1996 (5) TMI 163 - AT - Central Excise

Summary

Issues: Interpretation of Rule 57H of the Central Excise Rules regarding availment of Modvat credit at a notional higher rate.

In this judgment by the Appellate Tribunal CEGAT, Mumbai, the appellant, engaged in manufacturing bulk drugs and animal feed supplements, filed for Modvat credit under Rule 57H of the Central Excise Rules. The Assistant Collector initially granted permission for the credit but later directed the appellant to reverse a portion of it, alleging that only actual duty paid could be availed, not notional credit. The appellant contested this demand, arguing that the higher notional credit should be allowed for inputs received from Small Scale Industrial (SSI) units. The jurisdictional Assistant Collector upheld the demand, leading to this appeal.

The Administrative Manager of the appellant challenged the order, contending that the Assistant Collector could not review his own order granting permission for the credit. He argued that denying notional credit for inputs received from SSI units contradicted the purpose of the Modvat scheme. On the other hand, the JDR for the respondents argued that Rule 57H clearly stated credit should be limited to the duty actually paid on inputs, not the notional higher rate. He emphasized strict construction of fiscal provisions and supported the Additional Collector's demand as per statutory provisions.

The Tribunal analyzed the technical objection raised regarding the timing of the Show Cause Notice and found it permissible under Rule 57-I. The main issue revolved around interpreting Rule 57H, which allows for Modvat credit on inputs received before the declaration filing date. The Tribunal highlighted the purpose of the Modvat scheme to avoid cascading effects and discussed the interplay between Rule 57A, 57B, and 57H. It noted the deeming fiction created for inputs from SSI units under Rule 57B, allowing for credit at the normal rate even if duty was paid at a lower rate.

Ultimately, the Tribunal found that the denial of notional credit for inputs lying in stock on the declaration filing date was unjustified. It reasoned that Rule 57H should be construed to include notional higher credit, especially for inputs falling under Rule 57B. The judgment concluded by allowing the appeal, setting aside the demand, and ordering consequential relief for the appellant.