1996 (7) TMI 333 - AT - Central Excise

Summary

Issues:
1. Irregular availing of Modvat credit and penalty imposition.
2. Misuse of Modvat credit on duty-free cleared final products.
3. Justification of duty demand on bottles broken during handling.
4. Denial of Modvat credit on rejected bottles.
5. Quantum of penalty imposed.

Analysis:
1. The appellants contested an order demanding duty for irregularly availed Modvat credit and imposing a penalty. The dispute arose from excess issue of bottles without corresponding production of medicines. Conflicting statements regarding the disposal of rejected bottles were provided by the office incharge and a partner. The department found misuse of Modvat credit on duty-free cleared final products and incorrect availing of credit on broken bottles. The Additional Commissioner confirmed the duty demand and imposed a penalty of Rs. one lakh.

2. The Tribunal upheld the order to reverse Modvat credit on samples cleared duty-free under Notification No. 171/70. Rule 57C of the Central Excise Rules prohibits Modvat credit on inputs used in goods cleared under full duty exemption or nil rate of duty. The contention that products were cleared for in-factory use under the notification did not support the appellants. Thus, the lower authority's decision on this matter was upheld.

3. Regarding duty demand on bottles broken during handling, the Tribunal found it unjustified. The manufacturing process of I.V. Fluids required strict quality control, including thorough washing and cleaning of bottles. As washing and cleaning were integral to the manufacturing process, broken bottles should be eligible for Modvat credit under Rule 57D. The Tribunal cited a precedent where rejected goods were eligible for credit if destroyed per prescribed procedure. Therefore, the demand for duty on broken bottles was deemed unwarranted.

4. The Tribunal also addressed the denial of Modvat credit on rejected bottles. Rejected bottles, occurring before final registration, should be eligible for credit under Rule 57D(1) if destroyed as per Rule 57F. The Tribunal referred to a previous decision to support this stance. Consequently, Modvat credit on rejected bottles should not be denied if destroyed according to the prescribed procedure.

5. Lastly, the Tribunal reviewed the quantum of penalty imposed by the Additional Commissioner. Considering the nature of the offense and the reduced duty demand, the penalty was deemed excessive. The slow response from the appellants was noted, but a lower penalty of Rs. five thousand was deemed appropriate. The Tribunal concluded the appeal with the adjusted penalty amount and upheld the decisions on Modvat credit issues.