2004 (12) TMI 88 - SC - Central Excise

Whether the appellants went on paying concessional rate of duty wilfully without availing of Modvat credit with intent to misutilise the Modvat scheme? Held that - The appellants never opted out of the Modvat scheme. They partly cleared the final products by paying duty at concessional rate without utilising the credit in the payment of duty on final product and partly on the basis of credit which was not admissible. It is important to note that the underlying object behind the notification was to utilise the credit against payment of duty on the final product. In the circumstances, the demand for differential duty, penalty and confiscation subject to payment of redemption fine is valid and justified. Accordingly, we answer the above question in the affirmative i.e. in favour of the department and against the appellants. Before concluding, we may clarify that our judgment is confined to the Notification No. 175/86-C.E., as it stood at the relevant time.

Summary

Issues:
Appeal against imposition of duty and denial of exemption under Central Excise Notification No. 175/86-C.E.

Analysis:
1. Facts and Background: The appellants, as manufacturers of machinery components and gear boxes, utilized iron and steel products as inputs and were entitled to benefits under Central Excise Notification No. 175/86-C.E. They opted for the Modvat Scheme for two financial years.

2. Imposition of Duty: A show cause notice was issued for recovery of differential duty under Section 11A of the Central Excises and Salt Act, 1944. The Additional Collector imposed duty and penalty, confiscating goods subject to redemption on payment of a fine, based on alleged misuse of Modvat credit and wrongful clearance of final products at a concessional rate.

3. Appeal before Tribunal: The Tribunal upheld the Additional Collector's order, finding that the appellants wrongly cleared final products at concessional rates without utilizing Modvat credit, leading to higher credit for their sister concern. The Tribunal noted the suppression of facts by the appellants and refused to interfere with the order.

4. Modvat Scheme and Legal Framework: Modvat aimed to provide relief to manufacturers by allowing credit for duty paid on inputs. The scheme's rules required manufacturers to declare intent to take Modvat credit and utilize it for payment of duty on final products. Misutilization of credit had consequences under Rule 57-I.

5. Interpretation of Notification No. 175/86-C.E.: The notification provided for total and partial exemptions based on Modvat credit availed. Manufacturers not availing Modvat credit were entitled to total exemption up to a specified limit. The notification specified aggregate limits for clearances, beyond which normal duty was payable.

6. Decision: The Court found that the appellants willfully cleared final products at concessional rates without availing Modvat credit, breaching the notification's conditions. The Court rejected arguments of non-suppression and upheld the demand for differential duty, penalty, and confiscation. The judgment was confined to the relevant notification at the time.

7. Conclusion: The appeal was dismissed, with no costs awarded, based on the appellants' misuse of Modvat credit and wrongful clearance of final products at concessional rates. The Court upheld the imposition of duty and penalties based on the violation of the notification's provisions.

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive understanding of the case and the Court's decision regarding the imposition of duty and denial of exemption under the Central Excise Notification.