2009 (7) TMI 842 - HC - Central Excise

Demand - MODVAT credit - The show cause notice was only in respect of the reversal of MODVAT credit on the ground that the input was exempted and as such could not have been utilized - No show cause notice was issued to the Petitioner on the ground that the Petitioner had wrongly claimed the credit than what the Petitioner was entitled to - The Petitioners in their reply to the show cause notice where it has been set out that the goods under the heading 59.03 are manufactured by three different processes viz. Coating, impregration and lamination. The Petitioners used lamination method - In such method resin is first used to manufacture PVC film/sheets which is then used as an input in the manufacture of artificial leather cloth - The assessee in the instant case had claimed credit towards payment of duty on final product PVC sheet/film as an input for manufacture of artificial leather cloth. Exemption under Notification No. 217/86-C.E, is only applicable in respect of the credit taken on inputs falling under Heading No. 39.04 when utilized for payment of duty on the goods falling under Heading 59.03. This restriction is not applicable in the case where duty paid on the goods falling under Heading 39.20 is taken and utilized for payment of duty on the goods falling under heading 59.03 - Hence the order of the tribunal directing Assistant Commissioner to communicate to the appellant duty required to be paid being without jurisdiction is set aside.

Summary

Issues:
1. Interpretation of Notification No. 217/86-C.E. regarding exemption for PVC film/sheets.
2. Validity of demand for duty on PVC film/sheets.
3. Jurisdiction of the tribunal to pass orders beyond the scope of the show cause notice.

Analysis:
1. The Petitioner contested a show cause notice demanding duty for not availing exemption under Notification No. 217/86-C.E. for PVC film/sheets. The tribunal held that the duty paid on PVC film, though exempted, could not be credited for duty on leather cloth. The Petitioner's argument was that the restriction in the notification applied only to specific scenarios, not their case of utilizing duty paid on PVC film (Heading 39.20) for leather cloth (Heading 59.03). The tribunal's order was beyond the show cause notice's scope, and the Petitioner's rectification application was rejected.

2. The Commissioner initially ordered recovery of duty paid on PVC film, which was upheld by CEGAT. However, the tribunal's decision was based on a misunderstanding. The Petitioner used PVC film as an input for leather cloth, distinct from direct resin use in other processes. The tribunal erred in overlooking this crucial distinction, leading to an incorrect order for duty recovery.

3. The tribunal's jurisdiction to pass orders beyond the show cause notice's scope was challenged. The Supreme Court precedent highlighted that a tribunal cannot alter the basis of a demand not made in the notice. In this case, the tribunal's order exceeded the show cause notice's content, misinterpreting the manufacturing process and the notification's applicability. Consequently, the tribunal's direction for duty payment was set aside as lacking jurisdiction.

In conclusion, the High Court found the tribunal's decision to be erroneous as it extended beyond the show cause notice and misinterpreted the application of the notification. The Petitioner's use of PVC film as an input for leather cloth was distinct from direct resin use, warranting a different treatment under the law. The tribunal's order for duty recovery was deemed unjustified, and the direction to communicate duty payment requirements was set aside.