2009 (9) TMI 697 - HC - Central Excise

Disallowance of modvat credit on the ground that the appellant had claimed the duty erroneously without ensuring themselves about the eligibility conditions for the said amount on inputs, semi finished goods and finished goods lying in stocks Held that - Manufacturer is entitled to credit of the duty paid on inputs received by him immediately before obtaining the duty of the acknowledgment of the declaration made under Rule 57G if he satisfies such inputs are lying in stock or received in the factory on or after 1st day of March 1994 or such inputs are used in the manufacture of final products which are cleared from the factory on or after 1st day of March 1994 and that no credit has been taken by the manufacturer in respect of inputs under any other rule or notification - while giving the declaration, the manufacturer has given particulars of the stocks lying at various stages though in law he was not required to furnish the same, It is in that context the authorities seem to think that sufficient evidence is not given to show the material, which was in process, and therefore, they have disallowed the claim - This approach has no legal basis and is not supported by the aforesaid provisions - matter is remitted back to the Original Authority

Summary

Issues:
Challenge to disallowance of modvat credit by Tribunal, Appellate Authority, and Assessing Authority.

Analysis:
The appellant, a public limited company manufacturing textile yarns, challenged the disallowance of modvat credit amounting to Rs. 16,27,814.50 by the Tribunal, Appellate Authority, and Assessing Authority. The appellant had filed a declaration under Rule 57(H) for duty paid inputs in stocks as of March 21, 1994, claiming a credit of Rs. 56,72,878/- for inputs used in final products. The Assistant Collector permitted a modvat credit of Rs. 51,74,193.38 pertaining to inputs held in stock and in finished products. However, a show cause notice was issued proposing disallowance of Rs. 33,72,827.49, leading to a subsequent appeal process resulting in the disallowance of Rs. 16,27,814.50. The appellant contended that the reasons for disallowance were unfounded, emphasizing the challenges in providing daily stock quantities in the textile industry and highlighting the timely production of necessary documents in 1994 itself.

The appellant's counsel argued that the authorities' approach in disallowing the credit was erroneous, emphasizing the practical challenges in daily stock quantification and the timely provision of stock statements to relevant entities. The appellant's position was that the authorities failed to appreciate the circumstances adequately, misinterpreting the creation date of the stock documents. In contrast, the respondent's counsel supported the impugned orders. The critical provisions under scrutiny were Rule 57A and Rule 57H, which govern the allowance of credit for duty paid on inputs used in final products and transitional provisions for manufacturers, respectively.

Rule 57A provides manufacturers with the right to credit duty paid on inputs when claiming duty on final products, while Rule 57H is a transitional provision allowing credit for duty paid on inputs received before obtaining the acknowledgment of the declaration under Rule 57G. The Court noted that the authorities' requirement for proof of stock in the manufacturing process was not mandated by the law. The focus should be on determining the stock available as of March 1, 1994, the duty paid on such inputs, and subsequently granting credit when final products are sold. The Court found the authorities' approach lacking legal basis and directed a reassessment by the Original Authority in line with Rules 57A and 57H, emphasizing affording the manufacturer a reasonable opportunity and ensuring compliance with the law. Consequently, the appeal was allowed, impugned orders were set aside, and the matter was remitted back for reassessment.