2015 (4) TMI 1101 - HC - Central Excise

Disallowance of MODVAT credit - Availing the facility of MODVAT credit of duty paid on inputs in terms of the provisions of 57A of the Central Excise Rules - Assessee had taken MODVAT credit on the strength of duty paying documents which was found to have been issued more than six months prior to the date on which credit was taken. In the entries made in the documents maintained under RG-23 A - Part I ble Supreme Court in the cases of Eicher Motors Limited Vs. Union of India 1999 (1) TMI 34 - SUPREME COURT OF INDIA and Collector of Central Excise Pune Vs. Dai Ichi Karkaria Limited 1999 (8) TMI 920 - SUPREME COURT OF INDIA . Accordingly the assessee was entitled to avail the MODVAT credit under Rule 57A merely because of the time frame fixed in making the entries in Part II of RG-23A and only because of some error in making the entry denial of the benefit cannot be permitted. The act of the assessee in making such receipt of input in Part I of a single comprehensive RG-23 A action is evidence enough with regard to crystallization of right to MODVAT credit and merely because in second accounting entry of Part II there is some inconsistency the right accrued already to receive the credit cannot be taken away. Also the credit which had accrued to the assessee could not be denied in law by the CEGAT holding it to be inadmissible merely because of the error in making entry in Part II of RG-23A. - Appeal disposed of

Summary

Issues Involved:
1. Interpretation of MODVAT Scheme provisions regarding the accrual of credit rights to an assessee.
2. Determining the significance of accounting entries in RG-23A Part I and Part II for availing MODVAT credit.
3. Assessing whether the denial of MODVAT credit by CEGAT due to an error in entry is lawful.

Detailed Analysis:

Issue 1:
The primary issue revolves around the interpretation of the MODVAT Scheme provisions concerning the accrual of credit rights to an assessee. The Tribunal rejected MODVAT credit to the assessee based on an entry in RG-23A Part II beyond six months. The High Court analyzed the Supreme Court judgments in Eicher Motors Limited and Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Limited, emphasizing that the right to credit accrues to the assessee upon payment of tax on raw materials. The Court held that the right crystallizes upon input receipt, as per the existing scheme.

Issue 2:
Regarding accounting entries in RG-23A Part I and Part II for availing MODVAT credit, the High Court highlighted that the denial of credit was solely due to an entry in Part II beyond the stipulated six months. The Court referred to the Gujarat High Court's decision in Baroda Rayon Corporation Limited Vs. Union of India, where similar circumstances led to the quashing of denial of MODVAT credit. The Court agreed that the right to credit conferred by Rule 57A and Rule 57G should not be curtailed by procedural limitations, as established in previous judgments.

Issue 3:
The final issue pertains to the lawfulness of denying MODVAT credit by CEGAT based on an error in the entry in Part II of RG-23A. The High Court concluded that the credit accrued to the assessee could not be lawfully denied by CEGAT due to an entry error. The Court held that the assessee was entitled to avail of the credit, and all benefits accruing should be granted, thereby quashing the Tribunal's order.

In conclusion, the High Court answered the reference by affirming the assessee's entitlement to MODVAT credit, emphasizing the importance of procedural adherence without unduly restricting the substantive rights conferred by the MODVAT Scheme.