2005 (3) TMI 637 - AT - Central Excise

Issues Involved:

1. Availment of deemed Modvat credit.
2. Demand for duty based on inadmissible Modvat credit.
3. Short payment of duty due to non-inclusion of loading charges.
4. Overdrawals in PLA due to fraudulent inflations.
5. Imposition of penalties and confiscation.

Detailed Analysis:

1. Availment of deemed Modvat credit:

The appellant took deemed Modvat credit of Rs. 10,62,222/- for scrap material purchased from M/s. Saurashtra Iron Foundry & Steel Works (SIFSW) through an official liquidator. The department alleged that the appellant took credit without actually receiving the scrap, did not maintain statutory records, and the scrap was from a period prior to 1986, making it ineligible for credit. The appellant argued that under the Ministry's circular dated 1-3-1994, they were entitled to deemed credit without needing duty-paying documents, provided the inputs were received in the factory. The Tribunal observed that the circular allowed deemed credit without duty-paying documents and held that the appellant was entitled to the credit.

The appellant also took credit of Rs. 18,21,210/- on the strength of xerox copies of invoices for ship-breaking scrap. The department contended that no duty was payable on such scrap and credit on xerox copies was inadmissible. The appellant argued that the circular allowed deemed credit for re-rollable materials without duty-paying documents. The Tribunal agreed, noting the circular's silence on the need for duty-paying documents and upheld the appellant's entitlement to the credit.

2. Demand for duty based on inadmissible Modvat credit:

The Commissioner demanded Rs. 28,79,290/- as duty on goods cleared using the disputed Modvat credit. Since the Tribunal held that the credit was rightly availed, the demand for duty and the associated penalty and interest were set aside.

3. Short payment of duty due to non-inclusion of loading charges:

The Commissioner confirmed Rs. 1,116/- as duty short paid due to non-inclusion of loading charges and Rs. 3,189/- for duty not paid at the material time but paid subsequently. The appellant did not contest this, and the Tribunal upheld the duty confirmation.

4. Overdrawals in PLA due to fraudulent inflations:

The Commissioner found that the appellant wilfully and fraudulently inflated the balance in PLA, resulting in overdrawals of Rs. 97,438/- and Rs. 1,98,688/-. A penalty of Rs. 10,000/- was imposed under Rule 173Q(1) for these misdemeanours, which the Tribunal upheld. However, a penalty of Rs. 2,96,126/- under Section 11AC was set aside as the section was not in effect during the relevant period.

5. Imposition of penalties and confiscation:

The Commissioner imposed a penalty of Rs. 10,000/- under Rule 9(2), Rule 52A(8)(c), and Rule 173Q(1) for various offences, which the Tribunal upheld. The land, building, plant, and machinery were confiscated under Rule 173Q(2) with an option to redeem on payment of a fine of Rs. 1,00,000/-. The Tribunal reduced the redemption fine to Rs. 25,000/- considering the circumstances.

Conclusion:

The appeal was partly allowed with the following terms:

(a) The appellant is entitled to Modvat credit of Rs. 28,83,432/-.
(b) The demand for duty of Rs. 28,79,290/- and associated penalty and interest were set aside.
(c) Duty confirmations of Rs. 1,116/- and Rs. 3,189/- were upheld.
(d) A penalty of Rs. 10,000/- under Rule 173Q(1) for overdrawals was upheld.
(e) A penalty of Rs. 2,96,126/- under Section 11AC was set aside.
(f) A penalty of Rs. 10,000/- under Rule 9(2) etc. was upheld.
(g) Confiscation was upheld, but the redemption fine was reduced to Rs. 25,000/-.

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