2015 (3) TMI 130 - HC - Central Excise

Denial of MODVAT Credit - Rejection of the assessee s application for the permission can be granted to store the goods outside the godown - Held that - Manufacture shall not take credit after six months of the date of issue of any document. The assessee applied for permission to store the inputs used outside the factory permission. This application was rejected subject to the condition that the assessee could bring in the goods in smaller lots and take credit on the receipt of the last and final lot. Based on this direction, the assessee brought the goods in smaller lots spaced over a period of time and the last and final lot apparently was brought after the expiry of six months - when certain goods based on the invoice was received during the period of six months but the last and final lot was received after the period of six months, we are of the opinion that Rule 57D(6) now Rule 57G(2) of the Rules being procedural in nature does not dis-entitle the claim of the assessee for claiming Modvat credit. In the absence of any deliberate delay, coupled with the fact that the transaction executed by the assessee, being a bonafide one and, based on the direction of the Superintendent, Central Excise dated 8th February, 1995, the assessee, in the instant case, was entitled for Modvat credit. The Trade Notice No.67 of 1996 clarifies such peculiar circumstances - applicant-assessee was entitled to the Modvat credit based on the letter of the Superintendent, Central Excise Range, Hapur dated 8th February, 1995 - Decided in favour of assessee.

Summary

Issues:
1. Permission to store raw materials outside factory premises for Modvat credit.
2. Rejection of application by Superintendent, Central Excise.
3. Allegation of wrongly availing credit after six months.
4. Show cause notices and subsequent orders.
5. Reference application to High Court.
6. Interpretation of Rule 57D(6) now Rule 57G(2) of Central Excise Rules.
7. Trade Notice No.67 of 1996 clarifying Modvat credit eligibility.

Analysis:
The case involved the assessee seeking permission to store raw materials outside the factory premises for Modvat credit due to space constraints. The Superintendent, Central Excise rejected the application but allowed bringing goods in smaller lots for credit. However, the final lot was received after six months, leading to show cause notices alleging wrongful credit availing. The orders of Assistant Commissioner and Commissioner of Central Excise were against the assessee, prompting a reference application to the High Court.

The central issue revolved around the interpretation of Rule 57D(6) now Rule 57G(2) of the Central Excise Rules, which prohibits credit after six months of document issuance. The Tribunal referred the question of law to the High Court, seeking clarity on the applicability of the rule in denying Modvat credit. The Court examined the rule's language and the circumstances of the case, emphasizing the procedural nature and lack of deliberate delay by the assessee.

Furthermore, the Court considered Trade Notice No.67 of 1996, which clarified Modvat credit eligibility in situations where goods couldn't be brought inside due to space constraints or unforeseen circumstances. The notice outlined the conditions for credit entry, emphasizing the importance of receiving the entire quantity covered under a specific invoice at the storage godown before taking credit entry in RG 23A Pt.II.

Ultimately, the Court held that the assessee was entitled to Modvat credit based on the Superintendent's letter and the trade notice. The Court reasoned that the procedural rule did not disqualify the claim, especially in the absence of deliberate delay and the bona fide nature of the transaction. The judgment favored the assessee's entitlement to Modvat credit, aligning with the Superintendent's direction and the trade notice's provisions.