1996 (7) TMI 254 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit on ribbed bars
2. Denial of Modvat credit on various inputs
3. Denial of Modvat credit on IOR MS rails
4. Denial of Modvat credit on burning losses
5. Imposition of penalty on the appellants

Analysis:

Issue 1: Denial of Modvat credit on ribbed bars
The appellants, engaged in manufacturing steel products falling under Chapters 72 and 73 of the Central Excise Tariff Act, 1985, faced proceedings initiated by the Commissioner of Central Excise for irregularities in availing Modvat credit. The Commissioner denied Modvat credit on ribbed bars, contending that the product should have been declared in the classification list. However, the Tribunal found that ribbed bars were included in the classification list and RT 12 returns, meeting the requirements of Modvat declaration under Rule 57G. The Tribunal held that Modvat credit on ribbed bars cannot be denied based on the Commissioner's grounds, as the inputs were declared and used in the final product's manufacture.

Issue 2: Denial of Modvat credit on various inputs
The Commissioner disallowed Modvat credit on certain inputs like processed scrap, MS scrap, re-rollable scrap, and burning losses, citing non-declaration in the Rule 57G declaration. The Tribunal agreed with the Commissioner's decision, emphasizing the necessity of specific inclusion of all inputs in the declaration for availing Modvat credit. Consequently, the denial of Modvat credit on these inputs was upheld, including the disallowance of deemed credit on MS scrap and material cleared without proper permission.

Issue 3: Denial of Modvat credit on IOR MS rails
The Commissioner also rejected Modvat credit on IOR MS rails, availed before their inclusion in the Modvat declaration. The Tribunal found evidence supporting the Commissioner's decision, noting discrepancies in the description of IOR rails. As the description was altered selectively, the Tribunal upheld the duty demand on this quantity, agreeing with the Commissioner's stance.

Issue 4: Denial of Modvat credit on burning losses
Regarding the denial of Modvat credit on burning losses, the Commissioner contended that such losses were not covered under Rule 57D. However, the Tribunal disagreed, citing technological inevitability of burning losses in the manufacturing process. It held that burning losses should be treated as waste, eligible for Modvat credit under Rule 57D. The Ministry's clarification on waste in copper manufacture was deemed inapplicable to iron and steel products. Consequently, Modvat credit on burning losses was deemed permissible.

Issue 5: Imposition of penalty on the appellants
While the appellants admitted irregularities in not following Rule 57F(1), the Tribunal reduced the penalty from Rs. 5 lakh to Rs. one lakh. This reduction was based on the findings that some Modvat credit claims by the appellants were permissible. Despite the admitted irregularity, the Tribunal considered the overall circumstances and reduced the penalty amount.

In conclusion, the Tribunal allowed Modvat credit on ribbed bars and burning losses but upheld the denial of credit on various other inputs and IOR MS rails. The penalty on the appellants was reduced to Rs. one lakh.