2006 (1) TMI 344 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit of CVD for failure to produce requisite certificate from financing company.
2. Imposition of penalty under Rule 173Q for contravention of Central Excise Rules.
3. Compliance with provisions of Rule 57R and Income Tax Act for claiming Modvat credit.

Issue 1: Denial of Modvat credit of CVD for failure to produce requisite certificate from financing company.
The case involved the appellants importing Capital goods with financial assistance from a financing company on lease. The Revenue denied Modvat credit of CVD due to the appellants' failure to produce the required certificate from the financing company in accordance with Rule 57R of the Central Excise Rules, 1944. The Original Authority not only denied the Modvat credit but also imposed a penalty under Rule 173Q. The Commissioner (Appeals) upheld the decision, leading to the appellants challenging the impugned order.

Issue 2: Imposition of penalty under Rule 173Q for contravention of Central Excise Rules.
The Original Authority imposed a penalty of Rs. 50,000 under Rule 173Q for the contravention of Rule 57G read with Rule 57R. However, the appellants contested this penalty along with the denial of Modvat credit. The penalty was a result of the failure to produce the requisite certificate from the financing company as per the Central Excise Rules.

Issue 3: Compliance with provisions of Rule 57R and Income Tax Act for claiming Modvat credit.
The appellants argued that they had complied with all the provisions of the law, including Rule 57R of the Central Excise Rules, 1944, and relevant sections of the Income Tax Act. They contended that it was unjust to deny Modvat credit based on the absence of a certificate from the financing company regarding the CVD payment. The appellants had repaid the countervailing duty before the first loan installment, fulfilling the requirements of Rule 57R. Despite the financing company not issuing the certificate due to disputes, the appellants had informed them of their intention to avail the Modvat credit. The appellants relied on Explanation 9 to Section 43 of the Income Tax Act, which supported their claim that if Modvat credit was claimed, depreciation had to be disallowed. The Tribunal agreed with the appellants, emphasizing that denial of Modvat credit in this scenario would lead to a miscarriage of justice. The judgment was influenced by the legal position that the financing company could not claim depreciation on the CVD amount when informed by the appellants of their decision to claim Modvat credit.

In conclusion, the Tribunal allowed the appeal, considering the legal provisions and the specific circumstances of the case. The denial of Modvat credit and imposition of a penalty were overturned in favor of the appellants due to their compliance with the relevant rules and laws, despite the financing company's failure to issue the required certificate.