2002 (6) TMI 309 - AT - Central Excise

Summary

Issues:
- Challenge to Order-in-Appeal allowing appeal of the assessee regarding Modvat credit eligibility for duty paid on goods cleared after detection by the department.
- Interpretation of Rule 57E regarding adjustment in duty credit for inputs where credit has been allowed under Rule 57A.
- Application of Rule 57E in cases where duty was evaded by the supplier and paid on detection by the department.

Analysis:
The appeal before the Appellate Tribunal challenges the Order-in-Appeal that allowed the assessee's appeal regarding the eligibility for Modvat credit for duty paid on goods cleared after detection by the department. The case involved the respondent-assessees who manufactured motor vehicle seats and received cushions from M/s. Roloform Polymers (RFP) under Rule 57F(3) procedure. Upon a departmental visit to RFP, it was discovered that RFP had utilized their own raw material without paying duty, leading to proceedings and payment by RFP. The respondent-assessee sought credit of the duty paid by RFP, which was denied by the Assistant Commissioner and later allowed by the Commissioner (Appeals), prompting the Revenue's appeal.

The main issue revolved around the interpretation of Rule 57E concerning the adjustment in duty credit for inputs where credit had been allowed under Rule 57A. The Tribunal examined whether duty paid on goods cleared after detection by the department was eligible for Modvat credit. The Tribunal noted that Rule 57E allows for the variation of credit already taken due to subsequent variations in duty. However, in this case, no credit was initially taken as duty was evaded by the supplier, and duty was paid only upon detection by the Department. The Tribunal referenced a previous case to support its decision, emphasizing that Rule 57E applies when the manufacturer of inputs pays additional duty later on the inputs for which Modvat credit was earlier availed.

Ultimately, the Tribunal held that since there was no initial payment of duty nor any subsequent payment of differential duty, and duty was paid for the first time upon detection by the department, the respondent was not entitled to the credit under Rule 57E. Citing a previous decision, the Tribunal set aside the Order-in-Appeal and allowed the Revenue's appeal, ruling that the impugned order was not sustainable in law. The judgment highlighted the importance of the specific circumstances under which Rule 57E applies and clarified that duty paid on goods cleared after detection by the department did not qualify for Modvat credit in this case.