1994 (5) TMI 96 - AT - Central Excise

Summary

Issues:
Modvat Credit disallowed by Collector of Central Excise, Bhubaneswar for inputs used in the manufacture of Paper and Board; Recovery of disallowed credit; Imposition of penalty under Rule 173Q of Central Excise Rules, 1944; Applicability of Rule 57D(2) to determine eligibility for Modvat Credit; Interpretation of intermediate goods; Limitation period for issuing notice.

Analysis:
The appeal by M/s. Orient Paper Mills challenged the Collector's order disallowing Modvat Credit of Rs. 2,32,058 for inputs used in the manufacture of Paper and Board. The Collector alleged that the packing and wrapping paper used were not intermediate goods, leading to the disallowance of Modvat Credit and imposition of a penalty under Rule 173Q of the Central Excise Rules, 1944. The notice was issued invoking a longer period of limitation due to suppression of facts and contravention of Central Excise provisions to evade duty.

During the hearing, the Appellants' advocate argued that the Supreme Court's decision in Collector of Central Excise v. East End Paper supported their case, emphasizing that packing and wrapping paper used for packing other varieties of paper should be considered as inputs in the manufacture of the final product. They cited various judicial decisions and circulars to support their claim that the inputs used for packing paper should be eligible for Modvat Credit under Rule 57D(2).

The advocate also referenced cases such as Sirpur Paper Mills Ltd. v. Collector of C. Excise and Ponds India Ltd. v. Collector of Central Excise to demonstrate that inputs used in the manufacture of packing materials should be considered as intermediate goods eligible for Modvat Credit, even if the final product is exempt from duty. The advocate argued that the Collector's decision was not in line with judicial precedents and that the notice issued beyond the limitation period was unjustified.

In response, the Departmental Representative contended that the packing and wrapping paper were final products themselves and not intermediate goods, as determined by the Collector. The representative supported the Collector's reasoning on both the eligibility for Modvat Credit and the limitation period for issuing the notice.

The Tribunal accepted the arguments presented by the Appellants' counsel, emphasizing that the inputs used for packing and wrapping paper should be considered as intermediate products eligible for Modvat Credit. They relied on the East End Paper Industries case and the Ponds India Limited case to support their decision. The Tribunal held that the Collector's interpretation of intermediate goods was incorrect and that the notice issued beyond the limitation period was unwarranted. The appeal was allowed, setting aside the Collector's order and penalty.