2005 (11) TMI 516 - AT - Central Excise

Summary

Issues:
1. Availment of Modvat credit on inputs and capital goods used in manufacturing exempted final products.
2. Challenge to show cause notice on merits and limitation.
3. Confirmation of demand and imposition of personal penalty by Commissioner of Central Excise.

Issue 1: Availment of Modvat credit on inputs and capital goods used in manufacturing exempted final products

The appellants were engaged in manufacturing products falling under Chapters 15 and 38 of the Central Excise Tariff Act, 1985, and availed Modvat credit for duty paid on inputs. The appellants utilized the credit for duty payment but were issued a show cause notice proposing to deny the credit on the grounds of using inputs in manufacturing final products wholly exempted from duty. The Commissioner confirmed the demand and imposed a personal penalty, leading to the appeal.

Issue 2: Challenge to show cause notice on merits and limitation

The appellants challenged the show cause notice both on merits and limitation. However, the Commissioner upheld the denial of Modvat credit and the penalty. The issue was examined in light of relevant Supreme Court decisions, emphasizing the revenue-neutral nature of the exercise when duty is paid on exempted goods.

Issue 3: Confirmation of demand and imposition of personal penalty

The Tribunal, after considering the settled position as per Supreme Court decisions, set aside the impugned order. Citing precedents like Commissioner of Central Excise (A) v. Narayan Polyplast, Commissioner of Central Excise v. Narmada Chematur Pharmaceuticals Ltd., and Punjab Tractors Ltd. v. Commissioner of Central Excise, the Tribunal allowed the appeals, emphasizing that denial of Modvat credit when duty is paid on exempted goods would go against the revenue-neutral principle.

This judgment primarily dealt with the issue of Modvat credit availed on inputs and capital goods used in manufacturing exempted final products. The Tribunal relied on Supreme Court decisions to rule in favor of the appellants, emphasizing the revenue-neutral aspect when duty is paid on exempted goods. The impugned order denying the credit and imposing a penalty was set aside, highlighting the importance of established legal principles in such matters.