1999 (6) TMI 359 - AT - Central Excise

Issues Involved:
1. Validity of the declarations filed under Rule 57G.
2. Admissibility of Modvat credit on inputs used in undeclared final products.
3. Invocation of the extended period of limitation.
4. Imposition of penalties on the manufacturer and its employees.
5. Interest demand under Rule 57-I (5).

Detailed Analysis:

1. Validity of the Declarations Filed Under Rule 57G:
The appellants filed two declarations under Rule 57G, one on 4-3-1986 and another on 31-3-1986. The first declaration included motor vehicle parts and accessories as final products, while the second did not. The Department contended that the first declaration was invalid as it was not accepted and directed the appellants to submit a revised declaration, which they did on 31-3-1986. The appellants argued that the first declaration was valid and subsisting, citing various communications and proceedings based on it. However, the Department maintained that only the declaration dated 31-3-1986 was valid, and since it did not include motor vehicle parts and accessories, the Modvat credit availed on inputs used in these products was inadmissible.

2. Admissibility of Modvat Credit on Inputs Used in Undeclared Final Products:
The appellants argued that even if the final products were not declared, the Modvat credit on inputs could not be denied as the inputs were used in the manufacture of declared final products (motor vehicles). They relied on several Tribunal decisions, including Mahindra & Mahindra Ltd., which held that non-declaration of some final products does not debar the appellants from taking credit on inputs. The Department, however, argued that the Modvat credit could only be used for declared final products and cited the mandatory nature of Rule 57G. The Tribunal, in majority, agreed with the appellants, stating that the credit on inputs used in undeclared final products should be restored to RG 23A Part-II for utilisation towards declared final products.

3. Invocation of the Extended Period of Limitation:
The Department invoked the extended period of limitation, alleging suppression of facts by the appellants. The appellants contended that non-declaration of final products could not amount to suppression as the Department was aware of the manufacture and clearance of parts and accessories. The Tribunal found that the Department was aware of the credit being taken on inputs used in undeclared final products and concluded that the extended period of limitation was not justifiable.

4. Imposition of Penalties on the Manufacturer and Its Employees:
The Commissioner imposed penalties on the manufacturer and its employees under Rule 209A and Rule 173Q of the Central Excise Rules, 1944. The appellants argued that the penalties were unwarranted as there was no fraudulent intent or suppression of facts. The Tribunal, in majority, set aside the penalties, holding that the Modvat credit was admissible and there was no warrant for imposing penalties.

5. Interest Demand Under Rule 57-I (5):
The Commissioner directed the appellants to pay interest under Rule 57-I (5), which was introduced on 23-7-1996. The appellants argued that the rule could not be applied retrospectively and that there was no proposal for interest in the show cause notice. The Tribunal agreed with the appellants, stating that the interest demand was neither legal nor warranted.

Final Judgment:
The Tribunal, by majority, allowed the appeals, set aside the impugned orders, and provided consequential relief to the appellants. The decision was based on the applicability of the Tribunal's previous decisions, particularly Mahindra & Mahindra Ltd., and the conclusion that the Modvat credit on inputs used in undeclared final products should be restored for utilisation towards declared final products. The penalties and interest demands were also set aside.

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