2003 (4) TMI 421 - AT - Central Excise

Summary

Issues:
1. Demand of duty on chemicals cleared without payment of excise duty.
2. Reversal of Modvat credit taken on duty paid on goods.
3. Imposition of penalties.

Analysis:
1. The appellant, a manufacturer of electrolytic zinc and copper, imported a chemical necessary for its manufacturing process and took Modvat credit on the additional duty of customs paid on these goods. However, officers intercepted a van carrying these chemicals without evidence of excise duty payment. Further investigation revealed that the appellant had corresponded with a buyer regarding the sale of the goods at a specific price, indicating excise duty payment upon clearance. A notice was issued demanding duty on the cleared chemicals and reversal of Modvat credit under Rule 57T. The Commissioner confirmed these proposals, demanding duty of Rs. 2,44,800 and ordering credit reversal of Rs. 72,599, along with imposing penalties equal to these amounts.

2. The appellant argued that demanding duty on manufactured chemicals while seeking credit recovery for inputs used in manufacturing was impermissible. The appellant contended that if the chemicals were repacked for marketing, it meant they were no longer usable in the manufacturing process, negating the need for credit recovery. The departmental representative supported the Commissioner's findings.

3. The Tribunal noted that the appellant's claim of credit under Rule 57Q for the duty paid on the goods was questionable as the chemicals did not meet the definition of "capital goods" under Rule 57T. However, the incorrect credit issue was not raised by the department. The Tribunal found it illogical to demand credit recovery if the chemicals were used in manufacturing and then restored to their original state. The appellant either restored the chemicals or did not utilize them in manufacturing at all, as evidenced by discrepancies in declared values. As the appellant failed to provide clarification despite requests, the duty of Rs. 2.44 lakhs was upheld. The penalty imposed on the appellant was also deemed justified based on the case facts.

In conclusion, the appeal was partially allowed, confirming the duty demand while maintaining the imposed penalties.