1995 (8) TMI 156 - AT - Central Excise

Summary

Issues Involved:
1. Whether the MODVAT credit standing in RG-23A Part I Account should be expunged when the respondents started availing the benefit of exemption Notification No. 140/83.
2. Whether the respondents could use the MODVAT credit after crossing the exemption limit and starting to pay duty.
3. Whether the demand raised by the Department is barred by limitation.

Issue-wise Detailed Analysis:

1. Expunging MODVAT Credit under Exemption Notification No. 140/83:
The core issue was whether the MODVAT credit standing in RG-23A Part I Account on the date when the respondents began availing the benefit of exemption Notification No. 140/83 should be expunged. The Revenue argued that, per Rule 57C, no credit of the specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty of excise. Therefore, the balance credit available at the end of a financial year cannot be carried forward to the subsequent year if the respondents were enjoying full exemption under the notification. The Tribunal observed that the moment an assessee starts availing of the exemption notification, all operations under the MODVAT scheme cease, and any credit available in RG-23A would stand expunged or extinguished. It was held that the lower authorities erred in allowing the MODVAT credit available when respondents started availing of the exemption, and the impugned order was set aside, allowing the appeal of the Revenue.

2. Use of MODVAT Credit After Crossing Exemption Limit:
The respondents argued that they did not take any MODVAT credit for inputs used in the manufacture and clearance of exempted goods and only used the credit after crossing the exemption limit and starting to pay duty. The lower authorities found that the respondents expunged the credit availed on inputs used for the manufacture of goods cleared duty-free once the Rs. 5 lakhs limit was crossed. The Tribunal noted that there is no one-to-one correlation in the MODVAT scheme, and the eligibility to MODVAT benefits changes when an assessee transitions from a duty-paying unit to a non-duty-paying unit. It was held that the credit lawfully taken cannot be expunged unless there is a finding of erroneous availment of MODVAT credit. The Tribunal concluded that the respondents did not improperly utilize any credit during the period in question, and the impugned order was sustainable in law.

3. Barred by Limitation:
The respondents also contended that the demand was barred by limitation as it was raised after the period of six months of availing the MODVAT credit. The Tribunal did not specifically address this issue in detail, focusing instead on the substantive aspects of the MODVAT credit eligibility and utilization.

Separate Judgments:
The Tribunal delivered separate judgments by different members. One member held that the credit should be expunged when availing the exemption, while another member disagreed, stating that the credit lawfully taken cannot be expunged without a finding of erroneous availment. The third member agreed with the latter view, resulting in a majority decision.

Final Order:
In light of the majority view, the appeal filed by the Revenue was dismissed.