2004 (4) TMI 471 - AT - Central Excise

Summary

Issues:
1. Reversal of Modvat credit on inputs meant for exclusive use in manufacturing a specific model.
2. Applicability of Modvat credit when switching to a new model.
3. Justification for reversal of Modvat credit when inputs are still in the factory premises.
4. Utilization of Modvat credit for payment of duty on different models.

Analysis:

1. The case involved the issue of whether the appellants were liable to reverse the Modvat credit on inputs meant for exclusive use in the manufacture of a specific model, "GARUDA," when they switched to a new model, "Piaggio." The show cause notice proposed the reversal of credit amounting to Rs. 4,30,711/-, which was confirmed by the Joint Commissioner along with the imposition of a personal penalty. The appellant contended that since they were still clearing the inputs "as such" for after-sale service, the credit earned on those inputs should not be reversed.

2. The appellant argued that they had availed the credit at the time of receiving the inputs, and it could be utilized either at the time of clearing the final product or when clearing the inputs themselves. They claimed that the credit should not be used for payment of duty on the discontinued model "GARUDA" as they had stopped its production. The Adjudicating Authority's observation was cited to support the appellant's contention that there was no specific rule for reversing credit on inputs meant for a discontinued product.

3. The Tribunal found merit in the appellant's argument, noting that the inputs and credit were still in the factory premises. According to the Modvat rules, the appellant could clear the inputs "as such" by reversing the Modvat credit availed on them. Therefore, the Tribunal held that there was no justification for reversing the credit while the inputs remained in the factory. However, it clarified that the credit earned on inputs exclusively for the "GARUDA" model could not be used for duty payment on other models as they were not being used in their manufacture.

4. Consequently, the Tribunal ruled that the credit earned would remain in the Modvat account and could be utilized when clearing the inputs "as such." The appeal was disposed of on these terms, with the penalty set aside for further consideration. This judgment clarified the application of Modvat credit in cases of switching models and the reversal of credit on inputs meant for specific products, providing guidance on the utilization of such credits in the manufacturing process.