2003 (12) TMI 547 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit and imposition of penalty.
2. Allegation of taking credit for inputs used in exempted final products.
3. Availment of credit on certain inputs used in exempted products.
4. Evidence of using inputs without taking credit.
5. Applicability of Board's Circular and Tribunal decision.

Analysis:

1. The appellants were denied Modvat credit amounting to Rs. 81,900/- and faced a penalty of Rs. 2,000. This denial was due to the removal of medicines at a nil rate of duty without paying 8% of the value of such goods. The appellants argued that they maintained separate inventory records for exempted items and that common raw materials were not used for both dutiable and duty-free final products. However, the authorities contended that common inputs were used for both types of products, necessitating the payment of 8% of the price of exempted final products or the maintenance of separate accounts. The failure to establish separate accounts led to the denial of credit and imposition of the penalty.

2. The appeal memorandum highlighted that certain inputs used in exempted products were not credited. The appellants clarified that even though common inputs were involved, the duty-free finished goods in question were manufactured using inputs for which no credit was taken. The evidence provided by the appellants regarding the use of inputs without availing credit remained unchallenged. Citing the Board's Circular and a Tribunal decision, it was argued that where accounts show no credit taken on inputs used in duty-free finished goods, the demanded duty and penalty cannot be upheld.

3. The Tribunal allowed the appeal, setting aside the impugned order of the lower authority. This decision was based on the lack of evidence supporting the denial of credit for inputs used in duty-free finished goods and the failure to establish the necessity of paying duty and penalty in this case. The reference to relevant Circulars and legal precedents supported the appellants' position, leading to a favorable outcome in the appeal.