2010 (12) TMI 265 - AT - Central Excise

Demand Appellant converted its unit from DTA to 100% EOU - The appellant were having capital goods Modvat credit balance of Rs. 10,31,285/- in their RG-23C Pt. II register - Some of the capital goods were transferred to their sister unit in DTA vide invoice No. 99 dated 27/11/95 and No. 101 dated 26/12/95 and at the time of removal of the goods from the EOU, the duty was paid by debiting RG-23C account Departments contention is that since upon conversation into 100% EOU, the Modvat credit had lapsed, on removal of modvated capital goods, the duty should have been paid in cash - There is no provision for charging duty in respect of such capital goods if the same are removed into DTA, as they are neither the excisable goods acquired free of Central Excise Duty nor the goods imported free of customs duty nor the finished goods manufactured in the EOU - The appeal is allowed

Issues:
1. Interpretation of Central Excise Rules regarding duty payment by a 100% EOU.
2. Applicability of Modvat credit on capital goods transferred from EOU to DTA unit.
3. Validity of duty demand and penalty imposition on the appellant.

Interpretation of Central Excise Rules regarding duty payment by a 100% EOU:
The case involved a manufacturer of cotton yarn, initially a DTA unit, which converted to a 100% EOU in 1995. The dispute arose when capital goods were transferred to a sister unit in DTA, and the Department demanded duty payment in cash instead of utilizing Modvat credit. The appellant argued that as per the Central Excise Rules, a 100% EOU was not obligated to pay duty on such transfers, citing specific provisions and notifications exempting duty payment on certain goods. The Tribunal analyzed the rules and concluded that duty payment was not required for the transferred capital goods, as they were not acquired duty-free and did not fall under the categories necessitating duty payment. The Tribunal set aside the duty demand, emphasizing the lack of obligation for the appellant to pay duty in cash.

Applicability of Modvat credit on capital goods transferred from EOU to DTA unit:
The appellant had taken Modvat credit on capital goods received during its tenure as a DTA unit in 1995. Upon conversion to a 100% EOU, the Department contended that the Modvat credit lapsed, necessitating cash payment for duty on transferred capital goods. However, the appellant argued that the reversal of Modvat credit was not mandatory at the time of transfer, as the goods were not acquired duty-free. The Tribunal examined the provisions and clarified that the Modvat credit lapse did not mandate cash payment for duty on the transferred capital goods, as they were not subject to duty payment based on their origin and nature. The Tribunal ruled in favor of the appellant, highlighting the lack of obligation to pay duty in cash due to the specific circumstances of the case.

Validity of duty demand and penalty imposition on the appellant:
The Deputy Commissioner had confirmed a duty demand against the appellant for not paying duty in cash on transferred capital goods to the DTA unit, imposing a penalty as well. The Commissioner (Appeals) upheld this decision, leading to the appellant's appeal. The Tribunal, after thorough analysis and considering arguments from both sides, overturned the impugned order. It emphasized that the duty demand and penalty imposition were not justified, as the appellant was not obligated to pay duty in cash for the transferred capital goods based on the specific provisions and exemptions applicable to 100% EOUs. The Tribunal allowed the appeal, setting aside the duty demand and penalty imposed on the appellant.

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