2014 (2) TMI 277 - AT - Central Excise

Denial of Modvat credit - Denial relates to a diesel engine which was a bought out item requiring affixture thereof to the alternator for removal of the total D.G. Set which is composed of alternator as well as diesel engine - Revenue held that the diesel engine not being used for manufacture, Modvat credit to above extent is not permissible - Held that - If on the inputs the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the Act does not enable the authorities concerned to make a rule which is impugned herein and, therefore, we may have no hesitation to hold that the rule cannot be applied to the goods manufactured prior to 16-3-1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods - appellant shall cooperate with the ld. adjudicating authority for verification of evidence relating to the claim of credit - Upon verification of the entry, the appellant shall be allowed the benefit of Modvat credit - Decided in favour of assessee.

Summary

Issues:
1. Denial of Modvat credit for a diesel engine used in a DG set.
2. Disallowance of Modvat credit due to the submission of a photocopy of the bill of entry.
3. Dispute regarding the recording of input credit in the statutory record within the specified timeframe.
4. Levy of penalty unjustified due to success in denying credit.

Issue 1: Denial of Modvat credit for a diesel engine used in a DG set
The appellant claimed Modvat credit for a diesel engine used in a DG set, which was denied by the Revenue. The appellant argued that the diesel engine was an essential input for the functioning of the DG set, and therefore, the denial of Modvat credit was unwarranted. The tribunal agreed with the appellant, stating that the diesel engine had become an input for the DG set, and thus, the denial of Modvat credit was not justified.

Issue 2: Disallowance of Modvat credit due to the submission of a photocopy of the bill of entry
Another issue arose when Modvat credit was disallowed due to the appellant submitting a photocopy of the bill of entry instead of the original. The appellant contended that both the original and photocopy were presented to the Superintendent for verification. The tribunal examined the bill of entry and noted that it had been verified by department officials, leading to the conclusion that the appellant succeeded in this dispute as well.

Issue 3: Dispute regarding the recording of input credit in the statutory record within the specified timeframe
The appellant faced a dispute regarding the recording of input credit in the statutory record within the prescribed 6-month period. The appellant argued that the recording of the input in part 1 of the RG 23 Register granted them the right to the credit, even if the entry in part 2 was not made within the specified timeframe. The tribunal agreed with the appellant, emphasizing that the right to credit accrues when duty is paid on the input, and there was no statutory bar to deny the credit based on the recording timeframe.

Issue 4: Levy of penalty unjustified due to success in denying credit
Lastly, the appellant contested the levy of a penalty of Rs.1.00 Lakh, arguing that it was unwarranted since they had succeeded in all three counts of denying credit. The tribunal agreed with the appellant, stating that the penalty without intention of evasion was unjustified, and therefore, waived the penalty.

In conclusion, the tribunal allowed the appeal partly, remanding the matter for the verification of the claim of Modvat credit of Rs.35,68,324. The tribunal emphasized the importance of verifying evidence for the claim and ensuring that the appellant receives the benefit of Modvat credit where applicable.