2002 (12) TMI 167 - AT - Central Excise

Summary

Issues Involved:
1. Impermissible Modvat credit availed by manufacturers.
2. Allegations against dealers for abetment of wrongful credit.
3. Correlation between coils received and sheets used by manufacturers.
4. Applicability of the extended period of limitation.
5. Imposition of penalties on dealers and manufacturers.

Issue-wise Detailed Analysis:

1. Impermissible Modvat Credit Availed by Manufacturers:
The manufacturers, Standard Drum Manufacturing Co. and Standard Drums and Buckets Co., utilized Modvat credit on steel coils, sheets, or strips for manufacturing drums and barrels. The notices alleged that the manufacturers availed impermissible Modvat credit by taking credit on hot or cold-rolled coils while receiving sheets, which they could not cut in their premises. The manufacturers contended that they produced evidence showing the lorries mentioned in the invoices brought the goods into their factory. They argued that cutting coils into sheets does not amount to manufacture and cited a refusal of a manufacturing license for such activity as evidence. The Tribunal noted that the manufacturers did not receive coils but sheets or strips and emphasized the need for correlation between the coils and sheets received.

2. Allegations Against Dealers for Abetment of Wrongful Credit:
The dealers were accused of abetting the wrongful credit by not informing the department about the cutting of coils into sheets. The dealers contended that they only sent goods described in the invoices and did not engage in cutting operations. The Tribunal found that the dealers received coils, sent them to cutters, and then the sheets were sent to manufacturers. The Commissioner's order penalized the dealers for not maintaining records or correlating coils and sheets, suggesting deliberate suppression of operations.

3. Correlation Between Coils Received and Sheets Used by Manufacturers:
The Tribunal emphasized the necessity of establishing correlation between the coils received and sheets used by the manufacturers. The trade notice 52 of 6-10-1999 required registered dealers to maintain proper accounts for outgoing coils and incoming sheets, ensuring correlation through challans. The Tribunal clarified that correlation should be based on the total weight of sheets obtained after cutting and decoiling tallying with the weight of the coils. The Tribunal found that closer physical correlation was impossible due to the nature of the goods and emphasized that correlation should be established through weight and reasonable correspondence in time.

4. Applicability of the Extended Period of Limitation:
The manufacturers and dealers argued against the applicability of the extended period of limitation, citing that the same procedure was made applicable by subsequent Board's instructions. The departmental representative contended that the extended period was justified due to the absence of correlation and the manufacturers' failure to inform the department about receiving sheets or strips. The Tribunal did not provide a detailed ruling on this issue but focused on the need for correlation.

5. Imposition of Penalties on Dealers and Manufacturers:
The Commissioner imposed penalties on dealers for not maintaining records and correlating coils and sheets. The Tribunal found no evidence of collusion between dealers and manufacturers for wrongful credit availment. The Tribunal set aside the penalties imposed on dealers, finding the reasons given by the Commissioner unacceptable. The liability to penalty for manufacturers would depend on the extent of credit denied after establishing the required correlation.

Conclusion:
The Tribunal allowed the appeals, setting aside the penalties on dealers and directing the Commissioner to pass orders on the eligibility of credit based on the established correlation between coils and sheets. The Tribunal emphasized the need for proper correlation through weight and reasonable correspondence in time, considering the nature of the goods and the impossibility of closer physical correlation.