2003 (5) TMI 476 - Commission - Central Excise

Summary

Issues Involved:
1. Eligibility of Modvat credit on returned goods.
2. Determination of whether the process of defoiling/refoiling constitutes "manufacture."
3. Recovery of Modvat credit and duty.
4. Penalties and interest.
5. Immunity from prosecution.

Detailed Analysis:

1. Eligibility of Modvat Credit on Returned Goods
The applicant, a manufacturer of P&P medicaments, took Modvat credit of Rs. 98,24,286/- on Ciplox tablets returned to the factory. The applicant claimed that the process of defoiling/refoiling constituted "manufacture" under Chapter Note 5 to Chapter 30 of CETA '85, allowing them to utilize Rs. 63,13,338/- of this credit for duty payment on refoiled tablets. The remaining credit was used for other clearances.

2. Determination of Whether the Process of Defoiling/Refoiling Constitutes "Manufacture"
The applicant argued that reducing the MRP of Ciplox tablets required defoiling and refoiling, which they believed amounted to "manufacture" as per Chapter Note 5 to Chapter 30 of CETA '85. They sought legal advice, which supported this view. However, the Revenue contended that defoiling/refoiling did not amount to manufacture, thus Modvat credit was not permissible.

3. Recovery of Modvat Credit and Duty
A demand notice was issued to recover the Modvat credit and duty of Rs. 98,24,286/-. The Commissioner of Central Excise disallowed the credit and confirmed the duty demand, imposing penalties on the company and its officials. The applicant admitted an additional duty liability of Rs. 30,10,898/- and sought adjustment of this amount already paid. The Commission found that the applicant's actions were aimed at recovering duty not passed on to consumers due to reduced MRP, a situation partly caused by the Revenue's inaction on the applicant's declaration.

4. Penalties and Interest
The Commission noted that the applicant had already paid Rs. 30,10,898/- and accepted the remaining Rs. 2,355/- as payable. Given the full and true disclosure by the applicant, the Commission granted immunity from penalties and prosecution. Interest was not applicable as the period of evasion was prior to the insertion of Section 11AB in September 1996, and most duty was paid before the issue of the Show Cause Notice.

5. Immunity from Prosecution
The Commission granted full immunity from prosecution and penalties under the Central Excise Act/Rules, 1944, citing the applicant's cooperation and full disclosure. The settlement would be void if obtained by fraud or misrepresentation.

Conclusion
The Commission settled the case by requiring the applicant to pay Rs. 30,13,253/- as duty, with immunity from penalties and prosecution, and no interest due to the timing of the evasion. The Commission emphasized the need for clear communication and timely responses from the Revenue to prevent such disputes.