1998 (6) TMI 171 - AT - Central Excise

Summary

Issues:
Prayer for waiving pre-deposit of duty and penalty, interpretation of Rule 57F and Rule 57J, requirement of filing an undertaking under Notification No. 214/86, revenue neutrality of the exercise, limitation period for invoking longer period beyond six months.

Analysis:
The judgment dealt with the prayer for waiving the pre-deposit of duty and penalty amounting to Rs. 73,62,292/- and Rs. 75,62,292/- respectively, pending the disposal of the Appeal. The Applicant, engaged in manufacturing coated cotton fabrics, faced a Show Cause Notice disallowing the Modvat credit on yarn received during a specific period. The crux of the matter revolved around the filing of an undertaking under Notification No. 214/86 at the first stage of transfer of yarn to job workers, as required by Rule 57J. The Applicant contended that they operated under Rule 57F, not Rule 57J, and thus the non-filing of the undertaking should not hinder their right to claim credit of duty paid on the yarn.

The Applicant's counsel relied on a judgment by the Bombay High Court, emphasizing that compliance with Rule 57F(2) was optional, not mandatory, and the Assessee could choose to avail the Modvat facility under Rule 57A without following the procedure of Rule 57F(2). The counsel argued that the requirement of filing an undertaking under Notification No. 214/86 was specific to Rule 57J, and since the Applicant operated under Rule 57F, the lack of filing should not impede their entitlement to the duty credit. Additionally, the counsel highlighted the revenue neutrality of the exercise, stating that any disallowance at one stage would be offset by allowance at another, making the non-filing of the undertaking inconsequential.

The Respondent contended that the undertaking under Notification No. 214/86 was crucial for claiming the Modvat credit on the yarn, especially when the yarn was received directly at the Applicant's premises and at the job worker's place. The Respondent argued that the benefit of the notification should have been claimed by the job worker, necessitating the filing of the undertaking at the job worker's jurisdictional Asst. Commissioner. The lower authorities had denied the Modvat credit based on the non-filing of the undertaking, leading to the request for the Applicant to deposit the full duty and penalty amount.

Upon considering the submissions, the Tribunal acknowledged the debatable issue of whether an undertaking was required at the initial transfer of yarn to the job worker and to what extent. However, the Tribunal noted that the entire demand or disallowance of Modvat credit was revenue neutral. Furthermore, the Tribunal found merit in the Applicant's arguments regarding the limitation period, indicating no suppression and reliance on statutory documents. Consequently, the Tribunal dispensed with the pre-deposit requirement of duty and penalty, staying their recovery pending the Appeal's disposal.