1997 (5) TMI 268 - Commissioner - Central Excise

Issues Involved:
1. Removal of duty-free DEEC materials.
2. Utilization of Modvat credit.
3. Allegations of contravention of Central Excise Rules.
4. Imposition of penalties under Rule 173Q.

Issue-Wise Detailed Analysis:

1. Removal of duty-free DEEC materials:
TIDC imported raw materials under the Quantity Based Advance Licences (QBAL) without payment of duty. These materials were sent to RCD, a job worker, for conversion into chains. The Central Excise Officers alleged that TIDC removed these duty-free materials improperly under Rule 57F(1)(ii), which was not applicable for such removals. TIDC paid Central Excise duty amounting to Rs. 61,15,713 on these materials, enabling RCD to avail Modvat credit.

2. Utilization of Modvat credit:
TIDC utilized Modvat credit accrued from indigenous inputs to pay duty on the imported duty-free DEEC materials. This action was deemed irregular as it allowed RCD to avail Modvat credit of Rs. 57,16,752, which was then used for the payment of Central Excise duty on goods removed for home consumption. The department argued that TIDC misused Modvat credit by transferring it indirectly to RCD.

3. Allegations of contravention of Central Excise Rules:
The department issued a show cause notice alleging that TIDC, along with its Vice President and Senior Manager, failed to observe the provisions of Rule 57A read with Rule 57F(4) of Central Excise Rules, 1944. It was alleged that TIDC entered incorrect particulars in the invoices, facilitating RCD to avail ineligible Modvat credit, thus violating Rule 173Q(1)(bbb).

4. Imposition of penalties under Rule 173Q:
The show cause notice proposed penalties under Rule 173Q of Central Excise Rules, 1944, against TIDC and its officials. TIDC argued that the payment of duty on DEEC materials was due to a mistaken impression of the law and not with any mala fide intent. They emphasized that there was no deliberate attempt to evade duty or transfer funds to RCD, and that the payment of duty on non-dutiable goods was a bona fide mistake.

Findings:

1. Lack of mala fide intent:
The adjudicating authority found no evidence of mala fide intent by TIDC in paying duty on non-dutiable imported inputs. It was established that RCD, being a job worker, was entitled to recover conversion charges only, and the duty on finished products was payable by TIDC. The authority noted that TIDC did not have excess Modvat credit and had deposited significant amounts in their PLA account, indicating no accumulation of surplus credit.

2. Bona fide mistake:
The authority accepted TIDC's explanation that the payment of duty on non-dutiable goods was a bona fide mistake. The procedural lapse did not result in any revenue loss to the government, as the duty paid at TIDC was availed as credit by RCD.

3. No contravention of Rule 173Q(1)(bbb):
Since the department could not establish any wilful intent to evade duty or facilitate ineligible Modvat credit, the authority concluded that Rule 173Q(1)(bbb) was not applicable. Consequently, the proceedings against TIDC and its officials were dropped.

Order:
The show cause notice was dropped, and no penalties were imposed on TIDC or its officials. The decision was made without prejudice to any proceedings against RCD at Hyderabad.

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