2007 (11) TMI 184 - HC - Central Excise

Department did not produce any evidence to show that the inputs were not utilised in the manufacture of finished goods or that there is any contravention of provisions with the intention to evade payment of duty - High Court under Section 35G of the Act could exercise power in cases involving substantial question of law - findings recorded by the Tribunal are based on evidence which would not constitute any substantial question of law within the meaning of Section 35G

Issues:
1. Modvat credit entitlement for S.S. Sheets as Scrap
2. Entitlement to benefit of Rule 57-D for clearance of modvatable inputs
3. Modvat credit entitlement for S.S. Sheets removed as scrap without being used in final product
4. Deniability and recoverability of modvat credit on short inputs under Rule 57(1)
5. Justification of penalty reduction by Tribunal

Modvat Credit Entitlement for S.S. Sheets as Scrap:
The appeal under Section 35G of the Central Excise Act, 1944, challenged the Tribunal's order regarding the entitlement of modvat credit for S.S. Sheets as scrap. The Tribunal observed that if the sheets were rejected after use in the shop floor, the demand of duty was unsustainable as scrapped items do not hold the same value as new ones. The Tribunal's decision was based on the authorized signatory's statement and lack of contrary evidence, leading to the conclusion that duty demand on this count was unsustainable.

Entitlement to Benefit of Rule 57-D for Clearance of Modvatable Inputs:
The issue of entitlement to Rule 57-D benefit for clearance of modvatable inputs was raised. The Tribunal noted that lower authorities failed to consider the appellant's pleadings comprehensively. It highlighted discrepancies in stock verification and the lack of evidence showing non-utilization of inputs in finished goods manufacture. Consequently, the demand of duty on short found inputs was deemed unsustainable, leading to the set aside of the impugned order.

Modvat Credit Entitlement for S.S. Sheets Removed as Scrap:
Regarding modvat credit entitlement for S.S. Sheets removed as scrap without being used in the final product, the Tribunal analyzed the appellant's contentions and physical stock verification reports. It found that the penalty imposed was consolidated for all infractions. As the demand of duty on short found inputs was set aside, the Tribunal reduced the penalty imposed on the appellant, emphasizing the need for reconsideration based on the circumstances of the case.

Deniability and Recoverability of Modvat Credit on Short Inputs under Rule 57(1):
The Tribunal's observations on the deniability and recoverability of modvat credit on short inputs under Rule 57(1) highlighted the failure of lower authorities to consider the appellant's statements and evidence adequately. It pointed out discrepancies in stock reconciliation and the lack of evidence indicating non-utilization of inputs in finished goods manufacture. Consequently, the demand of duty on short found inputs was deemed unsustainable, warranting the set aside of the impugned order.

Justification of Penalty Reduction by Tribunal:
The Tribunal justified the reduction in penalty by emphasizing that the penalty imposed was consolidated for all infractions. As the Tribunal set aside the demand of duty on short found inputs, it deemed the penalty imposed on the appellant excessive and reduced it to Rs. 20,000. The decision was based on the partial allowance of the appellant's appeal and the specific circumstances of the case.

In conclusion, the High Court upheld the Tribunal's findings as unassailable, emphasizing that they were based on evidence and did not raise substantial questions of law under Section 35G of the Act. The Court highlighted the different powers of the Tribunal and the High Court under Sections 35A, 35C, and 35G, respectively, and dismissed the appeal, finding no legal infirmity in the Tribunal's decision.

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