2004 (6) TMI 566 - AT - Central Excise

Modvat credit was taken in the manufacture of household goods which were cleared under Notification 4/97

Summary

Issues:
1. Interpretation of Notification No. 4/97-C.E. regarding exemption from Central Excise duty for household products.
2. Determination of whether the appellant used inputs on which credit had been taken in the manufacture of exempted goods.
3. Classification of toy tables manufactured by the appellant under the Central Excise Tariff Act.

Analysis:
1. The main issue in this case revolves around the interpretation of Notification No. 4/97-C.E., which exempts household products from Central Excise duty provided no Modvat credit is availed on the inputs used in their manufacture. The appellant claimed exemption under this notification for their household articles, including toy tables, while the department alleged that the appellant violated the notification by using inputs on which credit had been taken, leading to a demand for duty and imposition of penalties.

2. The crucial question before the tribunal was whether the appellant indeed used inputs on which Modvat credit had been taken in the production of exempted goods. The department presented evidence suggesting that the appellant did use such inputs, including statements from the Technical Manager of the company admitting to the use of credited inputs in the manufacture of exempted goods. The tribunal noted discrepancies in the appellant's claims regarding the procurement of raw materials and found the department's evidence convincing, leading to the conclusion that the appellant wrongly availed the benefit of the notification.

3. Additionally, a minor issue arose concerning the classification of the toy tables manufactured by the appellant. While the appellant claimed Nil rate of duty under Chapter 95, the department argued for classification under chapter heading No. 9403 of the Central Excise Tariff Act. The appellant did not contest this classification before the Commissioner, and ultimately, the tribunal did not delve further into this issue as the appellant debited the differential duty once the correct classification was pointed out.

In conclusion, the tribunal upheld the demand for duty under the proviso to Section 11A(1) and the penalty under Section 11AC of the Central Excise Act. The penalty imposed on an individual was reduced, and one appeal was dismissed while another was partly allowed based on the findings regarding the misuse of Modvat credit and the incorrect availing of the exemption notification.