2010 (2) TMI 471 - HC - Central Excise

Cenvat Credit - Whether the Hon ble CESTAT can allow availment of Cenvat credit in respect of duty paid packing material which was not received by the Respondent alongwith the inputs? Whether the Hon ble CESTAT is right in reducing the penalty to Rs. 20,000/- whereas Section 11AC of the Act mandates equal penalty? Held that - revenue assailing credit on the ground that inputs not received in packing of boxes. Impugned order indicating that duty paid by suppliers on goods including value of packing. Respondent entitled to credit since duty paid on packing material. Tribunal order also reducing penalty, sustainable.

Summary

Issues:
1. Entitlement to Modvat credit on packing material used in packing spare-parts of tractors.
2. Reduction of penalty amount as per Section 11AC of the Act.

Entitlement to Modvat Credit:
The High Court dealt with the issue of whether the respondent, a manufacturer of tractors and components, was entitled to claim Modvat credit on the packing material used for packing spare-parts of tractors. The Tribunal had allowed the credit, stating that duty was paid on the boxes containing the components. The Revenue argued that since the respondent did not receive inputs in the packing of boxes and goods were delivered on pallets, they were not entitled to any credit. However, the Court noted that duty was indeed paid by the suppliers on the goods inclusive of the full packing of boxes. As the duty was paid on the packing material, the respondent was deemed eligible to claim Modvat credit. The Court held that since duty was paid on the packing material, the respondent was entitled to the credit, dismissing the Revenue's argument.

Reduction of Penalty Amount:
The Court also addressed the issue of the penalty amount imposed, questioning whether the Tribunal was correct in reducing the penalty to Rs. 20,000 when Section 11AC of the Act mandates an equal penalty. The Revenue contended that the penalty should not have been reduced. However, the Court upheld the Tribunal's decision, stating that the Tribunal was justified in reducing the penalty. Consequently, the Court ruled against the Revenue on this issue as well. As a result of the above analysis, the Court dismissed the appeal, finding it lacking in merits based on the findings regarding the entitlement to Modvat credit and the reduction of the penalty amount.