2015 (1) TMI 759 - HC - Central Excise

MODVAT Credit - appellant had availed Modvat credit on pig iron which was found short and the same was not used in the manufacture of final goods - Held that - From the perusal of the inspection note as well as while carrying out inspection the statement of the appellant was recorded wherein he has clearly and categorically admitted and shown willingness to pay the duty upon the aforesaid wastage of iron which could not be shown due to the entries made in the register and it was again shown as a fresh raw material - when it is clear that the wastage of iron was shown as new raw material and when the appellant himself has agreed to pay the excise duty thereon therefore the decision rendered by the CESTAT upon the aforesaid peculiar facts and circumstances of the case is in consonance both in law and on facts. Hence the appeal fails - Decided against assessee.

Summary

Issues:
Challenge to the judgment and order passed by the Customs, Excise and Service Tax Appellate Tribunal, Mumbai in Appeal No. E/1995/2003 regarding Modvat credit availed on pig iron found short; Imposition of penalty and interest on the appellant; Appeal before the Commissioner (Appeals), Ahmedabad allowed; Revenue's appeal before the CESTAT dismissed, confirming demand of duty against the appellant; Reduction of penalty by the Tribunal; Substantial question of law regarding considering wastage of iron as loss of inputs for demanding duties.

Analysis:

1. The appellant, engaged in the manufacture of Cast Iron castings (C.I. Castings) under the Modvat Scheme, faced a challenge when Central Excise Officers found a shortage of 221.388 MT of pig iron valued at Rs. 13,61,536 during an inspection. The shortage was calculated to have resulted in a Modvat credit of Rs. 2,04,230. A show-cause notice was issued proposing to deny and recover Central Excise Duty on the shortage, impose a penalty, and charge interest on the appellant.

2. The Deputy Commissioner of Central Excise, in an Order-In-Original, held that the appellant wrongly availed Modvat credit on the short pig iron, which was not used in the manufacture of final goods. Consequently, a penalty equal to the Modvat credit amount was imposed. The appellant appealed this decision before the Commissioner (Appeals), Ahmedabad, which allowed the appeal on 6.2.2013.

3. The revenue, dissatisfied with the Commissioner (Appeals) decision, appealed before the CESTAT. The CESTAT dismissed the appeal, thereby upholding the demand of duty against the appellant. However, the Tribunal reduced the penalty from Rs. 2,04,230 to Rs. 50,000. The Tax Appeal was admitted based on the substantial question of law regarding the treatment of iron wastage as loss of inputs for duty demand.

4. The High Court, upon considering the submissions and inspection records, noted that the appellant had admitted and agreed to pay duty on the iron wastage due to discrepancies in recording. The Court found that the iron wastage was mistakenly treated as new raw material, leading to the duty demand. Given these unique circumstances, the Court upheld the CESTAT's decision, stating that it was legally and factually sound. Consequently, the appeal was dismissed, ruling in favor of the revenue.

This detailed analysis of the judgment outlines the issues, the sequence of events, the decisions at each stage, and the final ruling by the High Court, providing a comprehensive understanding of the legal proceedings and the reasoning behind the judgment.