2010 (3) TMI 62 - HC - Central Excise

Compounding duty scheme utilization of MODAVAT credit on stock transferred prior to opting for compounded levy scheme - The assessee adopted the compounded levy scheme on non alloy steel ingots with effect from 1.8.1997 by paying duty at the rate of Rs.5 lacs per month as full and final payment. According to the revenue, during the scrutiny, it revealed that the assessee had availed the modvat credit in excess as per notification dated 1.8.1997 and availed the same under modvat scheme as well. Consequently, a show cause notice was issued on the premises that the assessee having opted to work under the compounded levy scheme on non alloy steel ingots cannot utilize the input stage credit for discharging duty liability on alloy steel ingots. held that the assessee was entitled to pay duty from modvat account of the manufacturer prior to opting for compounded levy scheme with regard to non alloy steel ingots and it

Summary

Issues involved:
Interpretation of the compounded levy scheme and modvat credit utilization.

Analysis:
The judgment involves a dispute regarding the utilization of modvat credit by an assessee engaged in the manufacture of iron, non-alloy, and alloy steel ingots under the compounded levy scheme. The revenue contended that the assessee, who opted for the compounded levy scheme for non-alloy steel ingots, could not utilize modvat credit for discharging duty liability on alloy steel ingots. The Adjudicating Authority disallowed the modvat credit, leading to a series of appeals and counter-arguments.

The High Court analyzed the provisions of the Central Excise Rules and the specific notifications related to the compounded levy scheme and modvat credit utilization. It was observed that the compounded levy scheme applied only to non-alloy steel ingots, and there was no provision authorizing the recovery of duty credit for inputs used in alloy steel ingots. The Court noted that the unutilized modvat credit would lapse only for goods to which the compounded levy scheme applied, i.e., non-alloy steel ingots, and not alloy steel ingots.

The Court further highlighted that the assessee had correctly utilized the modvat credit for duty paid on inputs used in the production of alloy steel ingots, without availing credit for non-alloy steel ingots. Based on these findings, the Court held that the assessee was entitled to pay duty from the modvat account for non-alloy steel ingots and avail modvat credit for inputs used in alloy steel ingots. Consequently, the appeal by the revenue was dismissed, affirming the rights of the assessee to utilize modvat credit appropriately based on the scheme's applicability to different types of steel ingots.

In conclusion, the judgment clarifies the permissible modvat credit utilization under the compounded levy scheme for specific types of steel ingots, emphasizing the importance of adherence to the scheme's provisions and the corresponding rules governing duty payment and credit utilization in the context of Central Excise regulations.