1998 (10) TMI 206 - AT - Central Excise

Summary

Issues:
1. Interpretation of Notification No. 225/86-C.E. regarding duty exemption on final product.
2. Utilization of credit earned on inputs for exported products.
3. Validity of refund claim for reversed Modvat credit.
4. Procedural objections raised by the Revenue for refund denial.

Interpretation of Notification No. 225/86-C.E.:
The case involved a dispute over the interpretation of Notification No. 225/86-C.E., which provided duty exemption on the final product, Polyster Staple Fibre (PSF), equivalent to the duty paid on Mono Ethylene Glycol (MEG). The notification did not specify a procedure for availing the benefit, but a trade notice outlined a set-off procedure similar to Modvat credit. The Tribunal noted that there was no one-to-one correlation between inputs and the final product as per the prescribed procedure.

Utilization of credit for exported products:
The respondents had exported a portion of the PSF without duty payment under Rule 191B. The issue arose when the Inspector of Central Excise directed the respondents to reverse the credit taken on inputs utilized in the export product. Despite appealing and getting the order set aside, the Modvat credit was reversed under pressure from local officers. The respondents then filed a refund claim for the reversed amount, which was upheld by the lower appellate authority.

Validity of refund claim for reversed Modvat credit:
The Revenue contended that Notification No. 225/86-C.E. did not allow for a refund of duty paid on inputs used in the final product. However, the Tribunal observed that the set-off procedure indicated the credit could have been utilized for duty on clearances for home consumption. The Tribunal emphasized that denying the refund solely based on a procedural objection, especially after the credit reversal was coerced, would be unfair. The Tribunal highlighted that substantive benefits should not be denied for procedural lapses.

Procedural objections for refund denial:
The Revenue's appeal was dismissed as the Tribunal found no merit in their arguments. The Tribunal emphasized that the Revenue's objection was procedural, and the respondents could have availed of alternative procedures like drawback, rebate, or excise duty under Central Excise Rules. The Tribunal concluded that denying the refund based on technicalities when the credit reversal was forced would be unjust, and substantive benefits should not be withheld for procedural reasons.

In conclusion, the Tribunal upheld the lower appellate authority's decision to grant the refund claim to the respondents, emphasizing that the Revenue's objections were procedural and did not outweigh the substantive benefits to which the respondents were entitled.