2005 (8) TMI 454 - AT - Central Excise

Summary

Issues:
1. Modvat credit availed on cylindrical cork floats.
2. Exclusivity of use of cylindrical cork floats in the manufacture of exempted final product.
3. Imposition of penalty under Rule 173Q.

Modvat Credit on Cylindrical Cork Floats:
The appeal revolved around the Modvat credit availed by the appellants on cylindrical cork floats used in conjunction with other inputs like copper, aluminium, and insulating material. The appellants argued that they were entitled to reverse 8% of the product cost due to the Modvat credit under Rule 57CC of the Central Excise Rules, 1944. The Revenue, represented by Shri Shaikh, contended that the cylindrical cork floats were used exclusively in the manufacture of an exempted final product meant for the Indian Navy. The Tribunal found that the appellants had indeed used the cylindrical cork floats solely for the exempted final product supplied to the Navy, thereby disallowing the Modvat credit amounting to Rs. 3,42,990.

Exclusivity of Use in Exempted Final Product:
The central issue was whether the use of cylindrical cork floats exclusively in the production of an exempted final product warranted the reversal of Modvat credit. The Tribunal noted that the appellants had utilized the cylindrical cork floats solely for the exempted final product supplied to the Navy, which fell under Notification No. 64/95. As per Rule 57C, the duty paid goods used in the manufacturing of exempted excisable goods did not qualify for Modvat credit. Consequently, the Tribunal upheld the decision to disallow the Modvat credit on the cylindrical cork floats.

Imposition of Penalty under Rule 173Q:
Regarding the penalty imposed under Rule 173Q, the appellants argued that they had paid 8% of the final product value, demonstrating their lack of mala fide intent to evade duty. The Tribunal acknowledged that the appellants had made the required payment, indicating good faith and negating any malicious motive. Consequently, the Tribunal set aside the penalty of Rs. 35,000 imposed by the lower adjudicating authority and confirmed by the Commissioner (Appeals). The appeal was rejected on all grounds except for the modification in penalty imposition, which was overturned.

In conclusion, the Appellate Tribunal CESTAT, Mumbai, under the direction of Shri Jeet Ram Kait, upheld the disallowance of Modvat credit on cylindrical cork floats due to their exclusive use in the manufacture of an exempted final product for the Indian Navy. The Tribunal also set aside the penalty under Rule 173Q, recognizing the appellants' good faith payment of 8% of the final product value, thereby overturning the penalty imposed by the lower authorities.