2001 (2) TMI 480 - AT - Central Excise

Summary

Issues:
- Availing Modvat credit on inputs not used in final products
- Availing Modvat credit on damaged or short-received inputs
- Imposition of penalty under Central Excise Rules

Analysis:

Issue 1: Availing Modvat credit on inputs not used in final products
The appeal involved M/s. Bharat Heavy Electricals Ltd. (BHEL) availing Modvat credit for inputs not utilized in manufacturing final products. The Central Excise Commissioner found BHEL retaining credit for damaged or unutilized inputs, leading to a demand of Rs. 59,19,329/- under show cause notice invoking the extended period of limitation. BHEL's defense of verifying goods and reversing credit for damaged items before their use was countered by the Commissioner's observation of intentional retention to evade excise duty. The Commissioner imposed penalties under Rule 57-I and Rule 173Q of the Central Excise Rules, 1944, along with interest under Section 11AA of the Central Excise Act, 1944.

Issue 2: Availing Modvat credit on damaged or short-received inputs
During the hearing, BHEL did not contest the duty liability but challenged the penalties imposed. BHEL argued maintaining faithful accounts, recording details of damaged or short-received inputs, and reversing credit when not used in manufacturing final products. However, the Senior Departmental Representative (SDR) contended that BHEL availed and retained Modvat credit on defective inputs before their use, even after receiving insurance claims, justifying the penalties based on legal precedents supporting penalty imposition for deliberate non-compliance.

Issue 3: Imposition of penalty under Central Excise Rules
The Tribunal confirmed the central excise duty demand but reduced the penalty under Rule 57-I from Rs. 59,19,329/- to Rs. 20,00,000/- considering BHEL's actions as not bona fide. The Tribunal set aside the penalty imposed under Rule 173Q. The judgment emphasized that while some penalty was justified, the conduct of BHEL in retaining and utilizing Modvat credit for damaged or unutilized inputs was not in good faith, leading to the modified penalty amount.

In conclusion, the Tribunal upheld the central excise duty demand and reduced the penalty under Rule 57-I, emphasizing the importance of bona fide conduct in availing Modvat credit and reversing it for damaged or unutilized inputs to comply with the Central Excise Rules.