2008 (11) TMI 414 - HC - Central Excise

Modvat credit - Assessee is engaged in manufacture of automobile and industrial lubricants. For the purposes of packing the final manufactured product, namely, lubricant oil, respondent-assessee had purchased plastic containers and availed Modvat Credit for the same - The containers got damaged during the process of packing and become unusable for packing the lubricants - Held that any packing material like barrels or poly-bags in which duty paid goods are received, whether by way of inputs or by way of packing material for finished products, on disposal of such material an assessee is not required to either reverse the Modvat/Cenvat credits or pay duty on such items - Thus, there can be no difference when empty containers, which have become unfit for the purpose for which the containers were purchased, are disposed of as scrap and waste - in absence of any error in the concurrent findings, the impugned order of Tribunal does not give rise to any question of law - Hence, the appeal is accordingly dismissed.

Summary

Issues:
1. Whether the Tribunal was justified in holding that credit on duty could not be denied for damaged plastic containers?
2. Whether the Tribunal was justified in confirming the setting aside of the demand of duty, interest, and penalty for disposed Modvatable inputs?

Issue 1:
The Appellant Revenue questioned the Tribunal's decision regarding the denial of credit on duty for damaged plastic containers used in packing lubricants. The respondent-assessee, engaged in lubricant manufacturing, purchased plastic containers and availed Modvat Credit. Some containers were found leaky during the filling process, leading to disposal as waste. The Adjudicating Authority contended that duty should have been paid on the disposed containers. The Commissioner (Appeals) and the Tribunal ruled in favor of the assessee, stating that the damaged containers were disposed of due to being unfit for packing after being damaged during the packing process. The Tribunal upheld this decision, citing Rule 57D of the Central Excise Rules, 1944, and the Apex Court's precedent regarding similar situations. The courts found no legal infirmity in the Tribunal's decision, leading to the dismissal of the appeal.

Issue 2:
The second question raised by the Appellant Revenue concerned the confirmation of setting aside the demand for duty, interest, and penalty on disposed Modvatable inputs. The Revenue argued that the Modvat credits should have been reversed or duty paid for the waste and scrap containers. The Commissioner (Appeals) and the Tribunal based their decisions on established legal principles, stating that the disposal of containers unfit for their intended purpose did not require reversal of credits or duty payment. The courts highlighted that the disposal of such containers was similar to the disposal of other packing materials like barrels or poly-bags, as per the Apex Court's ruling. The courts emphasized that in such cases, there was no requirement to reverse credits or pay duty. As there was no error in the concurrent findings of the Commissioner (Appeals) and the Tribunal, the appeal was dismissed, concluding that no substantial question of law arose from the Tribunal's decision.