1999 (11) TMI 88 - HC - Central Excise

Summary

Issues Involved:
1. Wrongful availing of Modvat credit.
2. Procedural lapses in maintaining statutory records.
3. Financial hardship and waiver of pre-deposit under Section 35F of the Central Excise and Salt Act, 1944.

Issue-wise Detailed Analysis:

1. Wrongful Availing of Modvat Credit:
The petitioners were served with show cause notices alleging wrongful availing of Modvat credit amounting to Rs. 1,07,98,261/- and Rs. 9,94,744.20. The notices cited reasons such as failure to submit duty-paying documents, discrepancies in the quantity of inputs recorded, and availing credit on inadmissible documents like duplicate copies of bills of entry. The petitioners argued that the inputs were recorded in other relevant books and that the Modvat credit should not be denied on mere procedural lapses. They contended that the department did not doubt the duty-paid nature of inputs or their use in final products.

2. Procedural Lapses in Maintaining Statutory Records:
The notices highlighted several procedural lapses, including non-submission of duty-paying documents with R.T. 12 returns, discrepancies in the dates of receipt of inputs, and availing credit on the basis of photocopies of invoices. The petitioners maintained that these were technical lapses and that the Modvat credit should not be denied as the inputs were recorded in other business records. They emphasized that the department did not find any misuse of the Modvat credit availed.

3. Financial Hardship and Waiver of Pre-deposit:
The petitioners filed appeals against the adjudicating authority's orders and sought waiver of pre-deposit under Section 35F of the Central Excise and Salt Act, 1944, citing financial hardship. They argued that the appellate authority did not consider the financial hardship while deciding the waiver-cum-stay applications. The respondents countered that the petitioners had a sound financial condition and that the amount involved was not significant compared to their overall business turnover. The court noted that the appellate authority had discussed the merits of the case but did not adequately address the financial hardship.

Judgment:
The court observed that undue hardship is not limited to financial hardship alone and that the appellate authority should consider a strong prima facie case while deciding on waiver and pre-deposit. It referred to the Supreme Court's ruling in Vijay Prakash D. Mehta and Jawahar D Mehta v. Collector of Customs (Preventive) Bombay, which emphasized the need for discretion to be exercised honestly and objectively. The court also cited its own decision in Shyam Lal Biri Merchant v. Union of India, which held that the appellate authority's discretion should be exercised reasonably and not capriciously.

The court concluded that the appellate authority should have partly allowed the waiver and dispensation of pre-deposit. It directed the petitioners to deposit 10% of the adjudicated amount in cash and furnish security for the balance, excluding bank guarantees. Upon compliance, the appellate authority was instructed to hear and decide the appeals within three months without insisting on the pre-deposit condition.

Conclusion:
The court partly allowed the writ petitions, quashed the orders of the appellate authority, and provided specific directions for partial pre-deposit and security. It emphasized the need for a balanced approach considering both the merits of the case and the financial hardship of the petitioners. The parties were directed to bear their own costs.