2001 (9) TMI 553 - AT - Central Excise

Summary

Issues Involved:
1. Disallowance of Modvat credit.
2. Imposition of penalty on the appellant company.
3. Imposition of personal penalty on the Managing Director.
4. Limitation period for issuing the show cause notice.

Issue-wise Detailed Analysis:

1. Disallowance of Modvat Credit:
The primary issue revolves around the disallowance of Modvat credit amounting to Rs. 10,55,833/- for 391.901 M.T. of HR sheets. The authorities alleged that these inputs were not used in the manufacture of LPG cylinders between October 1992 and March 1996. The appellant argued that variations in sheet consumption were due to rejections and waste generated during the manufacturing process, which is controlled by BIS and the Explosives Act. However, the authorities found discrepancies in the records, noting that even after accounting for a 5% rejection rate, the consumption of sheets was excessive. The Revenue's calculations, based on agreements with oil companies, indicated that 19.19 kgs. of input were required per cylinder, a figure not rebutted by the appellant. The adjudicating authority emphasized that the total weight of inputs should match the total weight of the final product, scrap, and rejections, which the appellant failed to demonstrate.

2. Imposition of Penalty on the Appellant Company:
An equivalent penalty of Rs. 10,55,833/- was imposed on the appellant company under Rule 209A of the Central Excise Rules. The authorities highlighted that the appellant did not account for the inputs properly, leading to the conclusion that they were disposed of in a manner other than intended. The adjudicating authority underscored the importance of maintaining accurate records under the self-removal procedure and Modvat system, noting that discrepancies in the records indicated potential illegal removal of inputs.

3. Imposition of Personal Penalty on the Managing Director:
A personal penalty of Rs. 5,000/- was imposed on the Managing Director, Shri P.K. Jain, under Rule 209A. However, the tribunal set aside this penalty, finding no substantial evidence against him.

4. Limitation Period for Issuing the Show Cause Notice:
The appellant contended that the demand was barred by limitation. The authorities countered that the case emerged from investigations conducted by central excise officers, making the normal six-month limitation period inapplicable due to the appellant's record manipulations. The tribunal upheld this view, affirming that the extended limitation period was justified given the circumstances.

Conclusion:
The tribunal upheld the disallowance of Modvat credit and the imposition of penalty on the appellant company but reduced the penalty amount to Rs. 5,00,000/-. The personal penalty on the Managing Director was set aside. The appeals were disposed of accordingly.