2003 (5) TMI 369 - AT - Central Excise

Cenvat/Modvat - Deemed credit - Accounts and records - Penalty - Cenvat/Modvat - Deemed credit

Summary

Issues:
1. Denial of deemed Modvat credit on cotton denim fabrics seized by Central Excise Preventive Staff.
2. Interpretation of Notification No. 29/96-C.E. (N.T.), dated 3-9-1996 regarding the denial of deemed credit.
3. Imposition of penalty on the assessee for availing credit in contravention of the provisional order.

Analysis:
1. The case involved the denial of deemed Modvat credit to an assessee engaged in processing cotton denim fabrics seized by the Central Excise Preventive Staff. The assessee had cleared the seized fabrics after availing the benefit of deemed credit, leading to a show cause notice and subsequent appeal against the demand and penalty imposed.

2. The Commissioner (Appeals) analyzed the relevant provisions of Notification No. 29/96, dated 3-9-1996, which stated that the benefit of the notification would not apply if duty had not been levied or paid on the final products. The Commissioner held that the provisions for denying deemed credit did not apply in this case as the goods had not been removed, and the duty had not been short-levied or short-paid. Consequently, the Commissioner reversed the finding regarding the demand of duty but upheld the penalty on the grounds of contravention of the provisional order.

3. The appellate tribunal found merit in the assessee's argument that since the prohibition in the notification was not applicable to their case, there was no legal restriction on them availing deemed credit. The tribunal concluded that the reasons provided by the Commissioner for sustaining the penalty were insufficient under Rule 173Q. Therefore, the tribunal set aside the part of the order confirming the penalty and allowed the appeal filed by the assessee, emphasizing that once the benefit of the notification could not be denied, no penalty should be imposed for availing deemed credit.

This judgment clarifies the application of Notification No. 29/96 in cases of denial of deemed credit, emphasizing the importance of duty payment on final products and the legal restrictions on availing such benefits.