2006 (2) TMI 430 - AT - Central Excise

Summary

Issues:
Challenging denial of Modvat credit on capital goods and inputs, imposition of penalties, and interest under Central Excise Act, 1944.

Analysis:
The appeal was filed against an order denying Modvat credit on capital goods and inputs by the Commissioner of Central Excise & Customs. The appellants, manufacturers of Cotton Yarn, had been declaring credit on inputs and capital goods in their monthly returns. The Revenue alleged irregular credit availment for the period from July 1998 to June 2002 and issued a Show Cause Notice for the period from July 2002 to March 2003. The Commissioner's order disallowed Modvat credit amounting to Rs. 1,05,77,475/- and imposed penalties totaling Rs. 1,04,02,675/- under Section 11AC, and Rs. 5,000/- under Rule 27, along with interest. The appellants contested the order vehemently.

The appellants argued that duty was paid on goods cleared locally and exported, hence credit cannot be denied. They emphasized that once duty is paid on the final product, credit on capital goods and inputs cannot be refused. They cited relevant case laws to support their position, including CCE v. Casio Bharti Mobile Communications Ltd. and Alpha Drugs India Ltd. v. CCE. The appellants also highlighted that they were entitled to rebate of duty paid on raw materials for exported final products.

The Tribunal carefully examined the case records and found that the denial of Modvat credit was based on the availability of exemption for finished products, which did not justify denying credit on inputs and capital goods. It was acknowledged that the goods cleared domestically and for export had indeed incurred duty. The Tribunal agreed with the appellants that as long as duty was paid on inputs, capital goods, and final products, credit could not be denied. The Tribunal also noted that goods exported cannot be deemed exempt from duty, in line with the case laws cited by the appellants.

Furthermore, the Tribunal found no merit in invoking the extended period for the case, as the appellants had consistently informed the department of their activities through declarations and returns. As a result, the order denying Modvat credit was deemed to lack merit, leading to the appeal being allowed with consequential relief. The operative part of the order was pronounced in open court at the conclusion of the hearing.