2004 (12) TMI 450 - AT - Central Excise

Summary

Issues:
Denial of Modvat credit on broken shells not used in manufacturing final products, applicability of Rule 196 of Central Excise Rules, imposition of penalty, computation of Modvat credit, imposition of penalty under Section 11AC and Rule 57-I(4).

Analysis:
The appeal concerns the denial of Modvat credit amounting to Rs. 16,67,051/- on broken shells that were not utilized in the manufacture of final products. The appellant argued that they were entitled to claim credit on the broken shells based on Rule 196 of the Central Excise Rules, which provides duty exemption for goods removed under Chapter X procedure. The appellant maintained that they believed in good faith that they could claim credit on the broken shells and did not intend to evade duty payment, thus no penalty should be imposed.

The respondent, on the other hand, supported the impugned order, asserting that since the broken shells were not used in manufacturing final products, the appellant could not claim credit. The respondent contended that Rule 196 cited by the appellant did not apply to the situation at hand.

Upon review, it was established that the broken shells were not utilized in manufacturing final products, a fact not disputed by the appellants. The authorized signatory admitted the breakage occurred due to mishandling, not during the manufacturing process. The Tribunal rejected the appellant's argument that the signatory's statement was unreliable, accepting it as conclusive evidence. Rule 196 was deemed inapplicable as it pertains to duty exemption on damaged inputs post-removal under Chapter-X Procedure, which did not align with the circumstances of the case.

It was clarified that Modvat credit cannot be claimed on inputs not incorporated into final products. The denial of Modvat credit by the lower authorities was deemed appropriate. The appellant's contention regarding the computation of Modvat credit was dismissed, as the breakage percentage was acknowledged by the appellants themselves.

Regarding penalties, the appellant's claim of bona fide belief was rejected, as they were expected to be aware of the rules governing credit on inputs. The Tribunal found no evidence that the appellants sought guidance from the department before claiming Modvat credit on damaged inputs, leading to the imposition of a penalty. The Tribunal also addressed the Revenue's appeal on penalty imposition, upholding the penalty under Section 11AC and Rule 57-I(4) due to non-compliance with regulations.

In conclusion, the Tribunal upheld the impugned order, with modifications in the penalty amount under Section 11AC and Rule 57-I(4). The penalty was imposed on the appellants, and both appeals were disposed of accordingly.