2005 (6) TMI 16 - AT - Central Excise

Cenvat/Modvat Alleged that credits earned on inputs used in products of Chapter- 39 of CET used in demand towards products of Chapter-84 ibid prior to the date of amendment Credit not allowed as well as penalty set aside.

Summary

Issues:
1. Challenge to disallowance of Modvat credit of Rs. 3,02,091/- by the authorities.
2. Interpretation of Rule 57F(4) regarding utilization of credit earned in respect of inputs.
3. Applicability of law enacted on 16-3-1995 retrospectively.
4. Comparison with previous judgments on the lapse of Modvat credit and its utilization.

Analysis:
1. The appellants did not dispute the duty demand of Rs. 3,914 but contested the disallowance of Modvat credit amounting to Rs. 3,02,091. The authorities disallowed the credit as it was earned in relation to inputs used for goods falling under Chapter 39, not Chapter 84, where the duty demand was applicable.

2. The appellant argued that Rule 57F(4) was amended, allowing credit earned on any inputs to be utilized towards duty demand on any final products. However, the Commissioner (Appeals) noted that the inputs in question were received and used before the effective date of the amendment, making the credit inadmissible for the duty demand under Chapter 84. The appellate authority upheld this decision, emphasizing that the law enacted on 16-3-1995 could not have a retrospective effect.

3. Referring to previous cases like Garg Industries and Dhar Cement Ltd., the appellant sought to argue that Modvat credit could be utilized regardless of the product category or timing of input usage. However, the Tribunal found these arguments lacking merit, stating that pre-16-3-1995, Modvat credit earned on inputs could only be used for duty payment on the final product where those inputs were utilized. The Tribunal rejected the appeal but set aside the penalty imposed, considering the appellant's transfer of credit between chapters under proper intimation.

In conclusion, the judgment clarified the limitations on utilizing Modvat credit earned on inputs before the amendment to Rule 57F(4), emphasizing the need for compliance with the rules in effect at the time of input usage. The decision highlighted the non-retrospective nature of legal amendments and upheld the specific application of Modvat credit based on input-product correlation before the specified date.