2010 (10) TMI 447 - AT - Central Excise

Demand - Cenvat credit - Rule 15 of the Cenvat Credit Rules, 2004 - The final product emerging during said trial runs, irrespective of the fact whether they were of inferior quality or superior quality or waste, were duly accounted for in their RG-1 Register - appellants have capitalized the cost of the said materials, thus requiring them to be considered as non-fixed assets or not, will not have any bearing on the disputed issue, which is required to be adjudged in the light of the Central Excise Provisions - The appellant s reliance on the decisions laying down that the input credit is not to be denied on the ground that part of the input is contained in waste, stand distinguished by the Commissioner on the ground that in the Erstwhile Central Excise Rules, there was a specific Rule 57D, which is absent from the present Cenvat Credit Rules - Commissioner has observed that providing a copy of the balance sheet to the Revenue does not discharge their responsibility of providing all the relevant information to the department - The appellant having entered the entire raw materials as also the final product in the statutory records and having cleared the goods under the cover of central excise invoices, cannot be held to have suppressed or misstated anything with an intent to evade payment of duty - Decided in the favour of assessee

Summary

Issues involved:
Denial of modvat credit for inputs used in trial runs of new product, imposition of penalty, applicability of Tribunal's decision in a similar case, challenge on limitation grounds, capitalization of raw materials in balance sheet affecting credit availment.

Analysis:

1. Denial of Modvat Credit: The appellant faced proceedings due to availing modvat credit for inputs used in trial runs of a new product. The audit questioned the credit amounting to approximately Rs. 1.31 crores. The Commissioner upheld the denial, citing the capitalization of raw materials in the balance sheet. However, the appellant argued that they accounted for the inputs and final products in their records, clearing the final products on payment of duty. The Tribunal noted that the final products were accounted for and cleared, distinguishing this case from the precedent relied upon by the Commissioner.

2. Applicability of Tribunal's Decision: The Commissioner relied on a Tribunal decision in a different case to deny the credit. The appellant contested this by highlighting the distinction that in their case, final products were accounted for and cleared after payment of duty. The Tribunal referenced a separate case law to support the eligibility of inputs used in trial production, even if resulting in waste or scrap, for modvat credit.

3. Challenge on Limitation Grounds: The appellant challenged the Commissioner's invocation of a longer period for raising the demand, arguing that they maintained statutory records and regularly filed returns. The Tribunal found the Commissioner's reasoning contradictory, noting the absence of a legal requirement for separate accounts for trial run production. Consequently, the demand and penalty were set aside due to lack of suppression or intent to evade duty payment.

4. Impact of Capitalization on Credit Availment: The Commissioner's argument regarding the capitalization of raw materials in the balance sheet for income tax purposes was rebutted by the appellant. The Tribunal emphasized that such capitalization did not impact the eligibility for duty credit under Central Excise Rules, distinguishing the case from the absence of a specific provision in the current Cenvat Credit Rules.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the appeal and providing consequential relief. The decision highlighted the importance of proper record-keeping, the distinction between trial run production and final product clearance, and the absence of legal grounds to deny credit based on capitalization practices or lack of specific provisions.