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Issues:
Admissibility of Modvat credit on damaged colour picture tubes, applicability of Rule 57F(4) for remission of duty, limitation period for demanding duty payment. Analysis: 1. The case involved a dispute regarding the admissibility of Modvat credit on 273 damaged colour picture tubes by the appellants who manufactured Colour T.V. sets. The Central Excise Officers alleged that since the damaged tubes were unfit for use in manufacturing T.V. sets, no Modvat credit should be allowed. The department also raised concerns about delayed receipt of certain tubes and short receipt of goods for which full Modvat credit was taken. 2. The appellants contended that the damaged tubes were in good condition upon receipt and were damaged during the manufacturing process of T.V. sets. They argued that they were entitled to remission of duty on the damaged tubes under Rule 57F. The appellants also sought an extension of time for the delayed receipt of tubes and agreed to reverse the Modvat credit for short receipts. 3. The Collector confirmed a demand of Rs. 1,72,350 on the 273 defective tubes, dropped a demand of Rs. 52,620.87 for inputs received late from job workers, and directed the reversal of Modvat credit of Rs. 6,357.09 for short receipts. The appellants appealed the decision, arguing that the demand was time-barred as the Modvat credit was taken before the show cause notice was issued. 4. The appellants' counsel contended that the duty demand was beyond the limitation period and that the damaged tubes were eligible for remission under Rule 57F(4) as they were unfit for further use. The counsel argued that the damaged tubes were not worth the duty payable, and all requirements of Rule 57F(4) were met, thus duty was not demandable on them. 5. The department's representative claimed that the appellants had not disclosed the damaged tubes to the department, establishing suppression and misstatement. They supported the confirmation of the demand beyond six months by the lower authorities. 6. After considering the submissions, the judge found that the damaged tubes were not usable in T.V. set manufacturing and were not worth the duty payable. Rule 57F(4) allowed for the destruction of damaged materials, and there was no evidence to show the tubes were capable of use or sale. The judge held that the Modvat credit was rightly taken and could not be reversed due to the damaged state of the tubes. 7. Regarding the limitation issue, the judge noted an absence of evidence proving suppression or misstatement, as the goods were present in the appellants' stock and regularly reported. The demand was deemed time-barred as the show cause notice was issued after the reversal of the Modvat credit, even if the date of reversal was considered for the limitation period. 8. Ultimately, the judge ruled in favor of the appellants on both merit and limitation grounds. The impugned order was modified, and the appeal was allowed, indicating that the demand was time-barred and the Modvat credit on damaged tubes was valid.
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