2001 (9) TMI 621 - AT - Central Excise

Summary

Issues Involved:

1. Applicability of Modvat Credit under Rule 57A of the Central Excise Rules, 1944.
2. Interpretation of ad hoc exemption order under Section 5A(2) of the Central Excise Act, 1944.
3. Validity of corrigendum issued to the original order.
4. Scope of demand beyond the show cause notice.

Issue-wise Detailed Analysis:

1. Applicability of Modvat Credit under Rule 57A of the Central Excise Rules, 1944:

The appellants, Steel Authority of India Ltd., argued that the stainless steel coin blanks should not be considered wholly exempt from duty, and therefore, they should be eligible for Modvat Credit on inputs used in their manufacture. They cited various judgments to support their claim that the exemption was temporary and specific to a quantity, not a general exemption. However, the Assistant Commissioner and the Commissioner (Appeals) held that under Rule 57C, Modvat Credit is not admissible if the final product is exempt from duty or chargeable to nil rate of duty. The Tribunal upheld this view, stating that when the final product is not dutiable, Modvat Credit on inputs is not allowed under Rule 57C.

2. Interpretation of ad hoc exemption order under Section 5A(2) of the Central Excise Act, 1944:

The appellants contended that the ad hoc exemption under Section 5A(2) was specific to a quantity and period, and should not be construed as a permanent exemption. They argued that the exemption was intended to keep the intrinsic value of the coin within its face value. The Commissioner (Appeals) and the Tribunal, however, interpreted that Rule 57C does not differentiate between exemptions under Section 5A(1) or 5A(2). The primary condition for availing Modvat Credit is that the final product should be dutiable, and since the coin blanks were cleared without payment of duty, Modvat Credit on inputs was inadmissible.

3. Validity of corrigendum issued to the original order:

The Assistant Commissioner issued a corrigendum to correct an arithmetical error in the original order, increasing the disallowed Modvat Credit from Rs. 85,91,276 to Rs. 1,09,10,599. The appellants argued that the corrigendum traversed beyond the scope of the original show cause notice. The Tribunal agreed with the appellants, stating that the corrigendum and the subsequent order-in-appeal exceeded the scope of the show cause notice, which mentioned the disallowance amount as Rs. 85,91,276. Consequently, the Tribunal set aside the corrigendum and restricted the disallowed credit to the amount mentioned in the original show cause notice.

4. Scope of demand beyond the show cause notice:

The appellants contended that the demand confirmed by the authorities was beyond the scope of the show cause notice, which initially demanded Rs. 85,91,276. The Tribunal upheld this contention, noting that the corrigendum and the order-in-appeal traversed beyond the show cause notice. The Tribunal emphasized that demand orders cannot exceed the scope of the show cause notice, and therefore, restricted the disallowed Modvat Credit to Rs. 85,91,276, as originally demanded.

Conclusion:

The Tribunal upheld the authorities' view that Modvat Credit is not admissible on inputs when the final product is exempt from duty under Rule 57C. However, it restricted the disallowed credit to Rs. 85,91,276, as mentioned in the original show cause notice, setting aside the corrigendum that increased the amount. The appeal was otherwise rejected except for this modification.