2006 (8) TMI 96 - AT - Central Excise

Cenvat/Modvat Alleged that appellant utilised the whole credit in the first financial year which is not permissible and accordingly penalty imposed Held that allegation sustainable but provide partly relief in penalty

Summary

Issues Involved:
Classification of Thermocole Patterns as "Cenvat Inputs" or "Capital Goods"

Analysis:
The main issue in this appeal before the Appellate Tribunal CESTAT, MUMBAI was the classification of Thermocole Patterns used in the manufacture of castings in a foundry. The question was whether these patterns should be considered as "Cenvat Inputs" or "Capital Goods" under the Cenvat Credit Rules, 2001. The adjudicating authorities and the Commissioner (Appeals) had previously determined that moulds and dyes, equated with the term 'pattern', should be treated as capital goods under Rule 2(b)(iv) of the Cenvat Credit Rules.

The adjudicating authority had allowed Cenvat credit as capital goods if they remained in possession in the subsequent year. However, in this case, the Thermocole patterns were consumed during the manufacturing process. The appellants argued that the patterns should be considered as inputs since they were being used in the production process. The Commissioner (Appeals) referred to a Board Circular dated 13-10-2003, which upheld that Cenvat credit on moulding Patterns should be treated as availed on capital goods. The Circular specified that 50% of the Cenvat credit should be availed during the first financial year, with the remaining 50% after 1-4-2001.

The Commissioner (Appeals) had initially imposed a penalty of Rs. 50,000, which was reduced from the original penalty amount of Rs. 2,99,048. Additionally, the Commissioner permitted Cenvat credit to the extent of 50% even though the goods were consumed, in line with the Board Circular. After considering the submissions from both sides, the Tribunal found the penalty of Rs. 50,000 to be excessive and reduced it proportionately. Consequently, the penalty was further reduced to Rs. 10,000, while upholding the rest of the findings. The appeal was partly allowed by the Tribunal, and the decision was pronounced in court.