1991 (1) TMI 300 - AT - Central Excise

Summary

Issues:
- Entitlement to deemed MODVAT credit for waste iron and steel scraps
- Validity of Order-in-Original disallowing credit and imposing penalty
- Interpretation of Government of India letter dated 7-4-1986
- Consistency with earlier Tribunal decisions on MODVAT credit for inputs

Analysis:
The appeal before the Appellate Tribunal CEGAT, New Delhi involved the issue of whether the appellants were entitled to deemed MODVAT credit for inputs, specifically waste iron and steel scraps, as per a Government of India letter dated 7-4-1986 under Rule 57G(2) of the Central Excise Rules, 1944. The impugned Order-in-Original disallowed the credit taken by the appellants and imposed a penalty for irregular availment and utilization of credit. The appellants argued that the impugned order was contrary to the directions of the Government of India and cited previous Tribunal decisions, including one involving Electrical Switchgears (P) Ltd., to support their claim that goods purchased in the open market are deemed duty paid for MODVAT credit purposes.

The Department, represented by Shri S. K. Sharma, contended that the inputs in question were not covered by the Government letter of 7-4-1986 and that MODVAT credit was not permissible for inputs clearly recognizable as non-duty paid or charged at a Nil rate of duty. Despite acknowledging the previous Tribunal decisions on similar issues, the Department argued that the specific nature of the waste and scrap in question fell outside the scope of the Government letter and relevant duty classifications.

After considering the arguments and reviewing past Tribunal decisions, the Appellate Tribunal found that the issue of deemed MODVAT credit for goods purchased in the open market had been consistently upheld in prior cases. Citing the decision in the case of M/s. Mittal Metal Industries and Others, the Tribunal reiterated that the onus of proving non-duty payment lay with the Department, which had failed to provide such evidence in this instance. Consequently, the Tribunal held that the appellants were entitled to take deemed MODVAT credit in accordance with the Government letter of 7-4-1986.

In light of the above findings, the impugned order disallowing the credit and imposing a penalty was set aside, and the appeal was allowed with consequential relief granted to the appellants.