvat Credit Error

RAYMOND SYNTHETICS LTD. Versus COLLECTOR OF C. EX., ALLAHABAD

The Appellate Tribunal CEGAT, New Delhi, set aside a duty demand of Rs. 50,77,918 and a penalty of Rs. 52 lakhs imposed on the appellants for wrongly ... Modvat - Inputs, sent to job worker for processing Issues:Duty demand confirmation, Modvat credit availed, Penalty imposition, Permission under Rule 57F(2) and Notification 214/86-C.E., Job worker status determination, Procedural lapses, Non-compliance of Rule 57F(2), Modvat credit eligibility, Clearance of by-product, Use of other inputs, Declaration under Rule 57G, Contravention of Rules.Detailed Analysis:1. Duty Demand Confirmation and Penalty Imposition:The Commissioner of Central Excise confirmed a duty demand of Rs. 50,77,918 against the appellants for wrongly availing Modvat credit in November 1991 and imposed a penalty of Rs. 52 lakhs under Rule 173Q of the Central Excise Rules. The duty demand was based on various grounds, including the lack of permission under Rule 57F(2) and Notification 214/86-C.E., direct supply of inputs to job workers, non-issuance of authenticated challans, and alleged misstatements by the appellants.2. Permission under Rule 57F(2) and Notification 214/86-C.E.:The appellants had applied for permission to remove inputs under Rule 57F(2) and/or Notification 214/86-C.E. The permission was granted by the Assistant Commissioner on 11-10-1991, allowing the direct supply of inputs to the job worker, M/s. Garware Plastics and Polyesters Ltd. The Tribunal held that the procedural non-compliance of Rule 57F(2) cannot negate the substantive benefit of Modvat credit, citing precedents where similar lapses did not bar credit eligibility.3. Job Worker Status Determination:The central issue revolved around whether M/s. Garware Plastics and Polyesters Ltd. were considered job workers of the appellants or independent manufacturers. The Department argued that M/s. Garware Plastics and Polyesters Ltd. were not job workers based on a letter they submitted. However, the Tribunal found that the appellants had followed the required procedures, including obtaining permission and declarations, to treat M/s. Garware Plastics and Polyesters Ltd. as job workers.4. Modvat Credit Eligibility and Compliance:The Tribunal determined that the appellants had not contravened any provisions of the Rules regarding the availment of Modvat credit. The appellants had filed a declaration under Rule 57G, indicating the use of PP chips as inputs and final products. The Tribunal emphasized that the non-declaration of certain inputs did not affect the appellants' eligibility for credit, especially when the inputs were clearly intended for conversion into PP chips by the job worker.5. Clearance of By-Product and Use of Other Inputs:The clearance of the by-product, Methanol, by M/s. Garware Plastics and Polyesters Ltd. on payment of duty was found to be in accordance with the rules. Additionally, the use of catalysts and packing materials by the job worker was not prohibited under Rule 57F. The Tribunal highlighted that M/s. Garware Plastics and Polyesters Ltd. did not avail any credit, and the appellants were the sole beneficiaries of the Modvat credit.6. Conclusion:The Tribunal set aside the duty demand and penalty, allowing the appeal on the merits of the issue. The judgment emphasized the compliance of the appellants with the relevant rules and procedures, ultimately ruling in favor of the appellants regarding the availment of Modvat credit.This detailed analysis highlights the key legal aspects and findings of the judgment delivered by the Appellate Tribunal CEGAT, New Delhi, providing a comprehensive overview of the issues addressed and the Tribunal's decision in the case.