1997 (6) TMI 357 - AT - Central Excise

Summary

Issues Involved:
1. Availability of MODVAT Credit for ISO Butyl Rubber used in exported automobile tubes.
2. Applicability of DEEC Scheme and Notification No. 203/92.
3. Authority of Assistant Commissioner of Central Excise to demand reversal of MODVAT Credit.
4. Legal basis for refund claims of reversed MODVAT Credit.
5. Interpretation and enforcement of Rule 57I and Rule 57F of the Central Excise Rules.
6. Jurisdiction of Customs vs. Central Excise authorities in enforcing DEEC Scheme conditions.

Issue-wise Detailed Analysis:

1. Availability of MODVAT Credit for ISO Butyl Rubber used in exported automobile tubes:
The appellants imported ISO Butyl Rubber, paid customs duties, and availed of MODVAT Credit under Rule 57A. The issue arose when the appellants exported automobile tubes and claimed duty-free importation of Butyl Rubber under the DEEC Scheme. The Assistant Commissioner contended that the credit should be reversed when goods manufactured from duty-paid inputs are exported under the DEEC Scheme, but this was not supported by any specific rule. The lower appellate authority held that the remedy did not lie in denying MODVAT Credit but elsewhere.

2. Applicability of DEEC Scheme and Notification No. 203/92:
Notification No. 203/92 allows duty-free importation under the DEEC Scheme, provided no input stage credit is taken under Rule 56A or 57A, and no drawback is claimed. The appellants initially reversed the MODVAT Credit to claim the DEEC Scheme benefits and later filed for a refund, arguing that the reversal was erroneous. The Assistant Commissioner rejected the refund claim, while the Commissioner (A) allowed it, leading to the present appeal.

3. Authority of Assistant Commissioner of Central Excise to demand reversal of MODVAT Credit:
The Assistant Commissioner of Central Excise directed the reversal of MODVAT Credit, which the lower appellate authority found to be without legal basis. The appellate authority emphasized that the Assistant Commissioner of Customs, who cleared the inputs duty-free under Notification 203/92, should take action if the DEEC exporter violated any provisions of the notification. The Central Excise authorities lacked the jurisdiction to demand reversal of credit simply because the export was under the DEEC Scheme.

4. Legal basis for refund claims of reversed MODVAT Credit:
The appellants reversed the credit based on departmental instructions and later claimed a refund, asserting they were not required to reverse the credit. The lower appellate authority found that the appellants were entitled to the refund since there was no irregularity in taking the credit under Central Excise Rules. The appellate authority upheld this view, stating that any reversal of MODVAT Credit must be strictly within the parameters of Rule 57I, which was not violated in this case.

5. Interpretation and enforcement of Rule 57I and Rule 57F of the Central Excise Rules:
Rule 57I allows recovery of credit if taken due to an error, omission, or misconstruction. The Revenue could not demonstrate that such conditions existed. Rule 57F(3) allows credit utilization towards payment of duty on final products, including those cleared for export under bond. The appellate authority concluded that the MODVAT Credit was correctly taken and utilized per the rules, and no reversal was warranted.

6. Jurisdiction of Customs vs. Central Excise authorities in enforcing DEEC Scheme conditions:
The appellate authority clarified that any violation of Notification 203/92 should be addressed under the Customs Act, specifically Section 111(o) for confiscation of improperly imported goods. The Supreme Court's ruling in Sheshak Sea Foods Pvt. Ltd. supported this view, stating that Customs authorities have jurisdiction to act on breaches of exemption notifications. Consequently, the Central Excise authorities' demand for credit reversal was unfounded.

Conclusion:
The appellate authority dismissed the Revenue's appeal, affirming that the appellants were entitled to the MODVAT Credit and its subsequent refund. The decision emphasized the distinct jurisdictions of Customs and Central Excise authorities and the proper legal channels for addressing violations of the DEEC Scheme.