2006 (1) TMI 380 - AT - Central Excise

Demand - Cenvat/Modvat of the CVD payment on the imported inputs - Exemption under Notification No. 203/92-Cus.- amount of credit was in connection to quantity based exports and have expressed their difficulty to produce such documents - HELD THAT - We find that the Tribunal in the above referred case has observed that Notification No. 203/92-Cus. grants exemption from Customs duty on imported goods subject to the fulfilment of various conditions. One such conditions referred to is taking Modvat credit. If Modvat credit had been taken, the Department would be entitled to deny the benefit of the exemption to the imported goods for the reason that the condition embodied in the notification has been violated. But it does not follow that the Modvat credit can be denied. The Tribunal also rejected the contention raised by the DR that this point was not taken up by the assessee before the Commissioner on the ground that the point is a basic and fundamental one and should have occurred to the adjudicating authority, without being pointed out by the assessee. Revenue cannot compel the assessee to fulfil the conditions of the notification by coercing them to reverse the credit. If the credit has not been reversed, the same would amount to non-fulfilment of the condition of the notification, thus resulting in denial of the benefit under the said notification. As such, we are of the view that the confirmation of demand against the appellant is not justified. We set aside the same along with setting aside the personal penalty. Appeal allowed with consequential relief to the appellant.

Summary

Issues:
1. Availing Modvat credit on imported inputs under Value Based Advance Licence Scheme (VABAL) and Quantity Based Advanced Licence Scheme (QBAL).
2. Reversal of excess Modvat credit amount.
3. Commissioner's order confirming the amount in dispute, interest, and imposing penalty.
4. Appellant's inability to produce evidence of quantity based exports.
5. Tribunal's decision on the denial of benefit under the notification due to non-reversal of Modvat credit.

Analysis:
1. The appellant, a manufacturer of S.O. dyes, availed benefits under VABAL and QBAL schemes by importing inputs duty-free. However, investigations were initiated as they were availing Modvat credit on all inputs without reversing it for exports under VABAL. The Government directed reversal of Modvat credit by a specified date, leading to the reversal of an excess amount by the appellant.

2. The disputed amount of credit arose when the appellant realized they had reversed an extra amount meant for exports under QBAL. The Tribunal had earlier directed the appellant to provide evidence linking inputs to value-based and quantity-based exports. The Commissioner's order confirmed the disputed credit amount under Central Excise Rules and imposed a penalty, as the appellant failed to demonstrate the credit's connection to quantity-based exports.

3. The appellant argued that the reversal of Modvat credit was a condition for availing the benefit of the notification and contended that the credit, once availed, should not be reversed. Citing a precedent, the appellant claimed that denial of exemption could occur if conditions were violated but not the denial of Modvat credit itself.

4. The Tribunal referred to a previous case where it was held that denial of Modvat credit cannot be enforced by the revenue, and non-reversal would lead to denial of the notification's benefit. The Tribunal emphasized that coercing reversal of credit did not align with the conditions of the notification, leading to denial of benefits.

5. Ultimately, the Tribunal ruled in favor of the appellant, setting aside the demand confirmation and personal penalty. The decision was based on the principle that revenue cannot compel reversal of credit to fulfill notification conditions, as failure to reverse would result in denial of benefits. The appeal was allowed, providing consequential relief to the appellant.