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Issues involved: Appeal against differential duty demand, penalty, and interest imposed under Section 11AC of the Central Excise Act for availing Modvat credit on inputs used in manufacturing vegetable products exempted from duty.
Summary: 1. The appellant, engaged in manufacturing vegetable products, availed Modvat credit under Rule 57A of the Central Excise Rules. A show cause notice alleged that the appellant should have reversed the Modvat credit upon withdrawal of duty on the final products, claiming intent to evade duty. 2. The adjudicating authority disallowed the credit and imposed penalties under Rule 57I(4) and Rule 173Q, along with interest under Rule 57I(5). The Commissioner (Appeals) upheld this decision based on previous court rulings. 3. The appellant argued that recent Supreme Court decisions rendered the previous rulings invalid. Referring to Dai Ichi Karkaria Ltd., it was established that if credit was taken when the final product was dutiable, subsequent exemption does not require credit reversal unless the final product is cleared. 4. The Tribunal upheld the reversal of Modvat credit for uncleared final products due to duty exemption but set aside the imposition of penalty and interest, as there was no basis for recovering duty or imposing penalties. The appeal was partly allowed.
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