2005 (5) TMI 409 - AT - Central Excise

Summary

Issues:
1. Interpretation of Rule 57F(4) and Rule 57F(6) regarding clearance of uncharged batteries.
2. Entitlement to reverse Modvat credit debited at the time of clearance of uncharged batteries.
3. Justifiability of revenue's view on the classification of uncharged batteries.
4. Validity of the demand of duty and penalty imposed on the appellant.

Analysis:

Issue 1: Interpretation of Rule 57F(4) and Rule 57F(6)
The appellants, engaged in manufacturing electric storage batteries, cleared uncharged batteries to their job workers for charging purposes under Rule 57F(4). They debited 10% of the value of goods in their Modvat account at the time of clearance, as per Rule 57F(6), which was later canceled upon receipt of charged batteries. The revenue contended that charging did not create a new product, thus disallowing clearance under Rule 57F(4). However, the appellants were paying duty on charged batteries inclusive of charging costs.

Issue 2: Entitlement to reverse Modvat credit
The Tribunal found the revenue's view unjustified. If uncharged batteries were considered complete products, the debiting of Modvat account at clearance would not have occurred. The Tribunal noted the discrepancy in disallowing the reversed entry upon receipt of charged batteries but being silent on the initial debit at clearance. The entire process was deemed revenue neutral as the debited amount was credited upon receipt from job workers.

Issue 3: Classification of uncharged batteries
The Tribunal disagreed with the revenue's classification of uncharged batteries as complete products under Heading 85.07. The Tribunal emphasized that the appellants paid duty on charged batteries, indicating a distinction between charged and uncharged batteries. The reasoning provided by the revenue was deemed unjustifiable.

Issue 4: Validity of duty demand and penalty
The Tribunal concluded that the demand of duty and penalty imposed on the appellant, totaling Rs. 1,23,43,531, was unwarranted. The authorities' decision to confirm the duty demand and penalty was deemed unjustified. The Tribunal set aside the impugned order and allowed the appeal, providing consequential relief to the appellants.

In summary, the Tribunal ruled in favor of the appellants, emphasizing the correct interpretation of Rule 57F(4) and Rule 57F(6), rejecting the revenue's classification of uncharged batteries, and overturning the duty demand and penalty imposed on the appellant.