2006 (1) TMI 516 - AT - Central Excise

Summary

Issues:
1. Interpretation of Rule 3(3) of Cenvat Credit Rules, 2002 regarding payment of duty on inputs removed from the factory.
2. Recovery of excess duty paid and short duty paid by the manufacturer.
3. Applicability of interest under Section 11AB.
4. Challenge to the findings of lower authorities by the appellants.

Analysis:

1. The case involved the appellants availing Cenvat credit on inputs used in manufacturing final products, following the provisions of Rule 3(3) of Cenvat Credit Rules, 2002. The dispute arose when the appellants paid excess duty in certain cases and less duty in others prior to 1-3-2003. The Revenue sought recovery of both the excess duty paid (Rs. 81,385) and the short duty paid (Rs. 11,625). The Original authority found that Rs. 72,448 had been wrongly utilized in the Cenvat Credit Account due to excess duty payment, and Rs. 3,976 was short paid. The Commissioner (Appeals) upheld this decision, leading to a challenge by the appellants.

2. The learned Advocate for the appellants argued that there was no dispute regarding the excess reversal of Rs. 72,448, indicating that the appellants had paid more duty than necessary on clearance of inputs. The main contention was that this excess reversal should have led to the proceedings being dropped. On the contrary, the learned SDR emphasized strict adherence to the rules without allowing manufacturers to interpret them at will.

3. Upon careful examination of the case records, the Tribunal found that the appellants had indeed reversed more credit than necessary on the clearance of inputs. The Commissioner (Appeals) suggested that the appellants may have intended to convert the excess credit into cash by collecting it from customers. However, the Tribunal noted that the demand for duty on excess duty paid could not be justified, especially considering the motive behind the excess reversal. The Tribunal held that even though there was a violation of the rule due to excess duty payment, the demand for duty would not be sustainable.

4. Ultimately, the Tribunal set aside the impugned order, providing consequential relief to the appellants. The judgment highlighted that while there was an infraction of the rule by paying more duty than necessary through Cenvat Credit, the demand for duty in such a scenario would not be upheld. The decision emphasized the importance of not only following the rules strictly but also ensuring that demands for duty are reasonable and legally sound.