2002 (3) TMI 697 - AT - Central Excise

Summary

Issues:
Modvat credit availed on packaging materials - Compliance with Rule 57F(1) and 57F(3) of Central Excise Rules, 1944 - Denial of Modvat credit - Imposition of personal penalty.

Analysis:
The appellants, engaged in paper manufacturing, availed Modvat credit on inputs including BOPP tapes, Hessian cloth, and Wrappers, used for packing paper. The dispute arose when these inputs were cleared to a cutting unit away from the manufacturing factory without following Rule 57F(1) or 57F(3) of the Central Excise Rules, 1944. The Revenue demanded duty payment on these inputs, disallowing Modvat credit of Rs. 1,56,357.00 and imposing a personal penalty of Rs. 1.50 lakh on the appellants.

The appellants argued that the inputs were indeed used for packing paper, albeit at a different unit of theirs located 8-10 Km away. They contended that the use of packaging materials outside the factory was a procedural lapse, as duty had already been paid on the paper inclusive of packaging materials. Therefore, they claimed that the denial of Modvat credit was unjustified.

On the other hand, the Revenue contended that the appellants did not follow the required procedure under Rule 57F(1) and 57F(3) for clearing the inputs to a different unit. They argued that the use of packaging materials outside the factory did not entitle the appellants to claim Modvat credit.

The Tribunal considered both arguments and noted that the appellants had indeed used the inputs at a location other than their factory where the final product was manufactured, contrary to the provisions of Rule 57F. Citing a previous judgment, the Tribunal emphasized the importance of following statutory procedures, especially in the context of Modvat schemes. The Tribunal concluded that the appellants' failure to adhere to the prescribed procedure rendered them ineligible for Modvat credit on the inputs used outside the factory. Consequently, the demand for duty was upheld, although the personal penalty was reduced to Rs. 35,000 based on the circumstances of the case. The appeal was rejected, and the stay petition was disposed of accordingly.