2005 (12) TMI 20 - AT - Central Excise

Central Excise Credit erroneously taken relating to tool kits supplied with motor vehicles/chassis (1) Demand for recovery of credit (2) Penalty not imposable (3) Interpretation of law

Summary

Issues:
1. Disallowance of modvat credit on tool kits supplied along with motor vehicles and chassis.
2. Imposition of penalty under Rule 173Q(1)(bb) of the Central Excise Rules.
3. Inclusion of the value of tool kits in the assessable value of motor vehicles/chassis.
4. Admissibility of modvat credit on tool kits.
5. Penalty imposition based on the interpretation of the law.

Issue 1: Disallowance of modvat credit on tool kits:
The case involved 8 show cause notices proposing to disallow modvat credit on tool kits supplied with motor vehicles and chassis. The assessees contended that the tool kits were essential items, especially when chassis were removed to certain customers. The Addl. Commissioner disallowed the credit, citing a High Court decision. However, the Commissioner (Appeals) set aside the decision, following a Larger Bench decision. The Appellate Tribunal noted conflicting judgments and ultimately agreed with the view that tool kits are not inputs for vehicles, hence disallowing the modvat credit.

Issue 2: Imposition of penalty:
The Addl. Commissioner imposed penalties totaling Rs. 8,70,000, which the respondents contested. The Tribunal, considering the issue as a matter of law interpretation, rejected the restoration of the penalty, agreeing with the respondents that it was not a fit case for penalty imposition.

Issue 3: Inclusion of value of tool kits:
The respondents argued that even if modvat credit on tool kits was not admissible, they had already included the value of tool kits in the assessable value of motor vehicles cleared during the relevant period. The Tribunal remanded this aspect for fresh decision to verify if the value of tool kits was indeed included in the assessable value, allowing the respondents to provide documentary evidence to substantiate their claim.

Issue 4: Admissibility of modvat credit on tool kits:
The Tribunal, considering various judgments and the definition of 'inputs,' concluded that tool kits are not inputs for vehicles, thereby disallowing the modvat credit on them.

Issue 5: Penalty imposition based on law interpretation:
The Tribunal, following the principle that penalty imposition should be based on the interpretation of law, rejected the restoration of the penalty, as the issue was deemed to be a matter of legal interpretation rather than willful non-compliance.

In conclusion, the appeal was partly allowed, with the Tribunal disallowing the modvat credit on tool kits, remanding the issue of inclusion of tool kit value for further verification, and rejecting the restoration of the penalty based on the interpretation of the law.