2009 (3) TMI 661 - AT - Central Excise

Cenvat/Modvat - furnace oil - molten wax cleared by the assessee to their sister unit - Demand - Limitation - Revenue neutrality - sister units -

Summary

Issues:
1. Reversal of MODVAT credit on furnace oil and molten wax clearance to sister unit.
2. Demand of duty on molten wax.
3. Invocation of extended period of limitation under Section 11A of the Central Excise Act, 1944.

Analysis:
1. The appellant imported solid wax, melted it into molten wax, and cleared it to the sister unit, availing MODVAT credit of CVD. The department contended that no 'manufacturing' occurred in the process, considering it a removal of input, and demanded reversal of MODVAT credit on CVD. Additionally, MODVAT credit on furnace oil used for melting the wax was also challenged. The original authority confirmed the duty demand and credit reversal, upheld by the Commissioner (Appeals). However, the Tribunal found no merit in the appellant's case against the demand of duty on molten wax. Still, they succeeded in challenging the reversal of MODVAT credit on furnace oil, as fuels used as inputs were excluded from the relevant rules during the period in question.

2. The appellant contested the duty demand on molten wax on the grounds of limitation, arguing that the show-cause notice issued beyond the normal limitation period was unjustified. They claimed revenue neutrality as the duty paid would be available as MODVAT credit to the sister unit, citing precedents supporting this argument. The Tribunal agreed with the appellant, holding that the extended limitation period was inapplicable due to the revenue-neutral nature of the transactions between the appellant unit and the sister unit, both being part of the same company. Therefore, the demand for duty on molten wax was set aside as time-barred.

3. Consequently, the Tribunal set aside the demand for reversing MODVAT credit on furnace oil and the duty demand on molten wax, ruling in favor of the appellant based on the limitation plea and the revenue-neutral principle. As a result, no penalty was imposed on the appellant, and the appeal was allowed in their favor, overturning the previous decision and providing relief on both issues raised in the case.