2014 (2) TMI 447 - HC - Central Excise

Denial of MODVAT Credit - credit taken in respect of PVC resin received during the period from 24th February, 1992 to 4th May, 1992 - Recover of credit under Rule 57-I of the Central Excise Rules, 1944 - contravention of Rule 57-I - IMposition of penalty - The basis of the demand of Rs. 25,87,588-90 is in relation to the utilization of credit availed for PU resin other than Grade 5702 in payment of duty on LBSP, though such inputs have not been used in manufacture of the said product. The appellate authority noted that use of PU Resin other than Grade 5702 was not made, but it was pleaded by the petitioner that other grades could be used ajnd the petitioner intended to use the same in manufacture of LBSP. The case of the petitioner noted by the CEGAT is that actual use need not be made as the petitioner was conducting various experiments. Inputs of only Grade 5702 were used by the petitioner. Perusal of the statements shows that the intention to use other grades is not at all reflected from the said statements. A mere desire to use the other grades in future or a mere possibility that the other grades may be used for manufacture of the final product is not sufficient for the purposes of Clause (i) of sub-rule (3) of Rule 57F. Therefore, the Collector and more specifically CEGAT were right in taking the view that the PU of other grades was never intended to be used - In the circumstances, the order of the appellate authority cannot be faulted with. As far as penalty is concerned, the same has been reduced to 1/4th by the Appellate Authority - Decided partly in favour of assessee.

Summary

Issues:
Recovery of duty demand on PVC and PU resins, utilization of credit under Central Excise Rules, challenge to Order-in-Original and CEGAT judgment, interpretation of Rule 57F, intention vs. actual use of inputs, applicability of Circular dated 8th August, 1988, penalty imposition under Rule 173Q.

Analysis:
The petitioner challenged the Order-in-Original dated 18th June, 1993, and the CEGAT judgment dated 19th October, 1994, regarding the recovery of duty demand on PVC and PU resins under the Central Excise Rules. The petitioner argued that the utilization of inputs started in February 1992, emphasizing the intention to use PU resins of various grades, even if not actually used during the relevant period. The petitioner contended that Rule 57F(3)(i) should not be applied to deny credit for using PU Resin of a different grade in the new product. The petitioner relied on legal precedents and circulars to support their case, emphasizing the lack of a one-to-one correlation between inputs and final products under the Modvat scheme.

The Court analyzed the declarations filed by the petitioner for availing credit on duty on inputs for the final product LBSP, listing various inputs including PVC resins and different grades of PU resins. The recovery of Rs. 25,87,588.90 was based on the alleged misdeclaration of inputs, specifically PU resins other than Grade 5702. The Collector found that only certain inputs were actually used in the manufacture of LBSP, contrary to the declaration made by the petitioner. The Collector emphasized the necessity for adhering to declared inputs and their actual use in the final product.

The Court further examined the statements of the petitioner's officers, noting their explicit mention of using only PU Resin Grade 5702 for LBSP and the lack of intention to use other grades. The Court interpreted Rule 57F and Rule 57G, emphasizing that mere possibility or desire to use other grades in the future is insufficient to establish intention under the rules. The Court distinguished previous legal decisions and circulars, concluding that the petitioner failed to prove the intended use of PU resins other than Grade 5702 in the final product LBSP.

Ultimately, the Court upheld the appellate authority's decision, dismissing the writ petition and maintaining the reduced penalty imposed under Rule 173Q. The Court found no merit in the petitioner's arguments and ordered the continuation of any interim relief for twelve weeks from the judgment date.