2005 (2) TMI 711 - AT - Central Excise

Confiscation and penalty - Demand - Manufacture - Penalty - Cenvat/Modvat - Confiscation of vehicle - Clandestine removal

Summary

Issues:
1. Classification of DEHPA as capital goods or excisable product
2. Denial of Project Imports benefit and Modvat credit
3. Confiscation of DEHPA and vehicle, imposition of penalties

Issue 1: Classification of DEHPA as capital goods or excisable product

The appellant, a manufacturer of electrolytic zinc and copper, imported DEHPA under Project Imports Regulations for project imports. The DEHPA, used in the electrolysis process, got corrupted over time and was stored separately. The appellant believed the spent material was non-excisable and cleared it commercially. The authorities seized the material, alleging it was liable for confiscation. The Commissioner held that the DEHPA was cleared without payment of Central Excise duty, contravening the rules, and demanded duty, disallowed Modvat credit, and imposed penalties. However, the Tribunal found that the spent DEHPA was not a manufactured excisable product and was imported as capital goods. Citing precedent cases, the Tribunal concluded that there was no liability for Central Excise duty on the spent DEHPA, overturning the Commissioner's decision.

Issue 2: Denial of Project Imports benefit and Modvat credit

The Commissioner also proposed to deny the Project Imports benefit and recover Modvat credit on the cleared DEHPA. The appellant argued that the DEHPA was an integral part of the plant, continuously recycled for about 20 years, and not consumed in the process. The Commissioner had disallowed the proportionate Modvat credit and imposed penalties for contravention of rules. The Tribunal, however, found that the DEHPA was imported as capital goods and the appellants were entitled to the benefit of Project Imports under the Customs Tariff. The Tribunal ordered a redetermination of the Modvat credit on depreciated capital goods and remitted the case back to the original authority for further assessment, considering the appellant's compliance and payments made before the Show Cause Notice.

Issue 3: Confiscation of DEHPA and vehicle, imposition of penalties

The Commissioner had ordered the confiscation of the seized DEHPA and the vehicle used for transportation, with penalties imposed for rule violations. However, the Tribunal noted that the driver of the vehicle was not found liable for penalties, and therefore, the confiscation of the vehicle could not be upheld. The Tribunal set aside the order for confiscation of the vehicle and remitted the case back to the original authority for reconsideration. The Tribunal allowed the appeal in the above terms, emphasizing the need for a reassessment of Modvat credit and penalties based on the law and facts of the case.

This detailed analysis of the judgment highlights the key issues surrounding the classification of DEHPA, denial of benefits, and confiscation penalties, providing a comprehensive overview of the legal proceedings and the Tribunal's decision.