2005 (11) TMI 325 - AT - Central Excise

Summary

Issues:
Manufacture of Copper anodes using imported Copper concentrate samples for testing; Admissibility of Modvat/Cenvat credit on tested samples; Reversal of credit on samples removed for testing; Disallowance of credit on samples tested within factory premises; Imposition of penalty under Section 11AC.

Manufacture of Copper anodes using imported Copper concentrate samples for testing:
The appellants, as manufacturers of Copper anode and by-products, imported Copper concentrate as the main raw material. They availed Cenvat credit of countervailing duty paid on this raw material. The Department found that the appellants had taken Modvat/Cenvat credit on Copper concentrate samples drawn for testing, which were not used in the manufacture of Copper anodes. A show cause notice was issued to reverse the credit and impose a penalty. The appellants argued that the tested samples were ultimately fed into the smelter for the final product. However, the original authority and the first appellate authority denied the credit, stating no evidence of the samples being used in the manufacturing process.

Admissibility of Modvat/Cenvat credit on tested samples:
The lower authorities denied Modvat/Cenvat credit on the tested samples, as they were not deemed to be used in the manufacture of Copper anodes. The appellant's counsel argued that the samples were part of the manufacturing process and should be allowed credit. However, the Tribunal found no documentary evidence supporting this claim and noted the absence of registers maintaining the movement of tested samples from the laboratory to the manufacturing plant. The Tribunal concluded that the tested samples were not essential for the manufacturing process of Copper anodes, distinguishing the case from previous decisions cited by the appellant's counsel.

Reversal of credit on samples removed for testing and disallowance of credit on samples tested within factory premises:
The appellants voluntarily reversed the credit taken on samples removed for testing by an external agency. However, the credit on samples tested within the factory premises was disallowed by the lower authorities due to the lack of evidence showing their use in the manufacturing process. The Tribunal upheld this decision, emphasizing the necessity of maintaining proper records and establishing the essentiality of testing for claiming credit.

Imposition of penalty under Section 11AC:
While the Tribunal agreed with the disallowance of input-duty credit on the tested samples, it reduced the penalty imposed on the appellants. Considering that the credit was taken on a small quantity of imported raw material and acknowledging the voluntary reversal of credit on the samples removed for testing, the Tribunal reduced the penalty amount to Rs. 5,000. The Tribunal concluded that the penalty should be proportionate to the circumstances of the case.

In conclusion, the Tribunal upheld the disallowance of Modvat/Cenvat credit on the tested samples not used in the manufacturing process of Copper anodes. The penalty imposed on the appellants was reduced due to the negligible quantity of input involved.