1998 (5) TMI 101 - AT - Central Excise

Summary

Issues:
Admissibility of Modvat credit on inputs used in the manufacture of finished products supplied to Indian Navy under specific exemptions; Applicability of previous decisions by Larger Bench of Tribunal and High Courts on the issue; Imposition of penalty on the appellant for lack of clarity on Modvat credit entitlement.

Analysis:
The appellant, engaged in manufacturing Speciality Lubricant Oils, availed Modvat credit of Central Excise duty paid on inputs used for finished products supplied to Indian Navy and other buyers. The dispute centered around the admissibility of Modvat credit during October 1994 to May 1996 under specific notifications exempting goods supplied to Indian Navy from duty payment. Show cause notices were issued challenging the credit availed for products supplied to Indian Navy, leading to confirmation of proposals by the Assistant Collector and Commissioner (Appeals), prompting the filing of appeals. One of the original orders imposed a penalty of Rs. 3,000 on the appellant.

The Tribunal referred to the decision of the Larger Bench in Kirloskar Oil Engines Ltd. and the High Court of Allahabad in Supper Cassettes Industries Ltd., emphasizing that Modvat credit is not admissible for inputs used in manufacturing goods wholly exempt from duty. The Tribunal noted the scarcity of High Court decisions on this matter, with only the Allahabad High Court's ruling deemed binding. Despite pending applications for reference to other High Courts, the Tribunal upheld the Allahabad High Court's decision as conclusive.

The appellant argued lack of clarity regarding Modvat credit entitlement for duty-exempt finished products, challenging the justification for penalty imposition. The Tribunal agreed with this contention, leading to the setting aside of the penalty imposed in one of the orders while confirming the other aspects of the impugned orders in the appeals.

In conclusion, Appeal No. 2191/97 was partially allowed, while the other appeals were dismissed. The Tribunal's decision rested on the inadmissibility of Modvat credit for inputs used in manufacturing duty-exempt finished products supplied to the Indian Navy, aligning with previous decisions by the Larger Bench of the Tribunal and the High Court of Allahabad.