2014 (7) TMI 921 - HC - Central Excise

Cenvat / Modvat Credit - Clandestine removal - allegation that the appellant had in fact purchased raw material in 27 third parties names and utilized the said raw material in manufacture of a dutiable product and cleared the finished product without payment of duty. - The modvat credit is sought to be denied to the appellant on the ground that the appellant had involved in suppressing the turnover. - Held that - A perusal of the Rules would show that there is no rule prohibiting extending the benefit of modvat credit in a case where it is found that there was a suppression of manufacture and clearance of dutiable goods. - modvat credit to the extent of input utilized in manufacture of dutiable finished product is leviable and the benefit of the same cannot be denied. - Decided in favor of assessee.

Issues Involved:
1. Whether the Tribunal was right in affirming the findings of the Commissioner regarding the purchase of LAB in third parties' names by the appellant and the manufacture of acid slurry.
2. Whether the Tribunal was correct in law in applying the extended period of limitation.
3. Whether the Tribunal erred in not considering the appellant's claim for Modvat credit.

Issue-wise Detailed Analysis:

1. Affirmation of Commissioner's Findings on Purchase and Manufacture:
The appellant, a small-scale industrial unit, was accused of not accounting for the purchase of LAB from TPL, which was allegedly used in the manufacture of acid slurry. The Commissioner of Central Excise confirmed the allegations, imposing a duty of Rs. 53,73,428 and penalties on the appellant and its partners. The Tribunal upheld this decision, finding sufficient evidence of clandestine manufacture and clearance of acid slurry based on seized documents and admissions from the appellant's representatives. The High Court agreed, noting that the findings were based on substantial material, including discrepancies in the statutory RGI register and transport vouchers indicating unaccounted clearances. The Court concluded that the Tribunal's findings were neither perverse nor based on no evidence, thus answering this issue against the appellant.

2. Application of Extended Period of Limitation:
The appellant argued against the application of the extended period of limitation for demanding duty. However, the High Court upheld the Tribunal's decision, stating that the suppression of manufacture and removal of dutiable products justified the use of the extended period. The Court found no fault in the Tribunal's application of the extended period of limitation, thereby answering this issue in the negative and against the appellant.

3. Denial of Modvat Credit:
The appellant contended that even if the findings of clandestine purchase and manufacture were upheld, they should not be denied Modvat credit for the LAB used in the manufacture of acid slurry. The High Court agreed with this argument, noting that there is no rule prohibiting the extension of Modvat credit in cases of suppressed turnover. Drawing an analogy with income tax principles, where losses and expenses are deductible even in illegal businesses, the Court held that Modvat credit should be allowed for the input used in manufacturing the dutiable product. Thus, this issue was answered in favor of the appellant and against the Revenue.

Conclusion:
The appeal was disposed of with the High Court affirming the Tribunal's findings on the clandestine manufacture and application of the extended period of limitation but ruling in favor of the appellant regarding the entitlement to Modvat credit. No costs were ordered, and any pending miscellaneous petitions were closed.

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