2007 (9) TMI 106 - AT - Central Excise

Non-duty paid inputs could not be utilized in mfg. of export goods Later these inputs were used in mfg.of final product which were cleared on payment of duty If duty is paid on these inputs appellant is eligible to avail credit Demand is time-barred as there is no intention to evade duty

Summary

Issues:
- Demand of duty on surplus raw materials received under bond for export
- Applicability of Sec. 11A of the Central Excise Act, 1944
- Time limitation for issuing show cause notice

Analysis:

1. Demand of duty on surplus raw materials received under bond for export:
The appellant, engaged in the manufacture of goods, received inputs under Chapter X without payment of duty for manufacturing export goods. However, due to the cancellation of the export order, the surplus raw materials were used for manufacturing goods cleared for home consumption. The issue revolved around the demand of duty on these surplus raw materials. The appellant argued that even if duty was paid on the surplus raw materials, they would be eligible to avail modvat credit. The Tribunal noted that the inputs were consumed for manufacturing finished goods cleared for home consumption. The Tribunal found that the demand of duty on the inputs received under Chapter X procedure for manufacturing export goods was not sustainable, as per the judgment of the Hon'ble Supreme Court in a similar case.

2. Applicability of Sec. 11A of the Central Excise Act, 1944:
The Central Excise duty was demanded on the raw materials under the provisions of Sec. 11A(1) of the Central Excise Act, 1944. The Tribunal referred to the Supreme Court judgment which distinguished between Rule 196 and Section 11A. The Supreme Court held that Section 11A deals with recovery of dues not levied or not paid, while Rule 196 pertains to the withdrawal of concession. The Tribunal found that the show cause notice demanding duty under Section 11A for inputs received without payment of duty for manufacturing export goods was void-ab-initio, as per the Supreme Court's interpretation.

3. Time limitation for issuing show cause notice:
The appellant argued that the notice for short levy of Central Excise duty was issued beyond the period of six months from the receipt of goods in 1987. They contended that there was no allegation of willful evasion of duty in the show cause notice. The Tribunal did not delve into this aspect as the main issue was the applicability of Section 11A for demanding duty on inputs received under Chapter X procedure. The Tribunal found in favor of the appellant based on the interpretation of the law and set aside the impugned order, allowing the appeal with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the demand of duty on surplus raw materials received under bond for export was not sustainable under Section 11A of the Central Excise Act, 1944. The Tribunal set aside the impugned order and allowed the appeal.