2003 (6) TMI 417 - AT - Central Excise

Summary

Issues Involved:
1. Disallowance of Modvat credit.
2. Recovery of Modvat credit.
3. Imposition of penalty.
4. Limitation period for issuing show cause notice.
5. Requirement of proof of duty payment for availing Modvat credit.

Issue-wise Detailed Analysis:

1. Disallowance of Modvat Credit:
The Commissioner of Central Excise and Customs, Surat-II, disallowed Modvat credit amounting to Rs. 2,71,269/- under Rule 57-I of the Central Excise Rules. The assessee, engaged in the manufacture of unwrought refined lead ingots, claimed deemed credit on inputs such as lead scrap and unwrought lead ingots. The department objected, stating that the inputs did not have proof of duty payment, as noted in the delivery challans. The Tribunal upheld the disallowance, citing that the assessee failed to prove the payment of duty at the input stage, as required by law.

2. Recovery of Modvat Credit:
The Commissioner ordered the recovery of Rs. 2,71,269/- under Rule 57-I. The department's verification revealed that the assessee availed deemed credit on gross weight, including non-manufacturing materials like plastic. The Tribunal agreed with the recovery, emphasizing that credit can only be taken if duty is actually paid, referencing the Supreme Court judgment in CCE v. Dhiren Chemical Industries, which clarified that "duty paid" means duty should be actually paid.

3. Imposition of Penalty:
A penalty equal to the disallowed Modvat credit amount was imposed under Rule 173Q(1) of the Central Excise Rules read with Section 11AC of the Central Excise Act, 1944. The Tribunal, however, reduced the penalty to Rs. 1,000/-, considering a token penalty sufficient given the facts and circumstances of the case.

4. Limitation Period for Issuing Show Cause Notice:
The assessee argued that the show cause notice issued in 1997 for violations in 1992 was barred by limitation, as they had filed RT12 returns timely, which were assessed by the department. The Tribunal dismissed this argument, referencing the Larger Bench decision in Nizam Sugar Factory v. CCE, which supports the invocation of the larger period for issuing show cause notices in cases of suppression of facts.

5. Requirement of Proof of Duty Payment for Availing Modvat Credit:
The assessee contended that under Order No. 342/1/88-TRU, dated 12-7-1990, credit should be allowed without proof of duty payment. The Tribunal rejected this, clarifying that the waiver was only for the production of documents, not for the actual payment of duty. The Tribunal reiterated that without actual payment of duty, deemed credit cannot be availed, as it would result in unjust enrichment and wrongful gain to the assessee.

Conclusion:
The appeal was dismissed with a modification in the penalty amount. The Tribunal maintained the disallowance and recovery of Modvat credit, emphasizing the necessity of actual duty payment for availing credit, and upheld the larger period for issuing the show cause notice.