1997 (1) TMI 232 - AT - Customs

Summary

Issues Involved: Appeal against disallowance of Modvat credit and penalty imposition under Rule 173Q(1) of the Central Excise Rules 1944.

Issue 1: Disallowance of Modvat Credit

The appellants, a limited company engaged in manufacturing paints and varnishes, appealed against the disallowance of Modvat credit amounting to Rs. 1,20,97,078. The dispute arose when raw materials were supplied by the holding company, Berger Paints Ltd., to the appellants for job work. While some suppliers invoiced Berger Paints directly, these invoices were later endorsed to the appellants to enable them to avail Modvat credit. The lower authorities issued show cause notices questioning the validity of the Modvat credit availed by the appellants based on these transactions. Despite the appellants' submissions, the Commissioner upheld the disallowance, leading to the appeal.

Issue 2: Legal Interpretation and Precedent

During the appeal hearing, the question at hand was whether Modvat credit could be denied when inputs were received along with the manufacturer's invoice showing sale to a trader, and subsequently, invoices from such traders were produced. Citing the precedent set in the case of Prakash Cotton Mills Ltd. v. CCE, Bombay - 1996 (85) E.L.T. 149, the Tribunal clarified that Modvat credit cannot be denied when a correlation to the goods is established. Relying on this judgment, the Tribunal allowed the appeal, setting aside the impugned order passed by the Commissioner of Central Excise & Customs, Vadodara, and providing consequential relief if any.

This summary provides a detailed overview of the legal judgment, highlighting the issues involved, the facts of the case, and the legal interpretation that led to the decision in favor of the appellant.