2018 (12) TMI 427 - AT - Central Excise

Validity of SCN - CENVAT/MODVAT Credit - removal of input as such by raising invoices without reversing credit - diversion of controlled substances (Ephedrine) from the factory - manufacture not taken place - period involved is from 24.8.1998 to 24.3.1999 - penalty - Held that - The Show cause notice is highly vague and does not give the exact allegation. It is presumed to be alleged that appellant removed inputs as such without reversing the credit and has contravened provisions of 57F. But then it is also stated that inputs are removed as tablets. When the inputs are Ephedrine Powder, then the removal in the form of tablets will not be removal as such requiring reversal of credit. If they are removed as Ephedrine tablets after manufacture then these attract Central Excise duty. From the facts narrated in the show cause notice, it is not clear whether the allegation is inputs were removed as such or whether Ephedrine tablets manufactured were removed without payment of duty. When Ephedrine Powder is the input, the allegation that they removed inputs as such in the guise of Ephedrine Tablets does not make any sense. Penalty - Held that - When the amount of duty demand have been paid as per the invoices and credit has been reversed, the penalties imposed cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues: Allegation of improper removal of input material, demand of duty with interest, penalties imposed, interpretation of MODVAT Credit Rules, validity of invoices, applicability of NDPS Act, 1986, dispute over controlled substance, vagueness in show cause notice, reversal of credit, payment of excise duty, appropriateness of penalties.

The judgment involves a case where the appellants, engaged in manufacturing medicines, were accused of removing Ephedrine HCL as Ephedrine Tablets IP without actually manufacturing the tablets. The department alleged improper removal of input material and demanded duty along with interest, proposing to appropriate a previously paid amount. The original authority and the Commissioner (Appeals) confirmed the demand and penalties. The appellant argued that during the relevant period, they paid duty on the items removed and that Ephedrine was not a controlled substance under the NDPS Act at that time. They contended that the demand should not stand as they had already paid an excess amount compared to the demand. The appellant also challenged the penalties, claiming they had not suppressed facts to evade duty.

The arguments presented highlighted the interpretation of the MODVAT Credit Rules applicable during the period in question. The appellant emphasized that they had paid duty on the cleared items and had already settled an amount with the department. The appellant's counsel argued that the penalties should be set aside since all duty payments were evidenced through invoices before the show cause notice was issued, indicating no intention to evade payment.

The respondent argued that the invoices provided were fake and could not be relied upon for payment of duty. It was claimed that the inputs were removed as Ephedrine tablets, not as required by the rules, justifying the demand and penalties imposed.

Upon review, the tribunal found that the investigations initially focused on controlled substances, although Ephedrine was not classified as such until later. The show cause notice was deemed vague, failing to specify the exact allegation clearly. The tribunal noted discrepancies in the allegation regarding the removal of inputs and the form in which they were removed. Considering the duty payments made by the appellant, the tribunal concluded that no further reversal of credit or duty payment was necessary. Consequently, the tribunal ruled in favor of the appellant, setting aside the penalties and allowing the appeal with any consequential relief.

In conclusion, the judgment delved into the intricacies of the MODVAT Credit Rules, the validity of invoices, the classification of Ephedrine under the NDPS Act, the appropriateness of penalties, and the clarity in the allegations made in the show cause notice, ultimately providing relief to the appellant based on the payment of duty and the lack of evidence supporting the allegations of improper removal of input material.