2007 (9) TMI 202 - AT - Central Excise

Goods cleared to EOU got returned back as they were found defective goods cleared second time under CT 3 certificate without paying duty - Revenue contention that appellant had to reverse the credit taken and should not have cleared the goods without payment of duty under CT3 certificate is not justified because there is no need to duty on clearance to EOU however procedure was not followed properly but there is no intention to evade duty so demand is time barred

Summary

Issues:
1. Modification of stay order regarding pre-deposit of penalty.
2. Availment of Cenvat credit on return of defective goods.
3. Allegations of not following procedure under Rule 16.
4. Interpretation of Rule 16 and applicability in the case.
5. Compliance with Rule 16 and reversal of Cenvat credit.

Analysis:

Issue 1 - Modification of stay order regarding pre-deposit of penalty:
The appellants filed a miscellaneous application seeking modification of a stay order requiring pre-deposit of Rs. 1 lac. The Tribunal noted that the disputed credit had been reversed by the appellants earlier, leading to a full waiver of pre-deposit of penalty and stay of recovery proceedings without requiring further payment. The appeal was heard for decision based on this modification.

Issue 2 - Availment of Cenvat credit on return of defective goods:
The appellants, manufacturers of automotive parts, availed Cenvat credit on return of defective goods cleared to a 100% EOU. The Revenue alleged non-payment of duty on subsequent clearance, leading to a show cause notice and penalty imposition. The appellants argued for exemption under Rule 6(5) of Cenvat Credit Rules, citing a case precedent and exemption notifications.

Issue 3 - Allegations of not following procedure under Rule 16:
The Commissioner's order alleged discrepancies in the appellants' adherence to Rule 16 procedures, specifically regarding the return and subsequent clearance of goods. The appellants contended that the Commissioner exceeded the scope of the show cause notice, violating principles of natural justice.

Issue 4 - Interpretation of Rule 16 and applicability in the case:
The Tribunal analyzed Rule 16's predecessor rules and its current provisions, emphasizing the applicability to the appellants' situation. It was highlighted that the appellants' actions were influenced by the exemption for goods cleared to a 100% EOU, leading to a genuine difficulty in following Rule 16 strictly.

Issue 5 - Compliance with Rule 16 and reversal of Cenvat credit:
The Tribunal concluded that while the appellants should have reversed the Cenvat credit under Rule 16(1), the circumstances warranted leniency due to the unique situation of clearance to a 100% EOU. The Tribunal referenced Rule 16(3) to support the decision not to insist on payment of the credit taken, considering the possession of CT3 certificates and the absence of intent to evade duty.

In the final judgment pronounced on 28-9-2007, the Tribunal allowed the appeal, finding the demand time-barred, unsustainable allegations, and no justification for penalties, providing consequential relief to the appellants.