2004 (11) TMI 384 - AT - Central Excise

Summary

Issues:
Denial of Modvat credit and penalty upheld by Commissioner (A) - Appellant availed credit on inputs not fully received - Commissioner invoked extended period of limitation - Appellant's contention on variation in quantities and reimbursement from suppliers - Appellant's reliance on case laws - Appellant's argument on credit availed based on Central Excise invoices - Commissioner's decision on penalty under Rule 57I(4) read with Section 11AC - Applicability of mandatory penalty under Section 11AC - Tribunal's decision on denial of credit and penalty.

Analysis:

The appeal before the Appellate Tribunal arose from the Commissioner (A)'s order upholding the denial of Modvat credit amounting to Rs. 9,48,397.54 and imposition of an equal penalty. The appellant had availed Modvat credit on inputs based on quantities shown in Central Excise invoices, despite not receiving the full quantities mentioned in the invoices at the factory. The Commissioner upheld the denial of credit and penalty, invoking the extended period of limitation due to the appellant's alleged suppression of facts regarding the short receipt of inputs.

During the hearing, the appellant argued that they only claimed credit for the quantities indicated in the invoices, attributing the variation in weights/volumes to factors like evaporation losses and differences in weighbridge calibration. The appellant also highlighted their practice of claiming compensation for short-received goods from suppliers. They cited relevant case laws to support their position, emphasizing that Modvat credit should not be denied for minor variations in quantities received in the factory, especially when full duty had been paid on the goods.

On the other hand, the respondent contended that the appellant's private records clearly indicated the actual quantities received, emphasizing that Modvat credit should only be availed when inputs are physically received in the factory. The respondent argued that the substantial variation in quantities, amounting to over Rs. 9 lakhs, warranted the denial of credit. They supported the Commissioner's decision to invoke a larger period of limitation due to the appellant's maintenance of dual sets of records.

The Tribunal carefully examined the contentions of both parties and analyzed Rule 57G, which mandates Modvat credit only on goods physically received in the factory. Despite the appellant's explanations for the discrepancies in quantities, the Tribunal noted that the supplier had reimbursed the cost of short-received goods, indicating that the losses were not solely due to reasons like temperature differences or transit losses. The Tribunal emphasized that Rule 57G's requirement of goods received in the factory was crucial, and the credit on goods not physically received was rightfully denied.

Regarding the penalty imposed under Rule 57I(4) read with Section 11AC, the Tribunal clarified that a composite penalty was impermissible, especially for the period predating the enactment of Section 11AC. The Tribunal set aside the composite penalty and confirmed the recoverability of interest under Rule 57I(5), ultimately partly allowing the appeal by confirming the duty demand and interest while setting aside the penalty.

In conclusion, the Tribunal's decision centered on upholding the denial of Modvat credit for goods not physically received in the factory, rejecting the appellant's arguments based on case laws and emphasizing the importance of adherence to Rule 57G. The Tribunal also clarified the inapplicability of a composite penalty under Section 11AC, ensuring the appropriate imposition of interest while setting aside the penalty.