1999 (7) TMI 405 - AT - Central Excise

Summary

Issues Involved:

1. Entitlement and extent of Modvat credit for inputs procured from 100% Export Oriented Units (EOUs).
2. Applicability and interpretation of Notifications 2/95 and 5/94.
3. Validity of penalties imposed on the company and its officers.
4. Conflicting judgments on similar issues and the need for reference to a Larger Bench.

Detailed Analysis:

1. Entitlement and Extent of Modvat Credit for Inputs Procured from 100% EOUs:

The primary issue revolves around the entitlement and extent of Modvat credit for inputs procured from 100% EOUs. The appellants, manufacturers of HP Sponge Iron, argued that they availed Modvat credit on inputs such as Iron Ore Pellets, which were either imported, procured domestically, or from 100% EOUs. They contended that the Modvat credit should be based on the Additional Duty of Customs as per Notification 2/95. However, the department argued that the appellants took more credit than entitled, leading to the issuance of five show-cause notices.

2. Applicability and Interpretation of Notifications 2/95 and 5/94:

The appellants emphasized that Notification 2/95 prescribes the duty payable on clearances from 100% EOUs into the domestic area, limiting it to 50% of the duty on similar imported goods but not less than the excise duty on domestic goods. They argued that Notification 5/94 under Rule 57A restricts Modvat credit to the extent of Additional Duty equivalent to the basic excise duty and additional excise duty. The department, however, maintained that the credit should be limited to the Additional Duty component, not the entire excise duty paid by the 100% EOU.

3. Validity of Penalties Imposed on the Company and Its Officers:

The show-cause notices proposed penalties not only on the company but also on its officers and two departmental officials. The appellants argued that the actions were bona fide, supported by legal opinions from three advocates, including a former Tribunal member. They contended that penalties under Section 209A require mens rea, which was absent in this case. The departmental officials also argued that their actions were based on legal advice and bona fide belief, thus penalties were unjustified.

4. Conflicting Judgments on Similar Issues and the Need for Reference to a Larger Bench:

The Tribunal noted conflicting judgments on similar issues. The first judgment in Weston Electronics v. CCE restricted Modvat credit to the Additional Duty component, while a subsequent judgment in CCE, Meerut v. Weston Electronics Ltd. allowed full credit of the excise duty paid by 100% EOUs. The Tribunal acknowledged the need for judicial discipline and consistency, thus deciding to refer the matter to a Larger Bench to resolve the conflict.

Conclusion:

The Tribunal recognized the complexity of the issues and the conflicting judgments. It decided to refer the matter to a Larger Bench for a conclusive decision on the entitlement and extent of Modvat credit for inputs from 100% EOUs, and the applicability of Notifications 2/95 and 5/94. The appeals filed by the company's officers were allowed, setting aside the penalties imposed on them, while the main appeals were referred to the President for constituting a Larger Bench.