2010 (2) TMI 421 - HC - Central Excise

Deemed Credit - The revenue claimed that during the relevant period form March 1988 to March 1994, the assessee wrongly availed/utilized the modvat credit, on deemed basis, on Aluminium Alloy Ingots, waste and scrap of Aluminium and waste and scrap of Zinc, which were clearly recognizable, as being non-duty paid or charged to Nil rate of duty. As such, assessee was not entitled for the Modvat credit on the inputs. Therefore, a show cause notice was issued. Held that burden of proof that inputs used by assssee were not being duty paid or charged to nil rate of duty and in absence of any cogent material on record, the assessee cannot legally be denied.

Summary

Issues:
1. Whether the assessee wrongly availed modvat credit on specific inputs.
2. Whether the revenue proved that the inputs used were non-duty paid or charged to Nil rate of duty.
3. Burden of proof on the revenue to deny modvat credit.
4. Interpretation of conditional exemption notifications.
5. Applicability of previous judgments on similar issues.

Issue 1:
The case involved the assessment of whether the assessee wrongly availed modvat credit on Aluminium Alloy Ingots, waste, and scrap of Aluminium and Zinc. The revenue contended that these inputs were non-duty paid or charged to Nil rate of duty, thus the assessee was not entitled to the credit. The assessee argued that Rule 57G(2) of Central Excise Rules deemed all stocks of inputs in the country, except those in specific areas, as duty paid. The assessee relied on various judgments to support its claim.

Issue 2:
The Adjudicating Authority ordered the recovery of modvat credit from the assessee, which was upheld by the Commissioner. However, the Customs, Excise & Service Tax Appellate Tribunal accepted the assessee's appeal, emphasizing that the onus was on the revenue to prove that the inputs were non-duty paid. The Tribunal referred to a previous decision where it was held that in case of conditional notifications, the burden of proof rested with the revenue.

Issue 3:
The High Court analyzed whether the revenue adequately proved that the inputs used by the assessee were non-duty paid or charged to Nil rate of duty. The Court noted that the revenue failed to provide sufficient evidence to deny the assessee the right to avail modvat credit. It emphasized that the burden of proof was on the revenue, and in the absence of conclusive material, the assessee could not be denied the credit.

Issue 4:
The Court interpreted the conditional exemption notifications and highlighted that the mere existence of such exemptions was not adequate to infer that the inputs were non-duty paid. It stressed that unless all conditions were satisfied, it could not be assumed that the inputs were wholly exempted from duty or clearly recognized as non-duty paid.

Issue 5:
Referring to a judgment by the Allahabad High Court, the Court differentiated the present case where the assessee denied non-duty payment on inputs. The Court concluded that the revenue failed to prove that the inputs were not duty paid, leading to the dismissal of the appeal in favor of the assessee. The judgment underscored the importance of the revenue meeting the burden of proof in denying modvat credit to the assessee.