2001 (2) TMI 535 - AT - Central Excise

Summary

Issues:
1. Availability of Modvat credit on reprocessed goods.
2. Contravention of Rule 173H.
3. Duty payment on reprocessed goods.
4. Applicability of circular permitting reprocessing of defective goods as inputs.
5. Imposition of penalty.

Analysis:
1. The appellant, engaged in manufacturing printing ink, reprocessed defective goods and took Modvat credit of the duty paid on these goods for paying duty on the reprocessed inks. The issue arose when it was alleged that Modvat credit was not available in such circumstances, contravening Rule 173H. The Additional Collector ordered reversal of the credit or payment through PLA account and imposed a penalty of Rs. 10,000 on the appellant, a decision upheld by the Commissioner (Appeals), leading to the appeal before the Tribunal.

2. The Tribunal noted that the decision in CCE v. Sigma Paints held that certain processes may not amount to manufacture, thus disallowing Modvat credit. However, the Tribunal found it unnecessary to determine if the reprocessing by the appellant constituted manufacture. It emphasized that if the process did not amount to manufacture, duty was not required to be paid on the resultant product, as Excise Duty is levied on manufactured goods. Rules 173H and 173L clarified that duty is only payable if reprocessing amounts to manufacture.

3. Applying the legal principle, the Tribunal concluded that if there was no manufacture, the debiting of credit towards duty payable by the appellant was unnecessary. The Tribunal rejected the Additional Collector's view that payment equal to the credit should be made from the personal ledger account, as no duty was payable on the reprocessed goods. The Tribunal emphasized that the appellant acted openly and in accordance with a Board circular permitting reprocessing of defective goods as inputs, thus penalty imposition was unwarranted.

4. The Tribunal disposed of the appeal by setting aside the penalty, confirming that Modvat credit should not have been utilized for duty payment on reprocessed goods, and rejecting the order for payment from the personal ledger account. The judgment emphasized the importance of understanding the manufacturing process and duty implications, while also considering relevant circulars and legal provisions to determine the correct tax treatment of reprocessed goods.