2001 (11) TMI 114 - AT - Central Excise

Issues Involved:

1. Entitlement to avail Modvat credit under Rule 57Q for manufacturers under the Compounded Levy Scheme (CL Scheme).
2. Applicability of the second proviso to Rule 96ZI(1) and its prospective or retrospective effect.
3. Time-bar for demand of duty under Rule 96ZL.
4. Validity of adjudicatory proceedings under Rule 96ZL post its repeal.

Detailed Analysis:

1. Entitlement to Avail Modvat Credit under Rule 57Q:

The appellants, engaged in the manufacture of embroidered fabrics using vertical automatic shuttle type machines, were paying duty under the CL Scheme of Section E-IX of Chapter V of the Central Excise Rules, 1944. The department alleged that the appellants had wrongly availed Modvat credit on capital goods under Rule 57Q and utilized this credit for duty payment on their final products. The central issue was whether manufacturers under the CL Scheme could legitimately avail Modvat credit on capital goods prior to the amendment of Rule 96ZI on 2-6-1998.

The appellants argued that Rule 57Q did not differentiate between manufacturers under the CL Scheme and those under the Self-Removal Procedure (SRP). They contended that the second proviso added to Rule 96ZI(1) by Notification No. 15/98-C.E. (N.T.) on 2-6-98 had only prospective effect, making their prior credit availing legitimate.

2. Applicability of the Second Proviso to Rule 96ZI(1):

The department maintained that the second proviso to Rule 96ZI(1) was clarificatory and not merely prospective. The Tribunal noted that the special provisions of Section E-IX of Chapter V, including Rule 96ZI, applied to embroidery manufacturers in substitution of general provisions, including Modvat rules. The Tribunal concluded that the special procedure under Rule 96ZI excluded the applicability of Modvat provisions, and the second proviso added on 2-6-98 was merely clarificatory of this existing legal position.

3. Time-bar for Demand of Duty under Rule 96ZL:

The appellants argued that the demand of duty was time-barred, citing the Supreme Court's ruling in Govt. of India v. Citedal Fine Pharmaceuticals, which held that in the absence of a prescribed period of limitation, demands must be raised within a reasonable period. The Tribunal found that the department took over 15 months to raise the demand for the period 30-9-95 to 30-11-97, which was not reasonable. The Tribunal held that the delay was due to departmental laches and that the demand was time-barred.

4. Validity of Adjudicatory Proceedings under Rule 96ZL Post Repeal:

The appellants contended that the proceedings under Rule 96ZL lapsed upon its repeal on 12-5-2000. However, the Tribunal noted that Section 132 of the Finance Act, 2001, saved all proceedings taken under the repealed rules, rendering the appellants' argument invalid.

Conclusion:

The Tribunal held that the appellants were not entitled to avail and utilize Modvat credit under Rule 57Q during the period 30-9-95 to 30-11-97 for payment of duty on embroidery at compounded rates. However, the demand raised under Rule 96ZL was barred by limitation due to unreasonable delay. Consequently, the penalty imposed on the appellants was also unsustainable. The order of the Commissioner was set aside, and the appeal was allowed.

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