1997 (3) TMI 308 - AT - Central Excise

Summary

Issues:
- Disallowance of Modvat credit for the period from September 1986 to March 1987.
- Applicability of Government orders dated 7-4-1986 and 20-10-1987 on Modvat credit.
- Burden of proof on Department regarding non-duty paid goods.
- Interpretation of deemed credit facility under Rule 56A.

Analysis:
The judgment revolves around the disallowance of Modvat credit claimed by manufacturers of steel products for the period from September 1986 to March 1987. The dispute arose when show cause notices were issued proposing disallowance of Modvat credit taken by the appellants, alleging that the inputs used were not covered by the deemed credit order dated 7-4-1986. The Assistant Collector and the Collector (Appeals) upheld the disallowance based on a subsequent clarification dated 20-10-1987, which restricted the benefit of deemed credit. However, the Tribunal found that the denial of the benefit was incorrect in law as the original order dated 7-4-1986 allowed deemed credit for specific items. The Ministry's order of October 1987 was deemed a clarification and did not curtail the benefits available under the earlier order.

The crux of the argument presented by the appellants was that the burden of proof that the goods were non-duty paid or charged to nil rate of duty lay with the Department. The appellants contended that the Department failed to provide evidence that the goods purchased were clearly recognisable as non-duty paid. Citing precedents, including the decision in Machine Builders case, the appellants argued that where goods in the market are a mixture of duty paid and non-duty paid goods, the burden to prove non-duty paid status rests with the Revenue, not the assessee. The Tribunal concurred with this argument, emphasizing that the Assistant Collector's decision and the subsequent affirmation by the Collector (Appeals) were flawed in not appreciating the scope of the orders granting deemed credit to manufacturers.

In conclusion, the Tribunal allowed the appeals, setting aside the orders disallowing Modvat credit. The judgment underscored the importance of properly interpreting the provisions of deemed credit facilities, placing the burden of proof on the Revenue to establish non-duty paid status, and ensuring that subsequent clarifications do not undermine the benefits available under original orders.