2017 (4) TMI 837 - AT - Central Excise

MODVAT credit - whether the appellant-assessee is entitled to Modvat Credit and set of the input tax credit with the output tax assessed for the period April, 1999 to August, 1999? - whether penalty of ₹ 2 lakhs have been rightly imposed u/r 173Q of CER 1944? - Held that - Modvat Credit is deniable only in case of fraud and contumacious conduct on the part of assessee. That being not the case, the Ld. Commissioner have erred in denying the benefit of Modvat/Cenvat Credit to the appellant - the issue is remanded to the learned Commissioner to allow the Modvat claim after verification of the claim amount in accordance with law. Penalty u/r 173Q of CER, 1944 - Held that - there is no contumacious conduct and/or suppression of facts on the part of the appellant. Therefore, no penalty is imposable under the provisions of Rule 173Q of CER, 1944. Appeal allowed by way of remand.

Summary

Issues:
1. Entitlement to Modvat Credit and input tax credit for the period April 1999 to August 1999.
2. Imposition of penalty of ?2 lakhs under Rule 173Q of Central Excise Rules 1944.

Analysis:

Issue 1: Entitlement to Modvat Credit and Input Tax Credit
The appellant, a manufacturer of railway equipment, was under scrutiny for duty evasion by including the value of Rails supplied by Indian Railways in the assessable value of goods. After a series of legal proceedings, the Tribunal upheld the duty liability for certain goods but set aside the demand for Switch Expansion Joints. The appellant sought the benefit of Modvat/Cenvat Credit, which was denied by the Commissioner on the grounds that it was raised for the first time and not a legal ground before the Tribunal. The appellant argued that Modvat Credit is integral to duty calculation and was only claimed after the demand crystallized. The Tribunal agreed, holding that Modvat Credit is permissible unless fraud or contumacious conduct is proven. Consequently, the appellant was deemed entitled to Modvat Credit of ?16,95,287, subject to verification by the Commissioner.

Issue 2: Imposition of Penalty
The Commissioner imposed a penalty of ?2 lakhs under Rule 173Q of Central Excise Rules 1944, citing non-payment of correct duty. However, the Tribunal found no evidence of fraudulent clearance or suppression of facts by the appellant. As there was no contumacious conduct, the penalty was deemed unwarranted, and the imposition was set aside. The appeal was allowed, remanding the case for the calculation of Modvat, net demand payable/refundable, and crediting any pre-deposits made by the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, allowing Modvat Credit and setting aside the penalty, emphasizing the absence of fraudulent intent or suppression of facts.