2005 (3) TMI 109 - HC - Central Excise

Cenvat it is not open to the Department to deny Modvat credit to the assessee on the technical ground that the procedure prescribed for availment of credit had not been followed at the material time, since as observed by the Supreme Court in Formica India Division s case) at that point of time the assessee was claiming exemption and hence it was not possible for it to have met the procedural requirements for availing Modvat credit.

Summary

Issues:
Whether Modvat credit could be allowed at a later date without following prescribed procedures under Chapter V(AA) of the Central Excise Rules, 1944?

Analysis:

1. Facts and Background:
The case involved an assessee, a chemical manufacturer, availing exemption under Notification No. 40/85-C.E. for chlorine used in the manufacture of Hydrochloric Acid. The Revenue contended that the assessee wrongly claimed exemption on chlorine used for captive consumption, leading to a demand for duty payment. The matter went through various levels of appeal, with the CEGAT remanding the case for fresh adjudication based on the assessee's claim for Modvat credit on duty paid on chlorine.

2. Procedural Requirements for Modvat Credit:
The Revenue argued that Modvat credit can only be allowed from the date of filing a necessary declaration under Rule 57G. Citing precedents like M/s. Paro Food Products and M/s. Poddar Projects Ltd., the Revenue emphasized the substantive requirement of filing a declaration for availing credit on inputs received.

3. Controversy and Supreme Court Precedent:
The assessee disputed the procedural aspect, contending that Modvat credit could be allowed at a subsequent date for an intermediate product where duty payment was found to be necessary. The assessee referred to the Supreme Court decision in Formica India Division, where the Court permitted availing of benefits under a notification despite technical non-compliance due to classification disputes.

4. Decision and Rationale:
The High Court agreed with the assessee, emphasizing that denial of Modvat credit on technical grounds due to non-compliance at the material time was unjustified. Drawing parallels with the Supreme Court precedent, the Court held that the eligibility to pay duty on the intermediate product arose when the matter was before the Tribunal, not earlier. Therefore, the Court rejected the Revenue's argument and upheld the Tribunal's decision to remand the case for verifying Modvat credit eligibility.

5. Conclusion:
The High Court concluded that no legal questions arose from the Tribunal's order, ultimately rejecting the petition. The judgment highlighted the importance of considering the practical circumstances and timing of duty payment eligibility, aligning with the principles laid down by the Supreme Court in similar cases.