2004 (2) TMI 618 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit on capital goods under Rule 57Q for the month of May, 1997.
2. Imposition of penalty on the appellants.
3. Interpretation of Rule 57Q regarding admissibility of Modvat credit for capital goods used in the factory of production of final products.

Analysis:

1. The appeal challenges the denial of Modvat credit amounting to Rs. 17,206.80 on capital goods for May 1997. The appellants admitted the failure to provide required information of capital goods receipt to the jurisdictional Supdt. of Central Excise under Rule 57T(4). They argued that this procedural lapse should not impact their right to claim the credit, as it was based on valid duty-paying documents after submitting the necessary declaration under Rule 57T. The appellants cited Tribunal decisions to support their position. However, the Tribunal upheld the denial, emphasizing that under Rule 57Q, Modvat credit is only admissible for capital goods used in the factory of final product production. The failure to notify the receipt of capital goods in the factory, as mandated by Rule 57T(4), was deemed crucial for ensuring compliance with this requirement. The Tribunal concluded that this notification was not a minor procedural matter but a mandatory one, leading to the dismissal of the appeal.

2. Regarding the penalty of Rs. 4,000 imposed on the appellants, they contended that since the duty demand was not sustainable, no penalty should be levied. Citing Tribunal decisions in their favor, the appellants argued against the penalty. However, the Tribunal did not find merit in this argument, maintaining that the denial of Modvat credit on the capital goods rendered the penalty justified, irrespective of the duty demand sustainability. Therefore, the penalty imposed on the appellants was upheld.

3. The interpretation of Rule 57Q was pivotal in this case, focusing on the admissibility of Modvat credit for capital goods utilized in the factory of final product manufacture. The requirement of notifying the receipt of capital goods in the factory, as outlined in Rule 57T(4), was highlighted as essential to ensure compliance with this provision. The Tribunal emphasized that the utilization of capital goods in the factory was a significant criterion for claiming the credit, and the failure to notify their receipt to the department was a mandatory requirement, not to be overlooked as a minor procedural issue. This interpretation guided the Tribunal's decision to dismiss the appeal and uphold the denial of Modvat credit on the capital goods in question.