1993 (1) TMI 154 - AT - Central Excise

Issues Involved:
1. Disallowance of Modvat Credit balance as on 1-4-1987.
2. Demand of duty on goods cleared without payment of duty.
3. Demand of duty equivalent to the credit of duty taken on inputs in stock as on 1-4-1987.
4. Procedural compliance with Rule 57H of the Central Excise Rules.

Issue-wise Detailed Analysis:

1. Disallowance of Modvat Credit Balance as on 1-4-1987:
The appellants, M/s. Kwality Refrigeration Co., contested the disallowance of Modvat Credit balance amounting to Rs. 750.72 (Basic Excise duty) and Rs. 689.85 (Special Excise duty) in their RG 23A, Part II account. The Deputy Collector of Central Excise had disallowed this credit, but this disallowance was not covered in the show cause notice. The appellate tribunal found this disallowance to be "beyond the scope of the show cause notice," and thus "unsustainable." Consequently, the tribunal set aside the disallowance of the Modvat Credit balance.

2. Demand of Duty on Goods Cleared Without Payment of Duty:
The Deputy Collector had confirmed a duty demand of Rs. 32,460.00 on excisable goods removed by the appellants without payment of duty. The tribunal upheld this demand, noting that the duty paid by the appellants, though belatedly, should be taken into account to work out the further payment due. This decision was consistent with the Collector (Appeals)'s order.

3. Demand of Duty Equivalent to the Credit of Duty Taken on Inputs in Stock as on 1-4-1987:
The appellants argued that the inputs on which they had taken Modvat Credit were kept in stock and utilized only in the manufacture of dutiable final products cleared after exhausting the exemption limit. They claimed that for the manufacture of fully exempted goods cleared during the period from 1-4-1987 to June 1987, they procured parts from the market and did not take any credit on such parts. The tribunal noted that the appellants had filed a declaration dated 26-6-1987, stating their intention to utilize the inputs lying in their stock to manufacture excisable goods to be cleared on payment of duty. However, the tribunal found that the procedure prescribed for a manufacturer availing Modvat facility and then switching to full exemption requires that the credit on balance in the RG-23A, Part-II, as well as the credit corresponding to the unutilized inputs in stock, should be reversed or paid back in cash if already utilized. The tribunal remanded the matter to the Assistant Collector of Central Excise for a de novo decision on the merits, emphasizing the need to verify the identity of the goods used in the manufacture of dutiable goods cleared after availing full exemption.

4. Procedural Compliance with Rule 57H of the Central Excise Rules:
The tribunal highlighted that under Rule 57H(1) of the Central Excise Rules, the Assistant Collector may allow credit of the duty paid on inputs received by a manufacturer immediately before obtaining the dated acknowledgment of the declaration filed by him. The appellants contended that they had preserved the duty-paid components intact and procured more materials for their use during the exemption period. The tribunal noted that the appellants had not followed the correct procedure of reversing the credit and/or paying the duty equivalent to the inputs in stock on 1-4-1987. The tribunal directed that the appellants' application under Rule 57H be examined on merits with regard to the identity of the goods used in the manufacture of dutiable goods cleared after availing full exemption. The matter was remanded to the Assistant Collector for a fresh decision in accordance with the conditions of Rule 57H.

Conclusion:
The appellate tribunal set aside the disallowance of Modvat Credit balance and remanded the matter of duty equivalent to the credit of duty taken on inputs in stock as on 1-4-1987 for a fresh decision. The demand of duty on goods cleared without payment of duty was upheld, and the procedural compliance with Rule 57H was emphasized for a de novo decision.

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