2004 (8) TMI 276 - AT - Central Excise

Cenvat/Modvat - Shortage of inputs - Interest and penalty - Appellants received LDO/FO short in quantity compared to the invoices from 1994-95 to 1997-98. They availed Modvat credit on the entire quantity without adjusting for the shortage, raising the question of permissibility under Rules - HELD THAT - In the present case, as per direction of the Department, the appellants vide their letter dated 26th March, 1997 intimated the Department about the debit of the credit amounting to Rs. 4,83,827.78 and Rs. 3,35,466.97 which represented the credits wrongfully availed by them during the period 1994-1995 to 1996-1997 (Up to January, 1997) whereas the show cause notice to the appellants were issued on 24th December, 1999. The appellants had already reversed the Modvat credit availed of by them prior to issuance of show cause notice and under these circumstances, the interest and the penalty are not imposable. The Tribunal found in favor of the appellants, allowing the appeal and setting aside the impugned order. The Tribunal held that the duty was voluntarily paid before the show cause notice, making penalties inapplicable under Section 11AC and Rule 173Q. The appellants were granted consequential relief.

Summary

Issues involved: The appeal against the order of the Commissioner of Central Excise, Jamshedpur, dated 27th May, 2003.

Issue 1 - Modvat Credit Adjustment: The appellants received LDO/FO short in quantity compared to the invoices from 1994-95 to 1997-98. They availed Modvat credit on the entire quantity without adjusting for the shortage, raising the question of permissibility under Rules.

Issue 2 - Modvat Credit Entitlement: The Modvat credit was taken on LDO and FO under Rule 57A of the Central Excise Rules, 1944. The appellants procured inputs from Indian Oil Corporation and Hindustan Petroleum Corporation, with a measured difference in quantity due to volatile nature of oil. The appellants argued for credit entitlement based on handling losses and transit issues, citing relevant case law.

Issue 3 - Limitation and Penalties: The appellants contended that the extended period of limitation was not applicable as Modvat credit details were available to the Department. They also argued against imposition of penalties and interest, citing cases where payment was made before show cause notice issuance.

Judgement: The Tribunal found in favor of the appellants, allowing the appeal and setting aside the impugned order. The Tribunal held that the duty was voluntarily paid before the show cause notice, making penalties inapplicable under Section 11AC and Rule 173Q. The appellants were granted consequential relief.