1995 (8) TMI 126 - AT - Central Excise

Summary

Issues involved: Appeal against demand for Modvat credit on various inputs and imposition of penalty under Central Excise Rules.

Details of the Judgment:

1. Issue of Modvat Credit on Inputs:
The appellants sought Modvat credit for inputs used in their manufacturing process. The Collector confirmed the demand for a specific amount and imposed a penalty under Rule 173Q(1) of the Central Excise Rules. The inputs in question included caustic soda, hydrochloric acid, ion exchange resins, M.E.G., and Freon/Mefron gases used in different plants within the factory. The Collector held that some inputs were not directly related to the final product's manufacture, leading to the demand and penalty. The period covered was from 1-3-1986 to 31-5-1990, with a show cause notice dated 5-2-1991 invoking the extended period due to alleged suppression of material facts.

2. Arguments for Modvat Credit:
The appellants argued that the inputs were essential for the manufacturing process. For example, M.E.G. was used in the chilling plant to maintain the temperature necessary for the chemical reaction to produce sodium cyanide. Similarly, Freon/Mefron gases were crucial for refrigeration, and caustic soda, hydrochloric acid, and ion exchange resins were used in the effluent treatment plant to neutralize traces of sodium cyanide before discharge. They contended that these inputs were directly related to the manufacturing process and should be eligible for Modvat credit.

3. Decision on Modvat Credit:
The Tribunal found that Freon/Mefron gases and M.E.G. were indeed essential inputs directly related to the manufacturing process, allowing Modvat credit for these items. However, inputs used in the effluent treatment plant were deemed not eligible for Modvat credit as they were not directly related to the manufacture of the final product, sodium cyanide. The Tribunal's decision was based on the specific functions and necessity of each input in the manufacturing process.

4. Time Bar and Penalty:
Regarding the time bar issue, the Tribunal considered the declarations made by the appellants regarding the usage of inputs in the effluent treatment plant. Despite finding that these inputs were not eligible for Modvat credit, the Tribunal set aside the demand on the ground of time bar due to the lack of evidence of mala fide intent in the declarations. Consequently, the penalty was also set aside based on the Tribunal's findings on the Modvat credit eligibility of the inputs.

In conclusion, the appeal was allowed in favor of the appellants concerning the eligibility of certain inputs for Modvat credit, the time bar issue, and the penalty imposed under the Central Excise Rules.