2017 (1) TMI 1315 - AT - Central Excise

Reversal of MODVAT credit - exclusive use of the input without any other input to produce the exempted goods - Held that - the authority from para 18 onwards of his order only dealt with legal propositions without testing the facts with evidence. In such circumstances, an arbitrary order has been passed. Such order does not provide any scope to appreciate that the appellant carried out manufacture of the exempted goods during the material period only using the input in question - In absence of any evidence to show that the appellant has not used the input commonly with others for manufacture of exempted goods as well as dutiable goods, proposition of the appellant that 8% demand on the value of the goods cleared to the Indian Navy is justified - the appellant directed to deposit 8% of the amount of the value of the goods cleared with interest if any, for the default amount to bring an end to the issue - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Adjudication of MODVAT credit disentitlement for goods sold to Indian Navy under exemption.
2. Dispute over exclusive use of input for exempted goods production.
3. Settlement Commission's involvement and disagreement over deposit amount.
4. Lack of evidence in adjudication order for exclusive use of input.
5. Appellant's contention on 8% demand justification.

Analysis:
1. The appellant contested the adjudication order's issues framed without evidence, regarding MODVAT credit disentitlement for goods sold to Indian Navy under exemption. The appellant paid 8% of the exempted goods' value to resolve the dispute, arguing against the reversal of MODVAT credit.
2. The appellant argued that there was no finding by the adjudicating authority on the exclusive use of the input for exempted goods production. Revenue disagreed, citing examination in the adjudication order that the input was exclusively used for exempted goods for the Indian Navy, leading to MODVAT credit inadmissibility.
3. The involvement of the Settlement Commission was highlighted, with the appellant depositing 8% of the goods' value cleared to the Indian Navy. However, disagreement over the deposit amount led to the rejection of the settlement petition, allowing the Tribunal to review the case's merits afresh.
4. Upon review, it was noted that the adjudication order lacked evidence to support the exclusive use of the input for manufacturing exempted goods. The order primarily focused on legal propositions without factual testing, leading to an arbitrary decision. The appellant's claim of common use of the input for both exempted and dutiable goods was emphasized due to the absence of evidence proving exclusive use.
5. To resolve the long-standing issue, the Tribunal directed the appellant to deposit 8% of the goods' value cleared to the Indian Navy, with any applicable interest, to conclude the matter. No penalty was imposed due to the legal dispute between the parties. The appeal was allowed to the extent of the directed deposit.