1995 (4) TMI 175 - AT - Central Excise

Summary

Issues Involved:
1. Whether the appellants could opt to pay duty on exempted goods and avail Modvat credit.
2. Validity of recovery of Modvat credit and imposition of penalty without specific show cause notice.
3. Applicability of Section 11A for recovery of wrong credit.
4. Entitlement to refund of duty paid on final products if credit on inputs is disallowed.

Summary:

1. Option to Pay Duty on Exempted Goods and Avail Modvat Credit:
The appellants, manufacturers of 'aluminium foil, cut to shape,' did not avail the exemption u/s Notification No. 180/88 but opted to pay duty and avail Modvat credit on inputs. The Tribunal held that an exemption notification issued u/s 5A(1) of the Central Excises and Salt Act, 1944, is optional and not compulsory. Therefore, the appellants had the option to ignore the exemption and pay duty at the tariff rate, thereby availing Modvat credit. This interpretation aligns with the legal position reflected in the 1988 circular, which was deemed correct by the Tribunal.

2. Recovery of Modvat Credit and Imposition of Penalty:
The show cause notice issued to the appellants only addressed the disallowance of Modvat credit and not its recovery or the imposition of a penalty. The Tribunal found that while a specific show cause notice for recovery was not necessary, a notice for the imposition of a penalty was required. Consequently, the penalty of Rs. 5,000/- imposed on the appellants was set aside due to the lack of a specific show cause notice.

3. Applicability of Section 11A:
The Tribunal noted that Rule 57-I provides the method for recovering wrong credit, which includes debiting the credit from RG 23A or recovering it through other means if already utilized. The Tribunal clarified that the provisions of Rule 57-I would apply directly, and the recovery method prescribed therein would be sustainable, even though Section 11A might also be attracted in effect. However, since the Modvat credit was rightly taken by the appellants, the issue of recovery did not arise.

4. Entitlement to Refund of Duty Paid on Final Products:
The appellants argued that if the credit on inputs was disallowed, they should be entitled to a refund of duty paid on the final product u/s 11B. The Tribunal rejected this plea, noting that the appellants did not claim that they had not passed on the burden of duty to their customers. Therefore, the condition in Section 11B that the burden of duty should not have been passed on to the customer was not met.

Conclusion:
The appeal was allowed with consequential relief to the appellants, affirming their right to opt for paying duty on exempted goods and avail Modvat credit, setting aside the penalty imposed due to the lack of a specific show cause notice, and clarifying the applicability of Rule 57-I for recovery of wrong credit.