2007 (11) TMI 217 - AT - Central Excise

Finished goods on which duty has been paid returned back for remaking refining etc. as these got damaged in transit - as there was damage the same couldn t be used as input these goods not subjected to any activity(manufacture) as per Rule 16 credit on them is required to be reversed - confirmation of demand under modvat provisions(Rules 57-I & 57U) which were non-existing during relevant time(18.4.2000) are liable to be set aside these provision have been substituted by not. 27/2000

Summary

Issues:
1. Confirmation of demand of Rs. 1,41,172 on availing Cenvat/Modvat credit on finished goods cleared from the factory and received back under Rule 16 of Central Excise Rules, 1944.
2. Denial of Modvat credit of Rs. 2,18,893 on inputs/capital goods due to claiming transit insurance for damaged goods during transit.

Analysis:
Issue 1:
The appellant contested the demand of Rs. 1,41,172, arguing that the finished goods initially cleared from the factory were defective and non-marketable, thus justifying the credit taken under Rule 57F(4). However, the Tribunal upheld the demand, citing the Hindalco Industries case precedent. The Tribunal reasoned that once goods are cleared from the factory and duty is paid, they are considered marketable, and any subsequent return for reworking falls under Rule 16. Since the returned goods were not processed under Rule 16, the demand confirmation was upheld.

Issue 2:
Regarding the denial of Modvat credit of Rs. 2,18,893, the appellant argued that transit insurance claimed on damaged inputs/capital goods did not imply non-utilization. The appellant relied on the absence of relevant provisions in the Central Excise Rules at the time of the show cause notice issuance. The Tribunal agreed with the appellant, referencing decisions in Sunrise Structural & Engg. Ltd. and Dutta Metal Industries cases. The Tribunal set aside the confirmation of demand under non-existing provisions, allowing the appellant's appeal.

Penalties:
The Tribunal ruled in favor of the appellant on the penalty imposed for availing ineligible credit and confirmed demand. The penalties were set aside based on the erroneous interpretation of rules, following the Hindalco Industries case precedent. Consequently, the impugned order was partially overturned, setting aside the penalties and confirming the demand on finished goods while allowing the appeal on the denial of Modvat credit.