2008 (11) TMI 172 - AT - Central Excise

Irregular Availment of Cenvat / Modvat Credit Modvat Credit availing on non-excisable goods - the charges found against SFSL are irregular availment of Modvat credit of duty paid on steel black bars and clandestine clearances of bright bars - The Apex Court had decided that the activity of conversion of steel black bars into bright bars did not constitute manufacture for the purpose of charging excise duty. Therefore, the demand of duty for the alleged clandestine clearances of bright bars was not sustainable. SFSL had taken Modvat credit of duty paid on steel black bars, as they were inputs. SFSL were eligible for Modvat credit. Held that demand is not sustainable.

Summary

Issues Involved:
- Irregular availment of Modvat credit
- Clandestine clearances of bright bars
- Penalties imposed on the assessees
- Whether conversion of steel black bars into bright bars constitutes manufacture for charging excise duty
- Validity of demands of duty, Modvat credit, and interest
- Benefit of Section 4(4)(d)(ii) of the Central Excise Act

Analysis:

Irregular Availment of Modvat Credit and Clandestine Clearances of Bright Bars:
The case involved allegations of irregular availment of Modvat credit and clandestine clearances of bright bars by the assessees. The authorities claimed that the assessees had taken Modvat credit based on documents that did not cover the movement of inputs and had cleared final products without following excise formalities. The Commissioner of Central Excise imposed penalties on the assessees for these actions. However, the appellants argued that the conversion of steel black bars into bright bars did not constitute manufacture for excise duty purposes, citing a previous Supreme Court judgment. They contended that since no excisable goods were manufactured, the demands for duty and penalties were not sustainable.

Validity of Demands and Penalties:
Upon reviewing the case records and submissions, the Tribunal found that the conversion of steel black bars into bright bars did not amount to manufacture, as established in the Vee Kayan Industries case. The Tribunal concluded that the demands for duty, Modvat credit, and interest were not validly made due to the nature of the activity. Consequently, the penalties imposed on the assessees were also deemed unsustainable. Therefore, the impugned order was set aside, and the appeals filed by the assessees were allowed.

Benefit of Section 4(4)(d)(ii) of the Central Excise Act:
In the appeal filed by the revenue, they sought to deny the benefit of Section 4(4)(d)(ii) of the Central Excise Act, which was allowed by the Commissioner in computing the demand. However, since the demand of duty itself was deemed unsustainable by the Tribunal, the revenue's appeal was dismissed.

In conclusion, the judgment by the Appellate Tribunal CESTAT, Chennai, centered on the determination of whether the conversion of steel black bars into bright bars constituted manufacture for excise duty purposes. The Tribunal ruled in favor of the assessees, setting aside the demands and penalties due to the non-manufacturing nature of the activity.