2005 (11) TMI 352 - AT - Central Excise

Summary

Issues:
Appeal against order of Commissioner of Central Excise & Customs upholding dropping of proceedings for denying Modvat credit on washing machines.

Analysis:
The appeal before the Appellate Tribunal CESTAT, Mumbai involved a dispute regarding Modvat credit on washing machines. The Commissioner (Appeals) had upheld the lower authority's decision to drop proceedings against the respondents. The Department contended that the respondents availed credit of duty paid on imported machines without any manufacturing process taking place. The respondents had sought permission to bring duty paid washing machines for trading purposes under Rule 51 of Central Excise, and this permission was granted. However, the Department argued that the respondents used the machines for manufacturing without authorization for such activities.

During the hearing, the respondents' counsel argued that the imported machines were not finished products and underwent operations resulting in the creation of a new product. The duty was paid when clearing the washing machines, and any excess credit taken amounted to Rs. 10,639.02. The Tribunal considered the contentions of both sides and noted that the respondents had obtained permission under Rule 51A and Rule 173H of the Central Excise Rules to bring duty paid goods into the factory for trading and repairs, respectively. However, no manufacturing activity was intended or authorized under these rules, making the respondents ineligible for Modvat credit on the duty paid washing machines.

The Tribunal observed that although the respondents paid duty on the machines when clearing them from the factory, effectively neutralizing the credit taken, the initial availing of credit was not justified. The Tribunal decided to remand the matter back to the original authority to verify the quantum of credit taken, duties paid on the machines, and to determine the balance duty to be paid or Modvat credit to be reversed. The appeal was allowed by way of remand, emphasizing the need to rectify the incorrect availing of credit on the washing machines.