2002 (10) TMI 128 - AT - Central Excise

Summary

Issues Involved:
1. Availing Modvat credit on inputs under Rule 57G of Central Excise Rules.
2. Alleged non-use of inputs as specified in Chapter X(AA) of Central Excise Tariff Act.
3. Alleged clearance of inputs/components without reversing appropriate duty credit under Rule 57F.
4. Alleged misdeclaration of inputs/components as "scrap" to evade duty.
5. Invocation of extended period for demand of duty under Rule 57-I(1)(ii) of C.E. Rules, 1944 read with Section 11A(1) of C.E. Act.
6. Penal provisions invoked.

Issue-wise Detailed Analysis:

1. Availing Modvat credit on inputs under Rule 57G of Central Excise Rules:
The appellants argued that they availed credit based on duty-paying documents and necessary declarations were filed. The components were eligible inputs for manufacturing motor vehicle chassis under Chapter 87 of the Central Excise Tariff Act, 1985. The credit availed was used for clearing chassis under Chapter 87. Defective components were accounted for in rejection slips and cleared as scrap after mutilation.

2. Alleged non-use of inputs as specified in Chapter X(AA) of Central Excise Tariff Act:
The appellants contended that the rejected components, which did not conform to specifications or were found defective during inspection, were scrapped and cleared as waste and scrap. They argued that these components were not recognized as usable in the market and were sold to scrap dealers on a weight basis.

3. Alleged clearance of inputs/components without reversing appropriate duty credit under Rule 57F:
The appellants maintained that they cleared the rejected components as scrap and paid duty on the scrap. They argued that Rule 57D allows credit even if inputs become waste or scrap during the manufacturing process. The Deputy Commissioner and Commissioner (Appeals) had rejected their pleas, leading to the present appeals.

4. Alleged misdeclaration of inputs/components as "scrap" to evade duty:
The appellants argued that there was no suppression of facts as the goods were cleared on payment of duty and necessary documents were filed. They contended that the items were correctly declared as waste and scrap in the returns filed, and there was no intention to evade duty.

5. Invocation of extended period for demand of duty under Rule 57-I(1)(ii) of C.E. Rules, 1944 read with Section 11A(1) of C.E. Act:
The appellants argued that the demands were time-barred as they had declared all items and filed necessary returns. They contended that there was no misdeclaration or suppression with the intention to evade duty. The Tribunal agreed with the appellants and upheld their defense that the demands were time-barred.

6. Penal provisions invoked:
The Tribunal found that the appellants had maintained all records and filed returns, paying duty on scrap. There was no evidence of misdeclaration or intention to evade duty. Therefore, the invocation of penal provisions was not justified.

Conclusion:
The Tribunal allowed the appeals both on merits and on time-bar, setting aside the demands. The appellants' contention that the rejected components were scrapped during the manufacturing process was accepted. The Tribunal found no basis for reversing the credit or paying duty at the rate applicable to the final product on the scrapped items. The demands were set aside on the grounds of merits and limitation.