2003 (4) TMI 122 - HC - Central Excise

Summary

Issues:
Violation under Rule 57R(8) of the Central Excise Rules, 1944 leading to penalty under Rule 57U(6).
Entitlement to Modvat credit and penalty imposition based on revised return filed.
Challenge of order requiring deposit of Modvat credit amount as a condition for appeal.
Consideration of financial position for waiver under Section 35F of the Central Excise Act.

Analysis:

1. The primary issue in this case revolves around the alleged violation under Rule 57R(8) of the Central Excise Rules, 1944, which could make the petitioner liable for penalty under Rule 57U(6). The petitioner had imported capital goods and initially claimed depreciation under the Income-tax Act but later withdrew the claim in a revised return. The Commissioner of Central Excise contended that this withdrawal disentitled the petitioner from Modvat credit, leading to a penalty imposition of Rs. 27,47,003. The matter was appealed before the CEGAT, which granted relief on the penalty but required the petitioner to deposit the entire Modvat credit amount for appeal consideration.

2. The second issue pertains to the entitlement to Modvat credit and penalty imposition based on the revised return filed by the petitioner. The petitioner argued that the Tribunal had previously set aside similar orders by the Commissioner when revised returns were filed withdrawing depreciation claims. The petitioner's financial position, reflecting continuous losses, was also highlighted to support the request for waiving the pre-deposit requirement of Rs. 27,47,003. The petitioner relied on a Division Bench judgment to emphasize the importance of considering the financial position for waiver under Section 35F of the Central Excise Act.

3. The third issue involves the challenge against the order mandating the deposit of the Modvat credit amount as a condition for entertaining the appeal. The petitioner contended that if the appeal could proceed without such deposit, they would benefit from the Tribunal's acceptance of the revised return filed before the Income-tax authorities. The petitioner's financial difficulties and sustained losses further supported the argument for waiving the pre-deposit requirement, as per the cited Division Bench judgment.

4. Lastly, the consideration of the financial position for waiver under Section 35F of the Central Excise Act was a crucial aspect of the judgment. The Court analyzed the petitioner's financial losses from 1996-97 to 1999-2000, amounting to significant sums, to determine the undue hardship caused by the pre-deposit requirement. The Court found that the petitioner had made out a prima facie case in their favor, considering both the legal aspects and the financial constraints faced by the petitioner.

In conclusion, the High Court set aside the order requiring the deposit of the Modvat credit amount and directed the Tribunal to take up the appeal, emphasizing the importance of considering the financial position of the petitioner in such matters.