2007 (8) TMI 132 - AT - Central Excise

EOU When appellant converted from the DTA to 100% EOU having some finished goods in his stock and after being EOU cleared the said goods on payment of duty by availing modvat credit of inputs used but department consider as illegal and made demand Held the demand not warranted

Summary

Issues:
- Demand of appropriate duty under Section 3 of the Central Excise Act, 1944
- Utilization of Modvat credit by 100% EOU
- Availment of Modvat credit by 100% EOUs under Rule 100H
- Nature of activity carried out by the appellants in their 100% EOU
- Operation of industrial unit as both a 100% EOU and a DTA Unit

Analysis:
1. Demand of appropriate duty under Section 3 of the Central Excise Act, 1944:
The Revenue appealed against the Commissioner (Appeals) orders regarding the demand of appropriate duty under Section 3 of the Central Excise Act, 1944. The Revenue contended that the duty should have been paid under the proviso to Section 3(1) of the Act. However, the Commissioner (Appeals) held that the action of the appellants in discharging duty from the Modvat credit balances accrued during the DTA unit regime was legal. The Tribunal found that the Modvat credit accumulated had been used by the appellants to discharge the duty liability, and since the goods were manufactured when the unit was a domestic unit, there was no evasion of duty. The Tribunal upheld the Commissioner (Appeals) decision, stating that there was no merit in the Revenue's appeals.

2. Utilization of Modvat credit by 100% EOU:
The Revenue argued that Modvat credit cannot be utilized once a unit becomes a 100% EOU and ceases to function as a Domestic unit. They cited a Circular of the Board issued in 1991, stating that Modvat credit availed on capital goods would lapse upon conversion to EOU. However, the Tribunal found that the said Circular applied only to capital goods and could not be extended to duty paid input materials. The Commissioner (Appeals) also held that the Circular was not applicable to the case involving credit availed on duty paid inputs. The Tribunal concluded that once the Modvat credit was in balance, there was no restriction on its utilization, especially when a Domestic Tariff Unit was also operating within the same unit.

3. Availment of Modvat credit by 100% EOUs under Rule 100H:
The Tribunal analyzed Rule 100H of the erstwhile Central Excise Rules, 1944, which restricted the applicability of Modvat credit to excisable goods produced by 100% EOUs. The Revenue contended that the Modvat credit available at the time of conversion to EOU would lapse. However, the Tribunal found that there was no rule mandating the lapse of Modvat credit, especially when the unit maintained its Central Excise registration, indicating its identity as a Domestic Unit. The Tribunal upheld the Commissioner (Appeals) decision, stating that the Modvat credit utilization by the appellants was legal.

4. Nature of activity carried out by the appellants in their 100% EOU:
The Commissioner (Appeals) had held that the activity carried out by the appellants in their 100% EOU was only packing and not repacking from bulk to retail packing. The Tribunal considered whether the activity fell under "adoption of any other treatment to render the product marketable" of Chapter Note 7 to Chapter 21. However, the Tribunal did not find merit in the Revenue's contentions, upholding the Commissioner (Appeals) decision that the appellants had not committed any illegality in following the procedures.

5. Operation of industrial unit as both a 100% EOU and a DTA Unit:
The Tribunal examined the operation of an industrial unit as both a 100% EOU and a DTA Unit. The Commissioner (Appeals) referred to Para 9.4 of the Handbook of Procedures, which allowed an industrial enterprise to operate simultaneously as a domestic unit and an EOU. The Tribunal found that the respondents had not committed any illegality in their operations, as the entire activity was within the knowledge of the department and there was no evasion of duty. The Tribunal upheld the Commissioner (Appeals) decision, stating that the respondents had followed the procedures correctly.

In conclusion, the Tribunal rejected the Revenue's appeals and upheld the orders of the Commissioner (Appeals) in favor of the respondents, emphasizing the legality of the Modvat credit utilization by the appellants and the absence of duty evasion in their operations as a 100% EOU.