2004 (5) TMI 174 - AT - Central Excise

Cenvat/Modvat - Inputs - demand of duty on converted HDPE - Confiscation of goods - Non-accountal of goods - Penalty - HELD THAT - In the present case, the goods in the changed primary forms are admittedly mixed condition and the marketability thereof is not established. They are not the consequence of 'a deliberate skilful manipulation of the inputs or the raw materials'. The converted form are neither marketable nor sale-ability thereof established relying upon CCE v. tube Co Ltd. 1999 (3) TMI 76 - SC ORDER , the alleged converted forms, in this case, are to be held as out of excise net. When goods allegedly manufactured have been kept in the BSR (the abbreviation for the term and place 'Bonded Store Room), in the licensed premises, where all manufactured goods are to be kept pending clearance on payment of duty, the non-accountal thereof in the production records, as prescribed viz. RG 1, would only be a technical/clerical omission and not a substantial violation to call for ordering the confiscation under the provision of the Central Excise Rules, 173Q(1), 210, 226. Since no intention of or evasion of duty could be established, as no attempt to remove the goods is established and concluded, following the catena of decisions of this Tribunal after Bhillai Conductors' case 2000 (1) TMI 105 - CEGAT, NEW DELHI confiscation cannot be upheld even those goods are held to be exigable and manufactured. The confiscation arrived at is therefore to be set aside, as goods are not excisable, even if exigible, they are not liable to warrant a confiscation. When confiscation liability is not upheld, the penal liability cannot be upheld. Since goods are not exigible, no liability could arise. If goods are exigible, the penal liability under Rule 210 being maximum Rs. 1000/- and rule 226 of Rs. 2,000/- the penalty of Rs. 40,000/- arrived at without showing the break up cannot be upheld. Since goods are found to be non-exigible, no duty liability would arise. In fact when they are found in the BSR, therefore, even if exigible, duty liability would arise only on clearance i.e. removal ex BSR and not when they are in BSR as per Rules. Duty demand as made cannot be therefore sustained. Thus, the order is required to be set aside.

Summary

Issues involved: Confiscation of goods, imposition of penalty, demand of duty on converted HDPE, eligibility of Modvat credit, interpretation of Chapter Note 6 of Chapter 39, marketability of converted goods, non-accountal of goods in production records.

Confiscation of Goods: The lower authority ordered the confiscation of goods under Rules 210, 226 & 173Q(1) of the Central Excise Rules, 1944, with an option for redemption on a fine of Rs. 2.00 lakhs. The Commissioner (Appeals) upheld the confiscation of fully manufactured and packed goods, but reduced the redemption fine to Rs. 1,50,000 and the penalty to Rs. 40,000. However, the Tribunal found that the goods in the changed primary forms were not marketable, and as per precedents, they were to be held as out of the excise net.

Demand of Duty on Converted HDPE: The demand of Rs. 1,84,849 on 14,890 kgs of HDPE in different forms was confirmed by the lower authority. The Commissioner (Appeals) upheld this demand, stating that the conversion of one primary form of HDPE into another amounted to manufacture, as per Chapter Note 6 of Chapter 39. However, the Tribunal disagreed, emphasizing that the converted forms were neither marketable nor saleable, and therefore, not liable for duty.

Eligibility of Modvat Credit: The Commissioner (Appeals) ruled that Modvat credit eligibility for 32 MTs of imported HDPE granules was not entitled. The Tribunal concurred, stating that items used in trial runs are not eligible inputs for Modvat credit, as per relevant case law.

Interpretation of Chapter Note 6 of Chapter 39: The Tribunal analyzed the application of Chapter Note 6 to Chapter 39 of the Central Excise Tariff Act, 1985, and concluded that the tests prescribed by the Supreme Court for the levy on manufacture had to be satisfied, even if an activity was attracted by chapter notes in the Schedule.

Non-Accountal of Goods in Production Records: The Tribunal found that the non-accountal of goods in the production records, as prescribed, was a technical/clerical omission and not a substantial violation warranting confiscation. Since no intention of evasion of duty was established, and the goods were kept in the Bonded Store Room, confiscation could not be upheld.

Conclusion: The Tribunal set aside the order, allowing the appeal of the assessee, as the goods were found to be non-exigible, and therefore, no duty liability would arise. Additionally, since the goods were not marketable and were not sorted into individual converted forms, the confiscation and penalty were not upheld.