2002 (5) TMI 167 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for Modvat credit based on invoices prepared later.
2. Eligibility for Modvat credit based on Certificate 'A' issued under Rule 57E.
3. Consideration of Sugar Unit and Distillery Unit as separate or single entity for excise purposes.
4. Procedural compliance and its impact on substantial benefits.

Detailed Analysis:

1. Eligibility for Modvat credit based on invoices prepared later:

The appellants challenged the disallowance of Modvat credit amounting to Rs. 15,00,000 by the Assistant Commissioner. The Commissioner (Appeals) upheld the disallowance, stating that the invoices were prepared by the Distillery Unit, which did not manufacture molasses, after the inputs were removed for captive consumption long before. The Sugar Plant should have issued Modvatable invoices and paid duty due on the molasses diverted to the Distillery Unit. The procedure under Rule 57A was not followed, leading to the denial of credit. The Tribunal found that the non-payment of duty at the time of removal was a venial and technical lapse, and since there was no loss to revenue, the substantive benefit of Modvat credit should not be denied. Therefore, the Tribunal allowed the credit of Rs. 15,00,000.

2. Eligibility for Modvat credit based on Certificate 'A' issued under Rule 57E:

The Commissioner (Appeals) also denied credit of Rs. 7,09,087 based on Certificate 'A' issued under Rule 57E. Rule 57F(2) allows credit for duty paid subsequently due to variations in price or rate of duty. However, in this case, the entire duty was paid by the Distillery Unit, not the Sugar Plant, at the time of captive consumption. The Tribunal agreed with the lower authority that the appellants were not entitled to this credit because there was no initial or additional duty payment by the manufacturer (Sugar Plant) as required under Rule 57E. Therefore, the credit of Rs. 7,09,087 was rightly denied.

3. Consideration of Sugar Unit and Distillery Unit as separate or single entity for excise purposes:

The appellants argued that the Sugar and Distillery Units should not be treated as separate units as they are divisions of the same factory, with a single consolidated balance sheet, common water, electricity, and other facilities. The Tribunal referred to the CEGAT Delhi decision in Dhampur Sugar Mills Ltd. v. CCE, Meerut, and the Supreme Court decision in Grauer & Weil (India) Ltd v. CCE, Baroda, which supported the view that different plants within the same premises should be treated as one factory. The Tribunal concluded that the Sugar and Distillery Units of the appellants should be considered a single factory.

4. Procedural compliance and its impact on substantial benefits:

The appellants contended that procedural lapses should not lead to the denial of substantial benefits, citing various judgments. The Tribunal acknowledged that while the appellants did not strictly follow Rule 52A, there was no dispute about the duty-paid nature, identity, and utilization of the goods (molasses) for captive consumption. Given that there was no revenue loss due to delayed duty payment, the Tribunal held that the procedural lapse was venial and technical, and thus, the substantive benefit of Modvat credit should not be denied.

Conclusion:

The Tribunal partially allowed the appeal, granting the appellants the Modvat credit of Rs. 15,00,000 based on the invoices but denying the credit of Rs. 7,09,087 based on Certificate 'A'. The decision emphasized the importance of substantive compliance over procedural lapses when there is no revenue loss. The appeal was ordered accordingly.