2007 (11) TMI 110 - AT - Central Excise

Assessee purchased some inputs from manufacturer - raised debit notes for the inferior quality of the material supplied, which resulted in reduction of the value paid by the respondent - contention of the Revenue that the credit has also to be proportionately reduced is wrong - reduction of the price is a commercial. Transaction - duty paid on the T.V. by the supplier not disputed - no claim of refund of duty by supplier - there cannot be any reduction of the credit, at the respondent s end

Summary

Issues:
- Dispute over Modvat credit reduction due to inferior quality inputs purchased.
- Interpretation of relevant laws and principles.
- Application of past judgments and circulars.
- Commercial transaction impact on Modvat credit.

Analysis:
1. Dispute over Modvat Credit Reduction:
The appeal involved a dispute regarding the reduction of Modvat credit due to the purchase of inferior quality inputs. The Revenue contended that the credit should be reduced proportionately to the debit notes raised for the inferior quality of materials supplied. However, the Adjudicating authority ruled in favor of the respondent. The Commissioner (Appeals) upheld this decision, emphasizing that the duty paid on the goods received in the factory is admissible for Modvat credit, even if debit notes were issued for quality differences. The judgment cited established principles that support the admissibility of full credit when duty paid by the supplier is not refunded. The Commissioner concluded that there was no loss of revenue, and hence, the Modvat credit should not be reduced.

2. Interpretation of Laws and Principles:
The Commissioner (Appeals) carefully analyzed the relevant laws and principles in the case. Referring to Rule 57E and Board's Circular No. 33/33/94 CX-8, it was highlighted that these regulations apply to cases where refunds are allowed to the manufacturer of inputs, not in situations like the present one where only a reduced value was paid without altering the duty. The Commissioner rejected the Department's insistence on these rules and instructions, asserting that the reduction of Modvat credit was not warranted based on the specific circumstances of the case.

3. Application of Past Judgments and Circulars:
The Commissioner (Appeals) further supported the decision by referencing past judgments and circulars. It was noted that the cited cases provided clear principles that supported dropping the demand for reducing Modvat credit. The Commissioner emphasized that the cases laid down the basis on which the adjudicating authority had ruled in favor of the respondent, indicating that the judgments were relevant and applicable to the current dispute.

4. Commercial Transaction Impact on Modvat Credit:
The Commissioner (Appeals) highlighted that the reduction of the price payable by the respondent to the supplier due to quality differences was a commercial transaction between the parties. It was emphasized that the Central Excise duty paid on the transaction value was undisputed, and there was no claim of duty refund by the supplier. Therefore, the Commissioner concluded that there should be no reduction in the Modvat credit at the respondent's end. The decision to uphold the Commissioner's order was based on sound reasoning, ensuring that the appeal filed by the Revenue was ultimately rejected.