2004 (1) TMI 276 - AT - Central Excise

Summary

Issues: Availability of Modvat credit on HFO used for producing electricity; Disallowance of Modvat credit due to alleged shortage of HFO; Imposition of penalty under Section 11AC.

In this appeal before the Appellate Tribunal CESTAT, New Delhi, the issue revolves around the availability of Modvat credit to the appellants on the Heavy Furnace Oil (HFO) used for generating electricity supplied to their residential colony and guest house, as well as on the quantity of HFO allegedly received short compared to the recorded amount in the Bill of Entry. The Tribunal, in the judgment delivered by Shri P.S. Bajaj, Member (J), addressed each issue comprehensively.

Regarding the availability of Modvat credit on the HFO used for electricity generation, the Tribunal upheld the disallowance of credit to the appellants. Citing the precedent set in SAIL v. CCE, Jamshedpur, it was determined that the oil was not used in or in relation to the manufacture of any final product in the factory by the appellants. As a result, Modvat credit amounting to Rs. 41,840/- was rightfully denied to the appellants by the lower authorities.

On the disallowance of Modvat credit amounting to Rs. 77,202/- due to an alleged shortage of HFO, the Tribunal considered the arguments presented. The appellants contended that the shortage of 75.688 MTs was negligible, possibly due to evaporation and leakage during transit from import to their factory. After reviewing the records, the Tribunal accepted the appellants' contentions, noting that the shortage was less than half a percent of the total imported quantity. As the appellants had paid the CVD on the full quantity imported, the Tribunal ruled in favor of allowing Modvat credit on the short quantity of HFO.

Furthermore, the imposition of penalty under Section 11AC was challenged by the appellants. The Tribunal clarified that Section 11AC was not applicable in this case, as it did not involve non-payment or short-payment of duty. The penalty under Rule 57-I was deemed more appropriate, but since it was not invoked in the show cause notice, the Tribunal held that the penalty under Section 11AC was not legally sustainable and thus set it aside.

In conclusion, the Tribunal set aside the impugned order disallowing Modvat credit of Rs. 77,202/- and the penalty under Section 11AC. However, the order disallowing Modvat credit of Rs. 41,840/- was affirmed, with the penalty imposed under Section 11AC for the same amount being set aside. The appeal of the appellants was disposed of accordingly, providing a detailed analysis and resolution for each issue raised in the appeal.