1992 (10) TMI 212 - AT - Central Excise

Issues Involved:

1. Interpretation of Notification 149/87 regarding the quantum of admissible modvat credit.
2. Limitation period for issuing the demand notice.

Detailed Analysis:

1. Interpretation of Notification 149/87 regarding the quantum of admissible modvat credit:

M/s. India Linoleums Ltd. argued that they used kraft paper as packaging material in relation to the manufacture of linoleum, not in the manufacture of the final product itself. They contended that the restriction of modvat credit to Rs. 800 per Metric Tonne was applicable only for paper used in the manufacture of the final product, not for packaging materials. They asserted that the distinction between "use in the manufacture" and "use in relation to the manufacture" should entitle them to the full amount of duty paid on kraft paper.

The Tribunal found this argument to be specious and totally unacceptable. It held that the distinction between "use in the manufacture" and "use in relation to the manufacture" was contrived and artificial. The Tribunal emphasized that the credit is available irrespective of whether the inputs are used in the manufacture or in relation to the manufacture of the final product. The expression "in relation to" is used in Rule 57A to enlarge the scope of the benefit, but the relevant notification did not use this expression, possibly by oversight. The Tribunal concluded that the appellants' attempt to separate the stages of manufacture and packaging to avail the full duty credit was untenable. Therefore, on merits, the appellants had no case.

2. Limitation period for issuing the demand notice:

The appellants contended that the demand notice issued on 8-9-1989 for the period from 21-5-1987 to 30-11-1988 was time-barred, as it was beyond the six-month limitation period. The Collector had conceded that there was no suppression or misstatement but argued that the demand was enforceable under the unamended Rule 57-I, which did not have a limitation period.

The Tribunal noted that the Collector relied on the Gujarat High Court's judgment in Torrent Laboratories Pvt. Ltd. v. Union of India, which held that the limitation under Section 11A could not be read into the unamended Rule 57-I. However, the appellants cited several Tribunal decisions and the Karnataka High Court's judgment in Tungabhadra Steel Products v. Superintendent of Central Excise, which held that the time limit prescribed under Section 11A would apply to proceedings under Rule 57-I even before its amendment.

The Tribunal preferred the Karnataka High Court's interpretation and held that the demand was hit by the bar of limitation. The Tribunal emphasized that the amended Rule 57-I, which includes a time limit, should be applied to demands issued after its amendment, even if the period of wrong availment of credit was before the amendment. The Tribunal followed the larger Bench decision in Atma Steels case and the West Regional Bench decision in Apar Limited v. Collector of Central Excise, concluding that the demand in this case was time-barred.

Conclusion:

The appeal was allowed on the question of limitation. The Tribunal held that the demand notice was time-barred and that the Collector should have applied the amended Rule 57-I, which includes a time limit for issuing demands. The Tribunal also noted that the department should take appropriate action to correct any excess credit availed by the appellants subsequent to the proceedings initiated in this case. The operative part of the order was announced in open court on 26-10-1992.

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