1997 (1) TMI 244 - AT - Central Excise

Summary

Issues:
1. Duty demand and penalty imposed by the Collector of Central Excise, Madras.
2. Modvat credit claimed by the appellants for defective components and consumables sent to job workers.
3. Debit notes raised by the appellants for defective components and consumables.
4. Question of duty payment on defective components and consumables.
5. Levy of penalty on the appellants for alleged clandestine removal of goods.

Analysis:
1. The appeal challenged the duty demand of Rs. 16,73,332/- and a penalty of Rs. 1.5 Lakhs imposed by the Collector of Central Excise, Madras. The appellants, engaged in manufacturing heavy-duty motor vehicles, received parts from various manufacturers and got job work done under Rule 57F(2) of the Central Excise and Salt Act.

2. The appellants claimed Modvat credit for both components and consumer goods declared as inputs under Rule 57G of the Central Excise Rules, 1944. Some components were found defective on the assembly line, leading to the appellants raising debit notes on suppliers. The appellants argued that defective components were considered scrap and not cleared outside the factory, thus duty payment was not required.

3. Debit notes were raised by the appellants for defective components and consumables sent to job workers. The Collector held that duty payment was necessary for these items, as they were considered cleared from the factory. The appellants contended that raising debit notes was a financial transaction, not an excisable event, and duty reimbursement was not warranted.

4. The Tribunal observed that the appellants raised debit notes for accounting purposes and to recover costs of unusable items. While some material sent to job workers lacked a satisfactory reason for debit notes, the question arose whether duty reimbursement was necessary since Modvat credit was claimed. The Tribunal upheld the duty demand as the appellants had paid the amount, though the plea regarding duty reimbursement was not pursued.

5. Regarding the penalty, the appellants were found to have recovered duty amounts without informing authorities, despite claiming Modvat credit. The Tribunal reduced the penalty to Rs. 30,000, considering the appellants' lack of malafide intent and the duty recovery circumstances. The appeal was rejected, except for the penalty modification.