1997 (5) TMI 261 - AT - Central Excise

Summary

Issues:
Dispensation of pre-deposit of penalty based on Modvat credit reversal and duty computation at the time of goods clearance.

Analysis:
The appellant sought dispensation of pre-deposit of a penalty of Rs. 5,00,000 for alleged duty evasion related to Modvat credit on inputs cleared after paying duty. The appellant's Chartered Accountant argued that the Modvat credit reversal was done when goods were removed, but duty was recalculated based on the selling price, citing a Tribunal judgment. The Tribunal's decision in Collector of Central Excise v. American Auto Services clarified that duty at the time of clearance should be based on the original credit taken, not the prevailing rate. Another case, Modi Rubber Ltd. v. Collector of Central Excise, emphasized applying the prevalent duty rate at the time of clearance, not receipt, before Rule 57F's 1992 amendment. The Tribunal upheld this principle in Collector of Central Excise v. Century Laminating Co., rejecting retrospective application of a clarificatory amendment. The appellant argued that duty was paid as per the Larger Bench decision, denying any evasion.

The Department contended that the lower authority correctly demanded higher duty based on Modi Rubber Ltd. and another Tribunal decision. However, they acknowledged not informing the Tribunal about the American Auto Services judgment during proceedings.

The Tribunal disagreed with the Department, citing the Larger Bench's ruling that finalizing classification and assessment at the original manufacturer's end precludes revisiting at the user's stage. The Tribunal stressed that duty should match the Modvat credit taken, regardless of changes in duty rates, as per Rule 57F(1)(ii). The Tribunal upheld the American Auto Services judgment, emphasizing that the duty at clearance should align with the original credit taken. The Modi Rubber Ltd. decision was deemed inapplicable due to the Larger Bench's authoritative ruling. Consequently, the Tribunal allowed the pre-deposit dispensation request.

The Tribunal clarified that if duty equivalent to the Modvat credit was paid at goods removal, no further action or penalty was warranted. Otherwise, the lower authority would reassess considering the Larger Bench's interpretation, imposing penalties if necessary.

In conclusion, the Tribunal upheld the dispensation of pre-deposit based on the Larger Bench's decision, emphasizing adherence to the Modvat credit principle at the time of goods clearance.