2006 (1) TMI 527 - AT - Central Excise

Summary

Issues:
Disallowance of Modvat credit and penalty imposition on appellants for utilizing credit for payment of duty under Compounded Levy Scheme.

Analysis:
The appeal challenged the order-in-appeal upholding the disallowance of Modvat credit and imposition of penalties on the appellants. The appellants, manufacturers of non-alloy and alloy steel ingots, opted for the Compounded Levy Scheme and began paying duty accordingly. However, they faced a show cause notice alleging misuse of Modvat credit when clearing alloy steel ingots at 15% Ad valorem. The dispute arose from the appellants' use of Modvat credit for alloy steel ingots after opting for the Compounded Levy Scheme, leading to penalties. The Commissioner (Appeals) and adjudicating authority upheld the order, prompting this appeal.

The appellant's advocate argued that the final products utilizing the Modvat credit were alloy steel ingots, and the credit pertained to alloy steel as well. Reference was made to Rule 57F(17)(c) to support the appellant's position. Conversely, the Departmental Representative contended that Rule 57F(17) clearly barred the use of Modvat credit once the appellants opted for the Compounded Levy Scheme, asserting a violation by the appellants.

Upon review, it was found that the show cause notice accused the appellants of using Modvat credit for duty payment on alloy steel ingots after opting for the Compounded Levy Scheme. The Compounded Levy Scheme, introduced by notification No. 31/97, applied to specific non-alloy steel products, excluding the alloy steel ingots manufactured by the appellants. Rule 57F(17)(c) explicitly prohibited utilizing Modvat credit balance for goods under the Compounded Levy Scheme, which did not cover the appellant's alloy steel products.

Further examination revealed that the appellants only used the credit for duty paid on inputs for manufacturing alloy steel ingots, not for non-alloy steel ingots. Consequently, the impugned order-in-appeal was set aside, and the appeal was allowed based on the specific provisions and circumstances of the case.