2004 (7) TMI 98 - HC - Central Excise

Interest on refund - reversal of credit - condition of non-availment of credit under the exemption notification - HELD THAT - For the purposes of claiming the benefit of the Notification No. 15/94-C.E., dated 1-3-1994 neither any circular has been issued nor the said circular of 1986 has been made applicable in the notification, which has been issued in 1994. Hence in our opinion the Tribunal was not justified in taking a view that reversal of the credit having been made by the petitioner after removal of the final products the petitioner was not entitled to the benefit of Notification No. 15/94-C.E., dated 1-3-1994. This view of the Tribunal is in our opinion patently erroneous and contrary to the decision of the five Member Larger Bench of the Tribunal as well as three member bench of the Tribunal, and is also contrary to the ratio of the decision of the Supreme Court in the case of Chandrapur Magnet Wire 1995 (12) TMI 72 - SUPREME COURT . In these circumstances the order of the Tribunal dated 1-10-2003 in so far as it relates to denial of the benefit of Notification No. 15/1994-CE is liable to be, and is hereby, set aside. The petitioner is thus entitled to the benefit of the said Notification No. 15/1994-CE, dated 1-3-2004 and reversal of Modvat credit on the inputs namely PVC granules used in the manufacture of PVC/PP bottles, which have been admittedly reversed by the petitioner, even though after clearance of the final product. Thus, the writ petition is allowed and the demand of duty and penalty created by order dated 30-10-2001 and confirmed by the Tribunal is set aside. Any amount already deposited by the petitioner shall be refunded to the petitioner forthwith with interest at 10% per annum from the date of deposit to the date of refund, and this refund must be made within two months from today. The petitioner is also entitled for any consequential benefits.

Summary

Issues Involved:
1. Whether the reversal of Modvat credit after availment satisfies the condition of non-availment of credit under the exemption notification.
2. Entitlement to the benefit of Notifications 67/95 and 214/86.
3. Legality of the Tribunal's order dated 1-10-2003.

Summary:

Issue 1: Reversal of Modvat Credit and Exemption Notification
The petitioner sought a mandamus for exemption from Central Excise Duty u/s Notification dated 1-3-1994, and to quash the Tribunal's order dated 1-10-2003. The petitioner reversed the Modvat credit on inputs used in manufacturing final products, raising the issue of whether this reversal satisfies the condition of non-availment of credit under the exemption notification. The Court held that the reversal of Modvat credit amounts to non-taking of credit on the inputs, thus entitling the petitioner to the benefit of Notification No. 15/94-C.E., dated 1-3-1994. The Court referenced the Supreme Court's decision in Chandrapur Magnet Wire (P) Ltd. v. CC, Nagpur, and the Tribunal's decision in Franco Italian Company Pvt. v. CCE, which supported the view that reversal of credit is sufficient for availing exemption benefits.

Issue 2: Benefit of Notifications 67/95 and 214/86
The petitioner also claimed the benefit of Notifications 67/95 and 214/86. The Court did not specifically address this issue in detail but implied that the petitioner is entitled to the benefits as the reversal of Modvat credit was acknowledged.

Issue 3: Legality of Tribunal's Order
The Tribunal had disallowed the benefit of Notification No. 15/1994-CE, holding that the credit was not reversed prior to the clearance/removal of goods. The Court found this view erroneous and contrary to the larger Bench decisions and the Supreme Court's ratio in Chandrapur Magnet Wire. The Court emphasized that the Tribunal misunderstood the requirement of reversal timing, as no specific circular mandated reversal before removal of final products for the 1994 notification. The Court set aside the Tribunal's order, granting the petitioner the benefit of the notification and directing the refund of any deposited amount with interest.

Conclusion:
The writ petition was allowed, setting aside the demand of duty and penalty. The petitioner was entitled to the benefit of Notification No. 15/1994-CE, and the reversal of Modvat credit on inputs was deemed sufficient even if done post-clearance. The Court ordered the refund of any deposited amount with 10% interest per annum from the date of deposit to the date of refund, to be made within two months.