2003 (11) TMI 465 - AT - Central Excise

Summary

Issues:
- Disallowance of Modvat credit on inputs
- Imposition of personal penalty on the respondents

Analysis:
1. Disallowance of Modvat credit on inputs:
The appeal was filed by the Revenue against the order of the Commissioner (Appeals) where the appeal filed by the Respondent was allowed. The original adjudicating authority rejected the Modvat credit availed on the inputs, asserting that the activity carried out by the respondent did not amount to manufacture. The Respondent contended that the processes undertaken on the inputs, such as rewinding on new drums, cutting into specific lengths, greasing, and packing for marketing, resulted in a new identifiable product, qualifying as a manufacturing process. The Commissioner (Appeals) analyzed the processes involved and concluded that the inputs were eligible for Modvat credit as they were essential to complete the manufacture of the finished product. The Commissioner emphasized that the processes were required to put the product in a marketable form, and the duty paid semi-finished goods were converted into the final product through these processes. The Commissioner also highlighted the lack of mention of input-output descriptions and processes in the Order-in-Original, questioning the basis for disallowing the credit.

2. Imposition of personal penalty on the respondents:
The Commissioner (Appeals) noted that the original Adjudicating Authority did not dispute that the Respondents had paid duty on their final product. The absence of any mention in the original order regarding the payment of duty on the final product led the Commissioner to conclude that the credit on inputs used in manufacturing the final product, on which duty was paid, was admissible. The Commissioner rejected the Revenue's appeal, emphasizing that since duty had been paid on the final product, there were no merits in disallowing the Modvat credit on inputs. The Commissioner also highlighted the lack of quantification of credit availed in the Order-in-Original, questioning the justification for imposing a penalty of Rs. 3 lakhs without such quantification. The Commissioner's decision favored the Respondent, emphasizing the admissibility of the credit based on the duty paid on the final product.