1994 (3) TMI 403 - AT - Income Tax

Summary

Issues:
Eligibility of appellants for Modvat credit on Selenium drums and ASM Blades-280 used in the manufacture of Photocopiers during April 1986 to April 1987.

Analysis:

1. Inclusion of Items in Assessable Value:
Initially, the appellants argued that Selenium drums and ASM Blades-280 were not part of the Photocopiers as they were imported separately. However, the Assistant Collector and the Collector (Appeals) determined that these items were to be included in the assessable value of the Photocopiers. The Modvat Scheme was introduced in March 1986, and the appellants filed a declaration in December 1986, after being directed by the Excise Department. Subsequently, they claimed Modvat credit on these items on 28-1-1988.

2. Disallowance of Modvat Credit:
A show cause notice was issued to the appellants proposing disallowance of Modvat credit based on a contravention of Rule 57G, which prohibits taking credit on inputs prior to February 1986. The Adjudicating authority disallowed the credit, stating that the Modvat declaration was filed after the prescribed date.

3. Lower Appellate Authority's Decision:
The lower Appellate Authority upheld the disallowance, citing that the goods were received by the appellants after the filing of the Modvat declaration, and the RG 23A register was maintained only from 28-1-1988 onwards.

4. Appellants' Arguments:
The appellants argued that they had filed a declaration in March 1986, or at least by December 1986, and had not contravened Rule 57G. They relied on precedents and the doctrine of impossibility, stating that they could not avail of Modvat credit until the valuation dispute was resolved.

5. Department's Position:
The Department contended that Rule 57G and Rule 57H must be read together. They argued that the appellants availed of credit beyond the prescribed period and cited a case to support the limitation on refunds.

6. Tribunal's Decision:
The Tribunal rejected the appellants' claim that the declaration was filed in March 1986, as the items were only deemed includible in the assessable value in March 1987. However, the Tribunal agreed with the appellants that they had not contravened Rule 57G. The Tribunal held that the appellants were entitled to Modvat credit on Selenium drums used in the Photocopiers manufactured during the specified period. The decision was based on precedents and the peculiar facts of the case.

In conclusion, the Tribunal ruled in favor of the appellants, allowing them to claim Modvat credit on Selenium drums used in the manufacture of Photocopiers. The decision was based on the timing of the valuation dispute resolution and the eligibility criteria for Modvat credit as per the relevant rules and precedents.