2004 (5) TMI 442 - AT - Central Excise

Demand/Reversal of credit - liability regarding inputs removed without undergoing a manufacturing process - HELD THAT - The Modvat/Cenvat is a scheme of giving relief, while subjecting final products to duty, equivalent to the duty paid on the inputs. That is not a provision for levying duty on goods which had once been cleared on payment of duty. Provisions for levy of duty and valuation continue to be Sections 3 and 4 (or 4A) of the Central Excise Act, 1944. The inputs in question were manufactured by other manufacturers and those manufacturers had paid appropriate duty at the time of removal of these goods. The appellant had only taken credit of the duty paid by those manufacturers as those goods were supposed to be used as inputs in the production of final products. The duty liability of those inputs remain, already determined and discharged at the time of their original removal. There is no provision in Central Excise law for reassessment of goods, which had once been removed after payment of duty. Therefore, as held by this Tribunal in its earlier decision, what an assessee is required to do when he removes inputs as such can only be to restore the credit, which he had taken. In the present cases, the appellants have already restored the credit already taken. Nothing more was required of them. There was no short levy of duty involved. The impugned orders which have held to the contrary are not sustainable. They are, therefore, set aside and the appeals are allowed, with consequential relief, if any, to the appellants.

Summary

Issues involved: The liability of an appellant regarding inputs removed without undergoing a manufacturing process and the interpretation of relevant provisions under the Cenvat Credit Rules.

Issue 1 - Liability of Appellant for Inputs Removed Without Manufacturing Process:
The appellant received inputs for final product manufacture and claimed duty credit under the Cenvat Scheme. Dispute arose when inputs were removed without processing, questioning the appellant's liability. The impugned orders required assessment and duty payment on such cleared inputs, leading to a differential duty demand.

Issue 2 - Interpretation of Cenvat Credit Rules:
The appellant argued that the impugned orders contradicted established legal principles. Referring to Tribunal decisions, the appellant contended that only restoring the original duty position was necessary for inputs removed without use in manufacturing. The introduction of new Cenvat provisions did not alter this legal stance.

Judgment Details:
The Tribunal examined the Cenvat Credit Rules, specifically sub-rule (4) of Rule 3, effective from July 2001, which mandated duty payment on inputs removed as such. This rule succeeded Rule 57F(ii) of earlier regulations, which allowed disposal of inputs with appropriate duty payment.

The Tribunal clarified that the Modvat/Cenvat scheme aimed to provide duty relief on final products equivalent to input duty paid, not to levy duty on previously cleared goods. Duty levy and valuation were governed by Sections 3 and 4 (or 4A) of the Central Excise Act, 1944. As the inputs were originally manufactured by other parties with duty payment, the appellant's duty liability was already fulfilled through credit taken. Reassessment of goods post-duty payment removal was not provided for in Central Excise law.

In line with previous decisions, the Tribunal ruled that the appellant's obligation was to restore the credit taken on inputs removed as such, which had been duly fulfilled. The impugned orders requiring further duty payment were deemed unsustainable. Consequently, the appeals were allowed, granting relief to the appellants as per law.