1995 (5) TMI 161 - AT - Central Excise

Summary

Issues:
Admissibility of deemed credit in case of Iron and Steel scrap falling under the then Tariff Item 72.03 during May 1986 to August 1986.

Detailed Analysis:

Issue 1: Admissibility of Deemed Credit
The appellants, engaged in manufacturing steel ingots, argued that they were eligible for deemed credit on iron and steel scrap purchased from the open market without producing duty paying documents, as permitted by the Central Government under Rule 57(G)(2) of Central Excise Rules. However, the Central Government withdrew this facility for Chapter 72.03 goods w.e.f. 29-8-1986. The Central Excise Officer disallowed Modvat credit taken by the appellants during May to August 1986, leading to a show cause notice for recovery. The High Court directed assessment after considering the notice, and the Division Bench upheld this decision. The appellants contended that they had submitted all necessary documents to establish the nature of inputs used, as required by the Court. The Tribunal emphasized that the Department must prove goods were non-duty paid if purchased from the market, citing relevant cases. The Department failed to establish exemption availed by the goods, and the Tribunal found the appellants had made a strong prima facie case in their favor, waiving the pre-deposit requirement.

Issue 2: Interpretation of Modvat Scheme
The Tribunal clarified that the purpose of the Modvat Scheme was to avoid tax cascading, not to enrich the industry. The Department was advised to seek an Early Hearing for final decision due to the significant revenue involved in the case. The Tribunal highlighted the importance of the Collector testing the evidence submitted by the appellants to determine the admissibility of their claim for Modvat credit based on the rates specified by the Government. The Tribunal emphasized that the manufacturer must take a definite stand regarding the nature of inputs used and supported this stance with appropriate evidence.

Conclusion:
The Tribunal ruled in favor of the appellants, emphasizing the necessity for the Department to establish non-duty paid status of goods purchased from the market and the manufacturer's obligation to provide evidence supporting their claim for Modvat credit. The judgment underscored the importance of following the directives of the High Court and the specific rates specified by the Government for different types of inputs. The waiver of pre-deposit and stay of recovery of duty and penalty were granted to the appellants pending the appeal, considering the strong prima facie case made by them.