2005 (3) TMI 711 - AT - Central Excise

Summary

Issues:
Reversal of credit before clearance of exempt goods, Evidence of reversal of credit, Chartered Accountant's certificates, Denial of credit based on availing exemption, Verification report from JRO, Applicability of exemption on manufactured goods, Limitation on demand covered under SCN, Imposition of penalty, Financial crisis affecting operations, Timing of credit reversal.

Analysis:

1. Reversal of credit before clearance of exempt goods:
The appellant argued that the reversal of credit before the clearance of exempt goods was evident from the Show Cause Notices (SCNs) themselves. They submitted Chartered Accountant's certificates certifying the reversal of proportionate credit on granules consumed in the manufacture of disposable articles. The appellant contended that the reversal of credit attributable to inputs used in the manufacture of exempt disposable cups/trays had been accepted in the SCNs. They emphasized that the reversal of credit prior to clearance of exempt goods was reflected in invoices, entries in RG-I, and reversal entries in RG-23A Part II.

2. Evidence of reversal of credit:
The appellant presented Chartered Accountant's certificates dated on different occasions certifying the reversal of proportionate credit on granules consumed in the manufacture of disposable articles. They argued that the reversal of credit was supported by central excise invoices, RG-I, RG-23A Part II, and RT-12 returns, which formed part of the evidence. The appellant contended that the Additional Commissioner's observation that the appellants did not produce invoices was incorrect.

3. Denial of credit based on availing exemption:
The impugned SCN proposed to deny the credit based on availing exemption under specific notifications. The appellant argued that the confirmation of demand was beyond the scope of the SCN as there was no evidence of reversal of credit before the clearance of goods. They relied on a Supreme Court judgment and a CBEC Circular to support their case.

4. Verification report from JRO:
The appellant challenged the Additional Commissioner's reliance on a verification report from a Jurisdictional Range Officer (JRO) to hold against them. They argued that the fact of reversal of credit was evidenced through various documents, and the report of the JRO was not furnished to them. The appellant contended that the report contrary to the factual position in the SCNs was not sustainable.

5. Applicability of exemption on manufactured goods:
The appellant argued that even if the goods manufactured fell under a specific heading, the exemption was available based on the classification of raw materials used. They contended that the duty paid on raw materials would continue to remain duty paid, and hence, the exemption was not deniable.

6. Financial crisis affecting operations:
The appellant highlighted their severe financial crisis due to weak market conditions, poor demand, unremunerative prices, and increased administrative costs. They expressed concerns that any deposit requirement would adversely affect their operations. Considering these circumstances, the Tribunal granted a full waiver and stayed the recovery of amounts.

7. Timing of credit reversal:
After hearing both sides and reviewing the records, the Tribunal found that the applicants had been reversing the credit of Modvat when their regular goods were cleared. The Tribunal acknowledged that the question of reversal was not in dispute, and the only issue was the timing of the reversal. Consequently, the Tribunal granted full waiver and stayed the recovery process.