2011 (3) TMI 289 - AT - Central Excise

Disallowed the modvat credit - Once this aspect that credit availed was utilized towards the payment of duty on final product, and subsequently it is revealed that the concerned inputs became unusable, as already seen above it becomes the duty of the manufacturer to reverse such credit. - Once this position is clear, the appellant had no option but to reverse the credit or repay the amount. In other words, once it was known to the appellant that the goods on which credit was taken, such inputs could not be utilized in terms of the Rules for manufacture of final product, the appellant was aware that from that point of time, that such utilization of credit was rendered wrongful.

Issues Involved:
1. Imposition of penalty for wrongful availment or utilization of Modvat credit.
2. Alleged suppression of facts by the appellant.
3. Obligation to reverse credit upon destruction of inputs.

Issue-wise Detailed Analysis:

1. Imposition of penalty for wrongful availment or utilization of Modvat credit:

The appellants challenged the imposition of penalty by the Commissioner (Appeals) who confirmed the order of the adjudicating authority disallowing Modvat credit amounting to Rs.11,61,660/- and imposing an equal amount of penalty. The appellants argued that the credit was availed before January 1, 1998, and the goods were destroyed after this date, thus there was no wrongful availment or utilization of credit. The Tribunal, however, referred to Rule 57(1)(4) and Rule 57-AH(2) of the Central Excise Rules, 1944, which stipulate that penalties are applicable if credit is taken wrongly due to fraud, willful misstatement, collusion, or suppression of facts. The Tribunal also cited relevant case law, including Timex Watch Ltd Vs CCE and ASCO (India) Ltd Vs CESTAT, Chennai, which support the imposition of penalties in such circumstances.

2. Alleged suppression of facts by the appellant:

The Tribunal noted that the appellants did not disclose the utilization of credit on inputs that were later destroyed until the investigation commenced. The balance sheets disclosed the disposal of raw materials but did not reveal the utilization of the credit. The Tribunal rejected the appellants' argument that there was no suppression, emphasizing that suppression is determined by the failure to disclose necessary information when there is an obligation to do so. The Tribunal concluded that the appellants were indeed guilty of suppression since they did not reverse the credit or repay the amount even after the factory reopened and the destruction of inputs was known.

3. Obligation to reverse credit upon destruction of inputs:

The Tribunal affirmed that the law requires the reversal of credit if inputs are destroyed or rendered unusable. The appellants conceded this point but argued that there was no intention to evade duty since the credit was utilized before the destruction of inputs. The Tribunal, however, held that once the inputs became unusable, the appellants were obligated to reverse the credit. The Tribunal cited the case of Punjab Communication, which held that penalties are applicable where credit is taken wrongly by reason of fraud, willful misstatement, collusion, or suppression of facts.

Conclusion:

The Tribunal concluded that the appellants failed to comply with their obligation to reverse the credit or repay the amount upon the destruction of inputs. The Tribunal found no infirmity in the order passed by the Commissioner and dismissed the appeal, upholding the imposition of penalty for the wrongful utilization of Modvat credit and suppression of relevant facts.

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