2010 (3) TMI 566 - HC - Central Excise

Cenvat/Modvat - A show cause notice was issued to the assessee, proposing to deny proforma credit availed by it under the modvat scheme, on the ground that as the old rollable material/re-rollable material and scrap is not specified in the Government of India s Order No. B-22/5/86-TRU, dated 7-4-1986, therefore, it (assessee) is not entitled to modvat credit without production of evidence of payment of duty. Held that - burden of proof, that the goods on which deemed modvat credit is claimed are duty paid, was on the revenue not on the assessee. Hence assessee entitled to avail Modvat Credit.

Summary

Issues:
1. Denial of proforma credit under the modvat scheme to the assessee.
2. Burden of proving duty paid character of goods for claiming modvat credit.

Analysis:
1. The case involved the denial of proforma credit under the modvat scheme to the respondent-assessee, who was dealing in old rollable material/re-rollable material and scrap. The Assistant Commissioner and Commissioner (Appeals) upheld the denial of proforma credit to the assessee. However, the Customs, Excise & Service Tax Appellate Tribunal accepted the appeal, emphasizing that the burden of establishing duty paid character cannot be passed on to the appellants if the Revenue has any doubt. The Tribunal observed that the burden of proving duty paid character of the goods rests on the Revenue, and if the disputed goods were not wholly exempted, the onus is on the department to prove duty paid character.

2. The central issue revolved around determining the burden of proving duty paid character of goods for claiming modvat credit. The Court analyzed the relevant provisions and held that the burden of proof lies on the Revenue, not the assessee. Referring to previous judgments, the Court emphasized that unless the Revenue proves that the inputs used are not duty paid or charged to a nil rate of duty, the assessee cannot be denied the right to avail the modvat credit. The Court cited similar judgments where the onus of proof on the availment of credit of duty paid character was placed on the Revenue, not the assessee.

3. The Court highlighted that the goods purchased by the assessee, as per the Government of India's order, were deemed to have paid the specified duty at the specified rate. The exclusion clauses in the order required the Revenue to prove with cogent evidence that the goods fell within those clauses to deny the modvat credit. The Court reiterated that the burden of proof lies on the party who would fail if no evidence is given, emphasizing that the Revenue must establish the duty paid character of the goods to deny the modvat credit.

4. Citing previous judgments and legal principles, the Court concluded that the burden of proving that the goods on which deemed modvat credit is claimed are duty paid rests on the Revenue, not the assessee. The Court held in favor of the assessee, stating that the Revenue failed to discharge the onus of proving that the inputs used were not duty paid, thereby affirming the right of the assessee to avail the modvat credit. The judgment clarified the allocation of burden of proof in cases concerning the claim of modvat credit based on duty paid character of goods.