2007 (1) TMI 305 - AT - Central Excise

Summary

Issues involved: Appeal against central excise duty demand and penalty imposition based on discrepancies in closing balance of goods in factory.

Central excise duty demand: The appeal was made against the confirmation of central excise duty demand amounting to Rs. 23,96,506 on MS plates found short in the factory during specific periods. The discrepancy arose as the actual closing balance of goods did not match the recorded balance for those months, with a quantity of 459.058 and 741.945 MT of MS plates being found short. Additionally, a penalty of Rs. 10,000 was imposed on the appellants.

Rule 57AH and Modvat credit: The Tribunal found merit in the appellants' submission that the show cause notice issued for recovery of excise duty under Rule 57AH, read with the proviso to Section 11A of the Central Excise Act, 1944, was legally flawed. It was established that Rule 57AH of the Cenvat Credit Rules could not be invoked for recovering Modvat credit taken under the erstwhile Modvat Credit Rules, which were replaced by the Cenvat Credit Rules in 2000. The Tribunal referred to a previous order in Sunrise Structural & Engg. Ltd. v. CCE, Nagpur, where it was held that cenvat provisions cannot be used to recover Modvat credit. The definition of Cenvat credit under Rule 57AB(1) was crucial, specifying that it applies to duties paid on inputs or capital goods received after April 1, 2000. As the credit in question was availed before this date, it could not be classified as Cenvat credit, rendering proviso 5 of the Cenvat Rules inapplicable.

Precedent and decision: The Tribunal rejected the argument that the Sunrise Structurals decision contradicted a larger bench decision in Kisan Sahkari Chini Mills Ltd. v. CCE, Kanpur, which suggested that Modvat cases were protected by Section 38A of the Central Excise Act, 1944. It was clarified that the larger bench decision did not address the specific issue raised in Sunrise Structurals regarding the substitution of rules, making it distinguishable. The Sunrise decision was subsequently followed in other cases, reinforcing its validity. Ultimately, the Tribunal, in line with the Sunrise Structurals decision, concluded that Rule 57AH was not applicable for recovering Modvat credit, thereby setting aside the impugned order and allowing the appeal.