2006 (1) TMI 40 - AT - Central Excise

Central Excise Cenvat/Modvat - Mere credit taken suo motu by adjustment in RG 23 Part II which have been reversed earlier being wrong impression for want of legal knowledge, the same not deniable as it was taken suo motu after intimation

Summary

Issues:
Appeal against disallowance of Modvat credit by Commissioner (Appeals) - Applicability of Cenvat Rule 6(2) to furnace oil - Validity of voluntarily reversing and later taking back credit - Requirement of formal permission for reversal - Interpretation of Section 11B of Central Excise Act for refund claim - Comparison with case law of Maruti Foam Pvt. Ltd.

Analysis:
The appellant, engaged in processing goods on job work basis, appealed against the disallowance of Modvat credit amounting to Rs. 1,10,910.16 by the Commissioner (Appeals). The dispute arose from the reversal of credit on furnace oil used in processing goods cleared without duty payment, based on a letter citing relevant judgments. The Asst. Commissioner confirmed the demand, imposing penalties and interest, which was upheld by the Commissioner (A) despite the appellant's argument on unclear applicability of Cenvat Rule 6(2) to furnace oil. The Commissioner (A) maintained that taking credit without direction or permission was unjustified, requiring a formal refund claim process.

The appellant contended that the reversal of credit was voluntary and not subject to Section 11B of the Central Excise Act for refund claims, as it was an adjustment due to erroneous understanding of legal provisions. The Commissioner (A) referenced the case law of Maruti Foam Pvt. Ltd. to support the decision, highlighting distinctions in the confirmed demand and credit utilization for duty payment under specific rules. Despite the reversal being based on incorrect legal knowledge, the Tribunal found the authorities' decisions erroneous and set them aside, allowing the appeal. The Tribunal emphasized that the credit was taken back suo motu after informing the Department, warranting a different approach than a formal refund claim process.

In conclusion, the Tribunal overturned the disallowance of Modvat credit, emphasizing the voluntary nature of the credit reversal and subsequent reutilization after clarification of legal positions. The decision highlighted the importance of considering the circumstances and intent behind credit adjustments, especially when done suo motu and communicated to the concerned authorities. The judgment provided clarity on the applicability of refund procedures and the necessity of formal permissions in such scenarios, setting aside the earlier decisions and allowing the appeal in favor of the appellant.