1995 (12) TMI 191 - AT - Central Excise

Summary

Issues Involved:
1. Fulfillment of conditions under Notification No. 53/88-C.E., dated 1-3-1988.
2. Treatment of Modvat credit availed on duty-paid Vinyl Acetate Monomer (VAM).
3. Option to pay duty on goods fully exempted from payment of duty.
4. Allegation of suppression and evasion of duty.
5. Applicability of extended period of limitation for demand.
6. Imposition of penalty and redemption fine.

Detailed Analysis:

1. Fulfillment of Conditions under Notification No. 53/88-C.E., dated 1-3-1988:
The Collector held that the assessee did not fulfill the conditions of Notification No. 53/88-C.E., dated 1-3-1988, because they availed Modvat credit on VAM used captively, which implied that VAM was not treated as duty-paid. The notification required that Polyvinyl Alcohol (Polynol) be manufactured from VAM on which the appropriate amount of duty had been paid. The Collector concluded that since the duty on VAM was not actually paid but only credited, the concessional rate under the notification could not be availed.

2. Treatment of Modvat Credit Availed on Duty-Paid VAM:
The Collector asserted that when the assessee availed Modvat credit on VAM used captively, it retained the duty paid on VAM by way of Modvat credit, thus VAM could not be treated as duty-paid. The assessee argued that they had an option to pay duty on VAM and avail Modvat credit, relying on various judicial precedents which held that inputs do not lose their character of duty-paid inputs when Modvat credit is availed.

3. Option to Pay Duty on Goods Fully Exempted from Payment of Duty:
The assessee contended that they had the option to pay duty on VAM, even though it was exempt under Notification No. 217/86-C.E., dated 2-4-1986. The Collector disagreed, stating that the assessee could not pay duty on exempted goods and avail the benefit of the concessional rate under Notification No. 53/88. The Tribunal, however, referred to various rulings, including Union Carbide India Ltd. v. Collector of Central Excise and Indoswe Engineers Pvt. Ltd. v. Union of India, which supported the assessee's contention that they could pay duty on exempted goods and still avail the benefit under the notification.

4. Allegation of Suppression and Evasion of Duty:
The Collector accused the assessee of willfully suppressing the fact of availing Modvat credit on VAM in their classification list, with the intent to evade duty. The Tribunal, however, found that there was no suppression or misdeclaration by the assessee, as they had disclosed their actions to the authorities and had corresponded with the Central Board of Excise and Customs regarding their course of action.

5. Applicability of Extended Period of Limitation for Demand:
The demand was raised for the period from 1-4-1990 to 10-1-1991, but the show cause notice was issued on 3/6-4-1992. The Tribunal held that the extended period of limitation was not invokable as there was no suppression or misdeclaration by the assessee. Therefore, the demand beyond the normal period of six months was time-barred.

6. Imposition of Penalty and Redemption Fine:
The Collector imposed a penalty of Rs. 2 lakhs and a redemption fine of Rs. 5 lakhs. The Tribunal, however, set aside the penalty and fine, noting that there was no suppression or intent to evade duty by the assessee. The Tribunal referred to the Supreme Court's decision in Collector of Central Excise v. HMM Ltd., which held that penalty could only be imposed if the department's demand was sustainable.

Separate Judgments:
The Vice President differed from the Member (Judicial), proposing that the matter be remanded for reconsideration, whereas the Member (Judicial) proposed allowing the appeal and setting aside the impugned order. The third Member (Judicial) concurred with the Member (Judicial), leading to the final decision to set aside the impugned order and allow the appeal.

Final Order:
In view of the majority opinion, the impugned order was set aside, and the appeal was allowed.