2009 (5) TMI 90 - AT - Central Excise

Equal amount of penalty has been imposed under Section 173Q for suppression - The fact that nylon chips emerges as a product during the manufacture of nylon filament yarn is true in respect of dutiable as well as non-dutiable nylon filament yarn varieties. Merely because the Department chooses to treat the polyamide chips/nylon chips as final product that too selectively in respect of exempted final product, it cannot be held that the appellant had suppressed any relevant information to the department. Therefore, the imposition of penalty under Section 173Q is not warranted.

Summary

Issues:
- Reversal of Modvat credit on caprolactam used in manufacturing exempted nylon filament yarn
- Dispute regarding duty on polyamide chips used in manufacturing exempted nylon filament yarn
- Imposition of penalty under Section 173Q of the Act

Reversal of Modvat credit on caprolactam:
The appellant, a manufacturer of polyester/nylon filament yarn, faced a dispute regarding the reversal of Modvat credit taken on caprolactam used in the manufacture of exempted nylon filament yarn. The Tribunal had previously ruled against the appellant on this issue. The appellant had reversed the credit amounting to Rs. 88,99,470/- for caprolactam used in manufacturing exempted nylon filament yarn. A fresh dispute arose when the Department alleged that polyamide chips, used in manufacturing exempted nylon filament yarn, were not exempted under Notification No. 67/95. The Department demanded Rs. 1,06,97,198/- along with interest and imposed a penalty under Section 173Q of the Act.

Dispute regarding duty on polyamide chips:
The Department contended that polyamide chips, emerging as a final product during the manufacture of nylon filament yarn, were not exempted under Notification No. 67/95. The appellant argued that the Department had initially treated only nylon filament yarn as the final product and sought Modvat credit reversal for inputs like caprolactam. The appellant claimed that the Department's decision to demand duty on polyamide chips while denying Modvat credit for inputs used in their manufacture was not legally sound. The appellant agreed to pay the duty on polyamide chips but sought to adjust it against the Modvat credit reversed on caprolactam.

Imposition of penalty under Section 173Q of the Act:
The Tribunal found that the Department had selectively treated polyamide chips as the final product only in the case of exempted nylon filament yarn. The Tribunal held that the appellant had not suppressed any relevant information, and therefore, the imposition of penalty under Section 173Q was deemed unwarranted. While upholding the duty liability on nylon chips/polyamide chips, the Tribunal directed that the duty demand should consider adjusting the Modvat credit already reversed for caprolactam. The Tribunal set aside the penalty imposed and disposed of the appeal by upholding the duty liability on nylon chips/polyamide chips, adjusting the Modvat credit reversed, and setting aside the penalty.

This comprehensive analysis of the judgment highlights the issues of Modvat credit reversal, duty on polyamide chips, and the imposition of penalty under Section 173Q, providing a detailed insight into the legal reasoning and decision-making process of the Appellate Tribunal.