2006 (8) TMI 378 - AT - Central Excise

Denial of Modvat credit - Not utilized the inputs in the manufacturing of their final products - Demand of duty - Limitation - Shortage in inputs - Demand - Penalty imposed on the co-noticees - HELD THAT - The demand of duty on the appellants in Onida Saka Ltd. for the shortage of the inputs which were found during the visit of the officers I find that the statements were recorded of the concerned people in the factory as on 14th January 1999 and show cause notice was issued to them on 27-3-03 i.e. almost after four years. It is a settled law that a show cause notice which is issued after two years then it is non-est as affirmed by the Hon ble Supreme Court in the case of Gammon India Ltd. 2002 (5) TMI 848 - SC ORDER in an appeal against order of the Tribunal 1999 (5) TMI 436 - CEGAT MUMBAI . In view of this the demand of the duty in respect of inputs found short in this case is hopelessly time barred and the confirmation thereof is set aside. The issue before the Division Bench of the Tribunal was in respect of the one of the co-noticee i.e. Samtel Colour Ltd. Respectfully following the said order of the Division Bench not found any merit in the appeals of revenue as regards the dropping of the proceedings by the Commissioner (Appeals) on this account. As regards the Revenue s appeals against the setting aside the penalties by the Commissioner (Appeal) on other people I find that the penalty has been imposed under the provisions of Rule 209A of the Central Excise Rules 1944. The Commissioner (Appeal) has correctly came to the conclusion that provisions of Rule 209A are not applicable in this case to the limited companies and hence the order setting aside the penalties under Rule 209A is correct and does not require any interference. Accordingly the appeals filed by the appellant i.e. Monika Electronics Limited - Appeal and Onida Saka Ltd.- Appeal are allowed with consequential relief if any and appeal filed by the revenue are rejected.

Summary

Issues Involved:
1. Denial of Modvat credit on inputs rejected on line.
2. Demand of duty on inputs sent out under Rule 57F(4) of Central Excise Rules, 1944.
3. Shortage of inputs found during investigation.
4. Setting aside of penalties imposed on co-noticees.

Issue-wise Detailed Analysis:

1. Denial of Modvat credit on inputs rejected on line:
The appellants argued that the inputs rejected on line, on which they availed Modvat credit, were still lying in the factory. They contended that it is industry practice to test inputs on the shop floor, and if found defective, they are either corrected or set aside. The appellants cited the case of Asahi India Safety Glass Limited v. Union of India, where the Delhi High Court held that credit should not be denied if inputs are used in the manufacturing process, even if they are later found defective. The Tribunal found that the appellants had informed the officers that inputs were issued directly to the shop floor for fitting, and defects were rectified or the inputs were set aside as rejected. The Tribunal concluded that this situation is covered by Rule 57D of the Central Excise Rules, 1944, which allows credit even if inputs become waste during manufacturing. The Tribunal, following the decision in Asahi India Safety Glass Limited, held that the denial of credit on these inputs was not justified.

2. Demand of duty on inputs sent out under Rule 57F(4) of Central Excise Rules, 1944:
The Department argued that the appellants received new picture tubes instead of repaired ones, violating Rule 57F(4). The Tribunal referred to a previous order where it was held that there was no evidence to prove that new CPTs were supplied instead of repaired ones. The Tribunal noted that previous show cause notices on similar allegations were dropped, and no duty demand was raised against the co-noticee for clearing new CPTs. The Tribunal found no merit in the Department's appeal and upheld the Commissioner (Appeals) decision to drop the proceedings.

3. Shortage of inputs found during investigation:
The Tribunal observed that statements were recorded during the investigation, and a show cause notice was issued almost four years later. Citing the Supreme Court's decision in Gammon India Ltd., the Tribunal held that a show cause notice issued after two years is non-est. Therefore, the demand of duty for the shortage of inputs was time-barred and set aside.

4. Setting aside of penalties imposed on co-noticees:
The Tribunal found that the Commissioner (Appeals) correctly concluded that Rule 209A of the Central Excise Rules, 1944, was not applicable to limited companies. Consequently, the setting aside of penalties on co-noticees was upheld, and the Department's appeal on this issue was rejected.

Conclusion:
The appeals filed by Monika Electronics Limited and Onida Saka Ltd. were allowed with consequential relief, while the appeals filed by the revenue were rejected.