1994 (7) TMI 191 - AT - Central Excise

Summary

Issues:
1. Interpretation of Notification No. 177/86-C.E. regarding Modvat credit restriction.
2. Admissibility of Modvat credit exceeding Rs. 500 per MT on ship-breaking materials.
3. Imposition of penalty under Rule 173-Q of Central Excise Rules, 1944.
4. Applicability of Rule 57-I for recovery of excess Modvat credit.

Analysis:

1. The appeal involved the interpretation of Notification No. 177/86-C.E. regarding the restriction on Modvat credit. The Addl. Collector had held that the Modvat credit for ship-breaking material was limited to Rs. 500 per MT or the actual duty paid, whichever is less. The appellant had taken credit exceeding this limit, leading to a demand for recovery under Rule 57-I of the Central Excise Rules, 1944.

2. The appellant, a manufacturer of Iron and Steel products, was availing Modvat credit on inputs, which was found to be more than Rs. 500 per MT during a specific period. The dispute arose when Central Excise Officers discovered the excess credit and issued a show cause notice for recovery and penalty. The appellant argued that the restriction under the Notification did not apply to materials obtained from breaking foreign ships, and therefore, the excess credit was justified.

3. The ld. Consultant for the appellant contended that the Modvat credit was taken based on Gate Passes and that the restriction on credit should be applied separately to each type of duty. The appellant's position was that the restriction under Proviso (3) of the Notification was not applicable to materials obtained from breaking foreign origin ships. The Department, represented by the ld. JDR, maintained that the excess Modvat credit was rightly denied as per the provisions of the Notification.

4. The Tribunal analyzed Proviso (3) of Notification No. 177/86 and concluded that the restriction of Rs. 500 per MT applied to materials obtained from breaking Indian origin ships only. Since the appellant received materials from breaking foreign ships, the restriction did not apply to them. As the Department failed to provide evidence supporting the applicability of the restriction to foreign origin materials, the Tribunal held that the Modvat credit claimed by the appellant was admissible, rendering the penalty imposition unsustainable in law.

5. The Tribunal set aside the impugned order, allowing the appeal based on the finding that the Modvat credit claimed by the appellant was justified, and the penalty imposition was unwarranted. The issue of demand under Rule 57-I was deemed of academic interest and not discussed further, with any consequential relief to be granted in accordance with the law.