1997 (12) TMI 415 - AT - Central Excise

Summary

Issues:
1. Whether the appellant is entitled to avail Modvat credit on material without production of duty paying document.
2. Whether the appellant can claim Modvat credit when the inputs received have not suffered any duty.

Analysis:

Issue 1:
The appellants, engaged in manufacturing Iron and Steel Products C.T.D. Bars and Rods, were availing deemed Modvat credit without producing duty paying documents as per Government Order No. 332/30/TRU/87. A show cause notice was issued to recover Modvat credit of Rs. 1,56,291.98 for a certain period, alleging that the inputs received by the appellant were cleared at nil rate of duty. The Assistant Commissioner and the Commissioner of Central Excise upheld the demand. The appellant argued that the order allowing deemed credit did not have a specific bar for taking such credit and that the explanation under Rule 57G(2) did not apply to inputs purchased from the market. The Tribunal noted that the inputs had not suffered any duty, which is essential for Modvat credit under Rule 57A. The Tribunal cited a Larger Bench decision stating that the benefit of Modvat scheme is not extended to those using inputs on which excise duty has not been paid. The appellant's argument regarding Notification No. 208/83 was also dismissed, and the appeal was rejected.

Issue 2:
The Department denied Modvat credit to the appellants as the inputs received, such as M.S. Scrap and M.S. Bars, showed nil rate of duty on gate passes. The Department argued that Modvat credit cannot be claimed when the inputs have not incurred any duty. The Tribunal concurred with the Department, emphasizing that duty payment on inputs is crucial for Modvat credit. The Tribunal highlighted that the purpose of the Modvat scheme is to allow credit only on inputs on which duty has been paid. The Tribunal rejected the appellant's contention that excess duty paid on raw materials used in manufacturing the inputs entitled them to claim credit, stating that no credit can be enjoyed on inputs if duty has not been paid on them directly. Therefore, the Tribunal upheld the denial of Modvat credit to the appellants.

This judgment clarifies the conditions under which Modvat credit can be availed and emphasizes the necessity of duty payment on inputs to claim such credit. The decision underscores that the Modvat scheme aims to provide credit only on inputs that have incurred excise duty, and users cannot claim credit on inputs where duty has not been paid directly.