2005 (2) TMI 235 - AT - Central Excise

Cenvat/Modvat - Inputs - Manufacture - Scrap - process of debarring and smoothing of edges and surface - Penalty - HELD THAT - We find force in the submissions of the learned SDR that as no goods have been received by the assessee, the question of availing of Modvat credit does not arise. The Modvat credit is available either on the inputs or on the capital goods. The charges paid towards erection of the plant and dismantling are neither inputs nor capital goods. In the case of Eveready Industries India Ltd. v. CCE, Allahabad 2000 (2) TMI 152 - CEGAT, NEW DELHI , the goods were received by the assessees and the issue involved was whether packing or forwarding charges should have been included in the assessable vable of the inputs. In the present matter, as observed by us, no goods have been received. Further, the Division Bench of the Tribunal has held in NTTF Industries Ltd. 2004 (3) TMI 540 - CESTAT, BANGALORE that no duty is required to be paid on design and development charges nor the charges are excisable goods and, therefore, the question of allowing the Modvat credit of duty paid on such charges does not arise. Accordingly, we set aside the impugned Order in respect of allowing the Modvat credit on dismantling and erection charges. The learned Chartered Accountant has also submitted that the penalty imposed by the Adjudicating Authority is on the higher side. We agree with the learned Chartered Accountant that it is not a fit case for imposing the penalty equal to the amount of Modvat credit involved. The penalty is certainly imposable on the assessee as they had wrongly taken the Modvat credit. The penalty of Rs. 20,000/- will meet the ends of justice. We impose a penalty of Rs. 20,000/- on the assessee. Both the appeals are disposed of in the manner indicated above.

Summary

Issues:
1. MODVAT Credit eligibility for exported M.S. steel tubes.
2. Reversal of CENVAT Credit on returned goods cleared as scrap.
3. Availment of CENVAT Credit on dismantling and re-erection charges.

Issue 1: MODVAT Credit eligibility for exported M.S. steel tubes

The appeal involved a dispute regarding the eligibility of MODVAT Credit for M.S. steel tubes exported after undergoing various processes. The appellant contended that as per Board Circular and Tribunal decisions, MODVAT Credit should be allowed. The Tribunal, citing the decision in Rico Auto Industries Ltd., held that MODVAT Credit cannot be disallowed if inputs are removed under bond, as clarified by Circular No. 283/117/1996-C.X. Consequently, the appeal by the assessee was allowed based on the Board's Circular and Tribunal precedent.

Issue 2: Reversal of CENVAT Credit on returned goods cleared as scrap

The issue revolved around the reversal of CENVAT Credit on returned goods cleared as scrap, as per Rule 16(2) of the CENVAT Rules, 2002. The appellant argued that the returned goods were damaged beyond repair and converted into scrap, thus not subject to full credit reversal. However, the Tribunal disagreed, emphasizing that if the process applied does not amount to manufacture, the full CENVAT Credit must be reversed. The Tribunal set aside the Commissioner's decision and held the assessee liable to reverse the entire credit taken on the returned goods.

Issue 3: Availment of CENVAT Credit on dismantling and re-erection charges

The dispute centered on availing CENVAT Credit on dismantling and re-erection charges for purchased equipment. The appellant claimed credit based on the supplier's payment of Central Excise duty. However, the Tribunal ruled that as no new goods were received by the assessee, MODVAT Credit was not applicable to charges like dismantling and re-erection. Citing precedent and emphasizing that such charges are not excisable goods, the Tribunal set aside the Commissioner's decision on allowing MODVAT Credit for these charges. Additionally, a penalty of Rs. 20,000 was imposed on the assessee for wrongly availing MODVAT Credit.