1995 (8) TMI 149 - AT - Central Excise

Summary

Issues:
1. Whether the appellants are required to pay back the MODVAT credit attributable to inputs upon opting out of the MODVAT Scheme and choosing the benefit of Notification 175/86.

Analysis:
The appeal was against the order of the Collector of Central Excise (Appeals), Bangalore, which upheld the demand for payment of MODVAT credit attributable to inputs upon opting out of the MODVAT Scheme and choosing the benefit of Notification 175/86. The lower authority held that since the final product was exempt from duty, the credit of duty on inputs could not be allowed. The appellants argued that there was no provision in the rules for such a demand. They contended that only the duty credit available on the day of opting out of MODVAT should lapse, not the demand for duty on inputs. The Tribunal considered whether the appellants were required to reverse the MODVAT credit on inputs upon opting for the benefit of Notification 175/86. The Tribunal noted that the Notification did not restrict availing MODVAT credit, and the benefit was to be restricted based on the value of clearances. The Tribunal found that the authorities misinterpreted the law by demanding repayment of MODVAT credit instead of limiting the benefit under the Notification. The Tribunal held that the demand for repayment was a case of short levy rather than a requirement to reverse MODVAT credit on inputs.

The Tribunal emphasized that where MODVAT credit was taken on inputs, the benefit of the Notification should be restricted accordingly. The authorities should have limited the benefit as per the Notification instead of recovering under Rule 57C of the MODVAT Rules. The Tribunal highlighted that the authorities could have recovered duty on inputs used for duty-free clearances under the Notification. The Tribunal referred to previous decisions supporting the view that no case for the reversal of MODVAT credit on inputs in stock had been established. The Tribunal concluded that the demand for repayment of MODVAT credit on inputs was not justified, and the benefit under the Notification should have been restricted based on the value of clearances as per the rules.

In summary, the Tribunal ruled in favor of the appellants, stating that the demand for repayment of MODVAT credit on inputs upon opting for the benefit of Notification 175/86 was unfounded. The Tribunal held that the benefit under the Notification should have been limited based on the value of clearances, and there was no legal basis for the demand for repayment of MODVAT credit on inputs. The authorities were directed to restrict the benefit under the Notification as per the rules and previous decisions, emphasizing that no case for the reversal of MODVAT credit on inputs in stock had been established.