2006 (12) TMI 326 - AT - Central Excise

Cenvat/Modvat - finished goods - Demand - duty-paid inputs - extended period of limitation - manufacture of motor vehicle parts - HELD THAT - The fact that processes such as broaching etc. were undertaken on ROFs and turning and drilling were undertaken in relation to GSDs, is amply borne out from the production log books of the relevant periods which indicate the nature of the manufacturing process as well as the machine on which it was done and the operators names, as also the quantity of the GSDs and ROFs subjected to such processes. It is not disputed that these production log books were before the Revenue authorities. There was no reason to discard such contemporaneous documentary evidence which indicated the manufacturing process of broaching, drilling, turning etc. on ROFs by simply relying on the bald statement made on the spur of the moment by the authorised representative of the appellant. It is nobody s case that production log books have been subsequently prepared. The particulars mentioned therein which are brought to our notice clearly speak of manufacturing process to which ROFs (semi-finished) and GSD (castings) were subjected to. Unfortunately, this important documentary evidence has been overlooked by the learned Commissioner. It will also be noticed from Section Note 6 of Section XVI of the Schedule to the Tariff Act that in respect of the goods covered by Section XVI (machinery and mechanical appliance etc.) conversion of an article which is incomplete or unfinished but having essential characteristic into complete or finished article shall amount to manufacture. Assessee had satisfactorily established the nature of manufacturing processes to which these two items had undergone before they were removed on payment of excise duty on the value added basis, it is also not disputed that the total amount of excise duty paid was much higher than the Modvat credit availed in respect of these items. In the present case, admittedly by the excise duty paid on the ROFs/GSDs removed as finished goods was higher than the Modvat credit availed on these inputs. Therefore, there was no liability to pay additional duty when these goods were removed. Even if it were to be held that no process was undertaken on these goods, then obviously there was no liability to pay excise duty on the footing that these goods were manufactured by the appellant, because if they were already brought as inputs from other manufacturer and no further process was undertaken, they would obviously be not liable for payment of excise duty on the ground that manufacturing process was undertaken. Therefore, in either event, no duty liability arose on the part of the appellant. The facts would also indicate that since the amount higher than the Modvat credit availed was paid by way of excise duty, then there could no intention to evade payment of duty. Obviously, therefore, there was no valid ground for invoking the extended period of limitation. Thus, the impugned order cannot be sustained and is hereby set aside. The appeal is accordingly allowed.

Issues:
- Reconsideration of matter by Tribunal as directed by High Court
- Mis-declaration of critical raw materials and Modvat credit disallowance
- Manufacturing processes undertaken on inputs for availing Modvat credit
- Discrepancy in classification declarations and mis-declaration allegations
- Applicability of extended time limit for disallowance of Modvat credit
- Comparison of duty paid on finished goods with Modvat credit availed
- Interpretation of Rule 57F regarding removal of inputs and payment of excise duty
- Absence of duty liability due to higher excise duty paid on finished goods
- Lack of intention to evade duty and invalidity of invoking extended limitation period

Analysis:
The Tribunal heard an appeal remanded by the High Court for reconsideration, involving the mis-declaration of critical raw materials leading to the disallowance of Modvat credit. The appellant, engaged in manufacturing motor vehicle and generator parts, faced allegations of clearing inputs "as such" without using them in final product manufacturing, prompting the Revenue to disallow Modvat credit and impose a significant penalty and interest. The appellant argued that manufacturing processes were indeed undertaken on the inputs, justifying the Modvat credit availed. The Tribunal examined the evidence, including production log books, to establish the manufacturing processes and concluded that the duty paid on finished goods exceeded the Modvat credit, negating any duty liability and intention to evade payment.

The Tribunal scrutinized the classification declarations, the nature of manufacturing processes, and the applicability of the extended time limit for Modvat credit disallowance. It emphasized the importance of contemporaneous documentary evidence, such as production log books, in determining the legitimacy of claimed manufacturing processes. The Tribunal also referenced legal provisions like Rule 57F to elucidate the conditions for removal of inputs and payment of excise duty, stressing that no duty liability arose due to the higher excise duty paid on the finished goods compared to the Modvat credit availed on inputs.

Moreover, the Tribunal highlighted precedents and legal interpretations supporting the appellant's position, emphasizing that the absence of duty liability and the lack of intention to evade payment rendered the extended limitation period invocation erroneous. Ultimately, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellant based on the established facts and legal principles, as dictated and pronounced in the open Court on 26-12-2006.

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