2016 (2) TMI 184 - HC - Central Excise

Denial of MODVAT credit - belated claim of credit - Held that - In the instant case, it is not disputed by the department that the appellant was a new assessee. The appellant further contends that he was not aware of the Modvat Rules and, therefore, could not take credit. This fact has not been disputed by the respondents and, therefore, in our opinion sufficient reasons had been given by the appellant for the purpose of condoning the delay in filing the declaration form. Once sufficient reasons have been given, the competent authority was required to give Modvat credit in terms of subrule (9) of Rule 57G. The show cause notice itself indicates that the Modvat credit was applied for inputs received in the appellant s factory for the period March, 1994 to 28th July, 1994 which was within the prescribed period of six months. Consequently in our opinion the authorities as well as the Tribunal committed an error in not allowing the application for availing the Modvat credit for the said period. The application for condonation of delay could not have been rejected by the authorities. - Decided in favour of assessee

Summary

Issues:
1. Denial of Modvat credit due to procedural lapse.
2. Entertaining a legal plea not raised before lower authorities.

Analysis:

Issue 1: Denial of Modvat credit due to procedural lapse
The appellant, engaged in liquor manufacturing, was unaware of Modvat Rules and failed to claim credit initially. Upon realizing, an application was filed for Modvat credit on duty paid on molasses within the prescribed period. However, a show cause notice was issued questioning the credit availed, leading to rejection of the condonation of delay application. The Tribunal upheld the rejection, prompting the appeal. The Court noted that Rule 57G allows condonation of delay if sufficient reasons are provided. The appellant's lack of awareness of Modvat Rules was uncontested, constituting a valid reason. The Court emphasized that as the inputs were received within the stipulated time frame, the delay should have been condoned. The authorities erred in not granting Modvat credit for the eligible period, as per Rule 57G(9).

Issue 2: Entertaining a legal plea not raised before lower authorities
The Court found that the appellant's plea fell under Rule 57G(9), which allows for condonation of delay in specific circumstances. Despite the procedural lapse, the appellant's reasons were deemed sufficient, warranting the grant of Modvat credit. The rejection of the condonation application was considered unjustified, as the appellant met the criteria outlined in the rule. By providing valid grounds for the delay, the appellant rectified the initial oversight, fulfilling the requirements for credit eligibility. The Court concluded that the denial of Modvat credit based on a procedural lapse, which was subsequently rectified, was unwarranted. The appeal was allowed, setting aside the Tribunal's decision and affirming the appellant's entitlement to the Modvat credit under Rule 57G(9).

In summary, the Court ruled in favor of the appellant, emphasizing the importance of considering valid reasons for procedural delays in granting Modvat credit as per the relevant rules. The judgment highlighted the necessity of adhering to statutory provisions while also acknowledging genuine circumstances that warrant leniency in procedural matters.