2003 (8) TMI 329 - AT - Central Excise

Summary

Issues:
1. Denial of Cenvat credit by the Commissioner (Appeals) based on a supplementary invoice.
2. Allegations of undervaluation against the input-supplier and subsequent payment of differential duty.
3. Observance of principles of natural justice in passing the impugned order.
4. Interpretation of Rule 57AE of the Central Excise Rules, 1944 regarding the validity of the supplementary invoice.

Issue 1: Denial of Cenvat credit based on a supplementary invoice
The appeal challenged the denial of Cenvat credit of Rs. 87,670/- by the Commissioner (Appeals) due to a supplementary invoice issued by M/s. Hydraulics Ltd. The appellants had taken Modvat credit on goods received from the input-supplier, but the Department suspected undervaluation, leading to the issuance of a supplementary invoice for the differential duty paid by the supplier. The Department objected to the credit taken by the appellants, leading to a show-cause notice under Section 11A of the Central Excise Act. The adjudicating authority disallowed the credit and imposed a penalty, a decision upheld by the Commissioner (Appeals).

Issue 2: Allegations of undervaluation and differential duty payment
The Department suspected undervaluation by the input-supplier, resulting in the payment of differential duty by M/s. Hydraulics Ltd. The supplementary invoice was issued to enable the appellants to take Modvat credit for the duty paid by the supplier. The key question was whether the differential duty had indeed been paid by the input-manufacturer, a fact undisputed in the proceedings. The goods were duty-paid, and their utilization in the manufacturing process was acknowledged during the original Modvat credit availment. The enhanced value of inputs at the supplier's end did not affect the eligibility for Cenvat credit at the final product manufacturer's end.

Issue 3: Observance of principles of natural justice
The appellants contended that the impugned order by the Commissioner (Appeals) lacked observance of natural justice as it was passed without a proper hearing. Despite this, the appellants were willing to argue on the case's merits. The focus shifted to the validity of the supplementary invoice under Rule 57AE of the Central Excise Rules, 1944, and the retrospective effect of an amendment to the rule. The appellants argued that the denial of credit based on the retrospective application of the amendment was unjustified, emphasizing the duty-paid nature of the inputs and their use in the manufacturing process.

Issue 4: Interpretation of Rule 57AE and validity of the supplementary invoice
The interpretation of Rule 57AE was crucial in determining the validity of the supplementary invoice issued by M/s. Hydraulics Ltd. The Commissioner (Appeals) had relied on an amendment to the rule with retrospective effect from 1-3-2001. However, the appellate authority noted that the unamended clause entitled the appellants to take Cenvat credit based on the supplementary invoice issued before the amendment's effective date. As the credit was lawfully taken under the unamended provision, the impugned order was set aside, and the appeal was allowed with a direction for the refund of the pre-deposited amount to the appellants promptly.

This detailed analysis of the legal judgment from the Appellate Tribunal CESTAT, New Delhi highlights the key issues, arguments presented by both parties, and the ultimate decision based on the interpretation of relevant legal provisions.