1996 (4) TMI 279 - AT - Central Excise

Summary

Issues:
- Disallowance of Modvat credit on Hydrochloric Acid and Caustic Soda
- Improper declaration under Rule 57G
- Charge of suppression and evasion of Central Excise duty
- Eligibility of Modvat credit for inputs used in water treatment

Analysis:
The appeal before the Appellate Tribunal CEGAT, New Delhi was filed by M/s. HI-TECH Carbon against the Order-in-Original confirming a demand for Central Excise duty and imposing a penalty. The Commissioner disallowed Modvat credit on Hydrochloric Acid and Caustic Soda, stating they were not inputs for the final product, Carbon Black, but for steam, an intermediate product. The Commissioner found the declaration filed by the appellants to be insufficient and held it was an attempt to suppress vital facts to evade duty. The Commissioner justified the extended period for issuing the notice based on this suppression. The Trade Notice cited by the appellants was deemed irrelevant as it pertained to the Paper industry.

In defense, the appellants argued that they were eligible for Modvat credit as inputs used for water treatment were considered eligible in previous Tribunal decisions. The Departmental Representative supported the impugned order.

The Tribunal found that disallowing Modvat credit based on the ground that the chemicals were inputs for steam and not directly for Carbon Black was not sustainable. As the subject inputs were used for an intermediate product (steam) and ultimately for the final product (Carbon Black), the disallowance of Modvat credit was unwarranted. The Tribunal held that even if the declaration was insufficient, it did not amount to suppression, especially since the department was aware of the appellants' Modvat benefit claim based on the same declaration.

The Tribunal referred to a previous appeal involving a similar issue and held that inputs like Caustic Soda and Hydrochloric Acid used for water treatment were indeed eligible for Modvat credit as they were used in relation to the manufacture of the final product, Carbon Black. The Tribunal clarified the scope of "in relation to the manufacture of final product" and emphasized that processes like producing steam were integral to the manufacturing process. The use of demineralised water in producing steam for manufacturing Carbon Black was deemed commercially expedient and essential, not merely maintenance of plant and machinery. Consequently, the appeal was allowed on merits and on the ground that the notice was barred by limitation.