2004 (8) TMI 697 - AT - Central Excise

Summary

Issues Involved:

1. Denial of MODVAT Credit
2. Constructive Receipt of Inputs
3. Procedural Non-Compliance and Substantial Benefit
4. Limitation and Time Bar
5. Applicability of CENVAT Provisions
6. Penalty and Revenue Loss

Summary:

1. Denial of MODVAT Credit:
The denial of MODVAT Credit availed by Sunrise Ltd. and KEC was based on the grounds that inputs were never received in their factory, the factory of Sunrise was not manufacturing any goods during the period, and invoices issued by Sunrise were questionable. The Tribunal found that the deemed credit of 12% on steel angles, a declared input, cannot be denied even if the factory was temporarily closed. The credit entry in RG 23A is permissible under Rule 57A without any time limit. The delivery of inputs was taken at the factory gate of the suppliers and then transported to KEC, constituting 'constructive receipt' by Sunrise.

2. Constructive Receipt of Inputs:
The Tribunal held that the movement of inputs without physical receipt in the factory was not always required under the then existing MODVAT Rules. The concept of 'constructive receipt' was supported by a three-member bench decision in the case of Maruti Udyog Ltd., which allowed credit on inputs even if not physically received. The Tribunal emphasized that procedural non-compliance cannot deny the substantial benefit of credit when duty paid character at 16% and receipt by KEC is not in question.

3. Procedural Non-Compliance and Substantial Benefit:
The Tribunal noted that the conditions in Notification 58/97 granting deemed credit benefit are procedural in nature. It was held that technical/procedural lapses cannot deny the benefit of MODVAT credits. The Tribunal referenced the case of Shivagrico Implements Ltd., which established that procedural requirements should not negate substantial benefits. The Tribunal also highlighted that the law applicable on the date of the show cause notice should be invoked, and Rule 57I was not in existence at the time of the notice, making the notice unsustainable.

4. Limitation and Time Bar:
The Tribunal found that the entire demand was beyond the normal period of limitation. The extended period under Rule 57I(1)(ii) was invoked, but the Tribunal held that failure to follow procedure cannot be attributed as suppression or intent to evade duty. The Tribunal referenced several decisions, including Geep Industrial Syndicate and Mahindra & Mahindra Ltd., to support the view that procedural errors do not constitute suppression with intent to evade duty.

5. Applicability of CENVAT Provisions:
The Tribunal concluded that CENVAT provisions cannot be invoked to recover MODVAT credit as 'Cenvat credit' is defined for inputs received after April 1, 2000, while the credit in question was availed prior to this date. The Tribunal also noted that the duty paid by Sunrise on the clearance of angles to KEC should be treated as a reversal of credit, and there was no bar on availing credit even when the factory is closed.

6. Penalty and Revenue Loss:
The Tribunal found that there was no loss of revenue to the government as the entire modus operandi was to minimize business loss. The Tribunal emphasized that the duty paid on angles would be refunded by DGFT in the form of either refund of terminal excise duty or drawback. The Tribunal held that the penalties imposed were not sustainable and set them aside.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeals, emphasizing that procedural non-compliance cannot deny substantial benefits, and there was no suppression or intent to evade duty. The penalties imposed were also set aside.