1997 (9) TMI 349 - AT - Central Excise

Summary

Issues:
1. Utilization of Modvat credit on zinc towards payment of duty on copper cathodes.
2. Time bar for reversal of Modvat credit.
3. Loss of Revenue due to utilization of credit on copper cathodes.
4. Imposition of penalty under Rule 173Q(1)(bbb).

Analysis:

Issue 1: Utilization of Modvat credit on zinc towards payment of duty on copper cathodes
The appellant, a manufacturer of copper brass sheets and circles, utilized Modvat credit on zinc towards duty on copper cathodes, which was deemed impermissible under the Central Excise Rules. The show-cause notice demanded reversal of the amount utilized wrongly. The appellant argued that the department was aware of this practice through previous notices and that no loss of revenue occurred as the duty was paid through RG-23A Part II. The adjudicating authority confirmed the demand and imposed a penalty. The Tribunal acknowledged the error but allowed the appellant to take credit in RG-23A Part II if they prove the zinc's utilization in brass sheets and circles, confirming the duty amount and imposing a reduced penalty.

Issue 2: Time bar for reversal of Modvat credit
The appellant contended that the show-cause notice was time-barred due to the department's prior knowledge of the utilization of credit on copper cathodes. However, the adjudicating authority rejected this argument, stating that the utilization was against the declaration made by the appellant, making the notice valid. The Tribunal agreed with the authority, emphasizing the need to verify the zinc's actual utilization in brass sheets and circles before allowing credit.

Issue 3: Loss of Revenue due to credit utilization on copper cathodes
The appellant argued that no revenue loss occurred as the duty on copper cathodes was paid through RG-23A Part II. The adjudicating authority disagreed, stating that the credit utilization was not in line with the manufacturing process, potentially leading to duty evasion. The Tribunal acknowledged the potential for double duty payment and allowed credit if the zinc's utilization was proven, thereby preventing double taxation.

Issue 4: Imposition of penalty under Rule 173Q(1)(bbb)
The Tribunal imposed a penalty of Rs. 2.5 lakhs on the appellant for breaching the relevant Rule regarding credit utilization. Despite acknowledging the breach, the penalty amount was reduced considering the circumstances of the case. The penalty was deemed necessary to uphold the integrity of the excise rules and ensure compliance.

In conclusion, the Tribunal upheld the duty demand but allowed credit if the appellant proves zinc's utilization in manufacturing, reducing the penalty amount to Rs. 2.5 lakhs. The decision aimed to prevent double taxation while enforcing compliance with excise regulations.