1999 (4) TMI 288 - AT - Central Excise

Summary

Issues:
Utilization of Modvat credit for payment of duty on final products without using the correct inputs; Imposition of penalty under Rule 173Q.

Analysis:
The case involved a firm engaged in manufacturing HDPE Silver Can and aluminum Silver Can. The firm used plastic sheet as an input for HDPE Silver Can and aluminum sheet for aluminum Silver Can. Prior to 6-2-1995, the firm took credit on plastic sheets as input. After 7-2-1995, they started taking credit on aluminum sheets. The Department alleged that the firm cleared aluminum Silver Cans after paying duty from RG 23A Part-II before receiving aluminum sheets, which were the correct inputs for the product. Similarly, the firm cleared final products after paying duty from RG 23A Part-II without receiving M.S. Sheets, the correct inputs for those products. The Assistant Commissioner found the utilization of Modvat credit irregular and directed the firm to pay duty from PLA and take credit for the same amount in RG 23A Part-II. A penalty of Rs. 5,000 was imposed under Rule 173Q.

On appeal, the Commissioner (Appeals) upheld the Assistant Commissioner's order, leading to the current appeal before the Tribunal. The Tribunal considered arguments from both sides and reviewed the orders. It noted that the Modvat credit was used for paying duty on final products even before receiving the correct inputs, which was not in compliance with Modvat Rules. The Assistant Commissioner's order was deemed reasonable in directing the firm to pay duty from PLA and take credit in RG 23A Part-II. The Tribunal found no grounds to interfere with the duty amount determined by the lower authorities. However, regarding the penalty, the Tribunal observed that no mens rea was attributed to the firm for the irregular utilization of credit. Since there was no revenue loss and the issue was about the payment source, the penalty was deemed unjustified and was set aside. The appeal was allowed on these terms.