2005 (4) TMI 222 - AT - Central Excise

Summary

Issues:
- Availment of Modvat credit on inputs used in the manufacture of exempt purified water
- Demand under Rule 57CC for cleared purified water without payment of duty
- Reversal of credit by the appellant after show-cause notice
- Legal position on reversal of credit under Modvat rules

Analysis:
The appellant, engaged in manufacturing aluminum products and availing Modvat credit for inputs, faced a demand under Rule 57CC for cleared purified water without duty payment. The appellant reversed the entire credit on inputs used for purified water upon receiving the show-cause notice, exceeding the demand amount. The Revenue argued that the demand was valid as some purified water was cleared without duty payment after availing credit. However, the Tribunal referred to a previous case and held that the time of credit reversal is immaterial under Modvat rules, emphasizing compliance with the rule's requirements. The Tribunal noted that the appellant's full credit reversal for water manufacturing inputs rendered the demand unsustainable, ultimately allowing the appeal and granting consequential relief as per law.

In a similar case cited by the Tribunal, it was established that the reversal of credit exceeding the due amount meets the Modvat rule's requirements, regardless of the timing of reversal. The Tribunal rejected the Revenue's argument that the credit reversal should have occurred before the cleared goods, affirming the settled legal position on this issue based on prior decisions. Consequently, the Tribunal found no merit in the demand related to Modvat credit on common inputs, supporting the appellant's position of reversing the credit on inputs used for manufacturing water to settle the dispute effectively.

The judgment underscores the importance of complying with Modvat rules regarding credit reversal and highlights that the reversal of credit exceeding the due amount is sufficient to meet legal requirements. By setting aside the demand due to the appellant's complete credit reversal for water manufacturing inputs, the Tribunal upheld the legal principle that the timing of credit reversal is not material as long as the reversal aligns with the rule's specifications. This decision provides clarity on the application of Modvat rules in cases involving credit reversal and duty payment for cleared goods, ensuring consistency in interpreting and applying relevant regulations in excise matters.