2011 (3) TMI 1102 - AT - Central Excise

Modvat credit in the manufacturing unit was availed by the dealer unit - appellant is a manufacturing unit and a dealer unit - dealer unit has raised the invoices selling the damaged Yarn at a lower cost and by reversing the proportionate modvat credit - whether dealer unit has availed the credit of the CVD paid on the imported POY or not? - Held that - Revenue s case is based on assumption and presumption. Admittedly, the dealer unit has raised the invoices selling the damaged Yarn at a lower cost and by reversing the proportionate modvat credit. Revenue has not conducted any investigation at the buyers end as regards use of damaged Yarn by them. There is virtually no evidence on record to reflect upon the fact that such damaged Yarn received by the customers was not actually used by them. The Revenue s case is based upon the sole fact that the some of the damaged Yarn was found in the appellant s premises, (which stands explained by him being only a part quantity) and fact of receiving the insurance claim. As already observed, such facts by itself cannot lead to an inevitable conclusion that the Yarn actually sold by the appellants to their customers was only with an idea to pass unauthorized modvat credit to them - the impugned order confirming demand and imposing penalty on the dealer unit is set aside - Decided in favour of assessee

Issues:
1. Dispute over availing modvat credit by manufacturing and dealer units.
2. Duty payment on goods manufactured by job worker.
3. Confirmation of demand against the dealer unit for clearing damaged Yarn.
4. Reversing modvat credit and passing it on to buyers.
5. Lack of evidence on damaged Yarn usage by customers.

Analysis:
1. The judgment addresses the dispute regarding the availing of modvat credit by the manufacturing and dealer units. The manufacturing unit imported raw material and paid countervailing duty, but the credit was utilized by the dealer unit for duty payment on goods manufactured by job workers. The Commissioner observed a lack of credit availed by the manufacturing unit due to paperwork issues. The Tribunal remanded the matter to verify if the dealer unit indeed availed the credit, emphasizing that technical lapses should not disadvantage the appellant.

2. Regarding duty payment on goods manufactured by job workers, the Tribunal noted the dispute over the availed credit but emphasized that the appellant, having both a manufacturing and dealer unit, should be verified for actual credit availed by the dealer unit. The matter was remanded for this limited purpose to the original adjudicating authority.

3. The judgment also tackled the confirmation of demand against the dealer unit for clearing damaged Yarn to customers under lower value invoices, resulting in passing on modvat credit. The appellant argued that without evidence of customers not using the damaged Yarn, the reasoning lacked merit. The Tribunal found the Revenue's case based on assumptions and lack of buyer-end investigation, setting aside the demand confirmation and penalty imposition on the dealer unit.

4. The issue of reversing modvat credit and passing it on to buyers was discussed, with the appellant asserting that debiting modvat credit at clearance equated to repayment. The Revenue argued against a direct correlation between goods received and cleared, citing insurance claims on damaged goods. The Tribunal found the Revenue's case lacking substantial evidence and overturned the demand confirmation and penalty imposition on the dealer unit.

5. Lastly, the lack of evidence on damaged Yarn usage by customers was highlighted. The appellant clarified the damaged Yarn situation and the ability to sell it at a lower value even after claiming insurance. The Tribunal emphasized the absence of buyer-end investigations and evidence, leading to the findings being based on conjectures. Consequently, the demand confirmation and penalty imposition on the dealer unit were set aside, granting relief in favor of the appellant.

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