2016 (7) TMI 898 - HC - Central Excise

Cenvat Credit / Modvata Credit - purchase of tray casting as capital goods - Held that - Once it is not in dispute that the petitioner is entitled to the benefit of the modvat credit on the eligible capital goods, namely, tray casting in the present case, as was clarified even by the department by issuing circular No. 276/110/96-TRU dated 2.12.1996, the denial thereof to the petitioner is totally illegal. Even if the petitioner had failed to refer to the circular at the time of hearing of the appeal before the Tribunal, in fact, it was the duty of the department itself to have taken care of the circular and not indulge any party in unnecessary litigation, as even the facts suggest that very initiation of the proceedings against the petitioner to deny the benefit of modvat credit was after the circular had already been issued, which entitled the petitioner to the benefit of modvat credit. - the writ petition is allowed.

Summary

Issues:
- Denial of modvat credit on purchase of tray casting
- Interpretation of circular No. 276/110/96-TRU
- Duty of department to produce relevant circular during appeal

Denial of Modvat Credit on Purchase of Tray Casting:
The petitioner purchased tray casting in 1997 and claimed modvat credit under Rule 57Q of the Central Excise Rules, 1944. The Assistant Commissioner initially denied the credit, but the Commissioner (Appeals) overturned this decision. However, the department appealed to the Tribunal, which ruled against the petitioner. Despite the existence of circular No. 276/110/96-TRU dated 2.12.1996 clarifying the availability of modvat credit on tray casting, the benefit was denied to the petitioner. The court held that the denial was illegal as the petitioner was entitled to the credit based on the circular.

Interpretation of Circular No. 276/110/96-TRU:
The court emphasized that the petitioner's entitlement to modvat credit on tray casting was clear as per the circular issued by the department. Even though the petitioner failed to refer to the circular during the appeal before the Tribunal, it was the department's duty to ensure the circular was considered to avoid unnecessary litigation. The court noted that the department initiated proceedings to deny the credit after issuing the circular, which further supported the petitioner's entitlement to the benefit. The Tribunal's rejection of the rectification application by the petitioner was deemed unjustified given the circumstances.

Duty of Department to Produce Relevant Circular During Appeal:
The court highlighted that the department should have proactively presented the circular during the appeal proceedings to avoid confusion and uphold the petitioner's right to the modvat credit. Despite the petitioner's subsequent successful claims for modvat credit on the same goods based on the circular, the department's appeal against the initial decision granting the credit was deemed unwarranted. Ultimately, the court allowed the writ petition, setting aside the Tribunal's orders and confirming the petitioner's entitlement to the modvat credit on tray casting.