2008 (10) TMI 487 - AT - Central Excise

Cenvat/Modvat - Inputs - Line rejection - Held that - the respondents had reversed credit availed in respect of inputs which were issued for manufacture and rejected at the assembly stage. The settled position on this aspect is that inputs issued and rejected at assembly stage are inputs issued for manufacture and no credit is liable to be reversed as such inputs are found not suitable and not consumed in further manufacture. In the circumstances, the impugned credit was not liable to be reversed - appeal dismissed - decided against Revenue.

Summary

Issues:
- Demand of interest and penalty on reversed duty amount
- Applicability of case laws in similar matters
- Interpretation of Section 11AB post-amendment
- Reversal of credit for rejected inputs at assembly stage

Analysis:
1. The case involved an appeal by the Revenue against the Commissioner (Appeals) order vacating the demand of interest and penalty on a duty amount that was reversed by the respondent before the issuance of a Show Cause Notice. The Commissioner (Appeals) based the decision on a previous case involving the same appellants and relied on specific case laws to support the decision.

2. The Revenue argued that the Commissioner (Appeals) erred in dropping the demand of interest under Section 11AB, contending that the amendment to Section 11AB made the assessee liable to pay interest in addition to duty. The Tribunal noted that the case laws cited were not applicable to demands of interest falling due after the amendment to Section 11AB in 2001.

3. The Tribunal heard the arguments presented by the Revenue and the respondents' counsel, who cited various case laws where inputs issued for production but later found unfit during the manufacturing process did not require credit reversal. The Tribunal considered the inspection process at both the production and assembly stages, emphasizing that if inputs were rejected during assembly, credit reversal was not necessary.

4. The Deputy Commissioner's findings indicated that inputs issued for manufacture were inspected at the assembly stage, and if rejected, were considered scrap. The respondents promptly reversed the duty amount upon the department's request, following established case laws that credit reversal was not required for inputs rejected at the assembly stage. The Tribunal concluded that the duty reversal was justified, and no penalty or interest should be imposed on the reversed amount.

5. The Tribunal upheld the Commissioner (Appeals) decision, emphasizing that the respondents had complied with the requirement to reverse the credit for rejected inputs issued for manufacture at the assembly stage. Therefore, the demand for interest and penalty on the reversed duty amount was not sustainable, and the appeal by the Revenue was rejected.

In conclusion, the judgment clarified the application of Section 11AB post-amendment and established the principle that credit reversal was not necessary for inputs rejected at the assembly stage. The decision was based on a thorough analysis of relevant case laws and the specific circumstances of the case, ensuring a fair and just outcome.