2017 (1) TMI 295 - AT - Central Excise

CENVAT credit - classification of goods - Held that - It is undisputed that when the goods i.e. painting system and parts thereof were cleared by M/s. Thermax Surface Coatings Ltd., the said classification was under Ch.84.79 for which Modvat credit was available to the appellant. Appellant accordingly took Modvat credit for the year October 1998 to February 99. Subsequent to change of the classification of M/s. Thermax Surface Coatings Ltd. by their adjudicating authority, cannot be held against the appellant for invoking the extended period and denying the said Modvat credit as the duty paying documents were indicating the Chapter Heading for which Cenvat / Modvat credit was available - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Appellant availed CENVAT credit on disputed products.
2. Disputed classification change and show-cause notice issued.
3. Proceedings dropped on limitation grounds by adjudicating authority.
4. First appellate authority reversed findings due to non-admissibility of credit.
5. Appeal against denial of Modvat credit.

Analysis:
The appeal was filed against an order-in-appeal dated 25.02.2008 concerning the appellant's availing of CENVAT credit on painting system and parts purchased from a manufacturer. The classification of the products was initially under Heading 84.79, allowing Modvat credit. However, the manufacturer's classification was later changed to 84.24, leading to a show-cause notice to the appellant to deny the Modvat credit under Rule 57 Q of the Central Excise Rules, 1944. The adjudicating authority dropped the proceedings on limitation grounds, but the first appellate authority reversed this decision, citing the appellant's failure to exercise proper care and contravention of the Central Excise Rules.

Upon review, the Member (Judicial) found the first appellate authority's decision to be legally unsound. It was noted that the appellant had rightfully availed Modvat credit when the goods were cleared under the initial classification of 84.79. The subsequent change in classification by the manufacturer should not be held against the appellant, especially since the duty paying documents indicated the correct Chapter Heading for availing CENVAT/Modvat credit. The Member (Judicial) emphasized that without evidence proving the appellant's awareness of the classification dispute, invoking the extended period to demand/reverse the Modvat credit for the period in question was not in accordance with the law.

Consequently, the Member (Judicial) held the impugned order to be unsustainable and set it aside, thereby restoring the order passed by the adjudicating authority. The appeal was allowed in favor of the appellant, concluding that the denial of Modvat credit during the specified period was unjustified.