2005 (7) TMI 258 - AT - Central Excise

Summary

Issues Involved:
1. Disallowance of Modvat credit on inputs during the period 1996-97.
2. Allegations of misuse of Modvat credit by the assessee.
3. Imposition of penalties under Rule 209A of the Central Excise Rules on the assessee, directors, and dealers.
4. Reversal of credit as per Annexure A and Annexure B.
5. Redetermination of penalties and interest.

Detailed Analysis:

1. Disallowance of Modvat Credit on Inputs:
The assessee, engaged in the manufacture of Iron & Steel Products, availed Modvat credit on inputs such as M.S. Scrap obtained from manufacturers and dealers. A notice dated 3-5-2001 proposed disallowing the credit availed during 1996-97 under Rule 57-I(ii). The notice included Annexure A, listing 17 invoices with vehicle numbers that could not have transported the scrap, and Annexure B, listing demands on credits availed based on investigations revealing discrepancies.

2. Allegations of Misuse of Modvat Credit:
The notice alleged that the assessee indulged in misuse of Modvat credit by receiving goods different from those specified in the invoices, as corroborated by dealer statements. It was claimed that the assessee had full knowledge of this and availed credit illegally, without producing evidence of transportation. The dealers also failed to produce documents of truck movements, with some vehicles being tankers or delivery vans incapable of transporting the scrap quantities mentioned.

3. Imposition of Penalties:
The Commissioner confirmed the charges and ordered recovery of credit with interest, imposing penalties on the assessee, directors, and dealers under Rule 209A. The assessee, director, and certain dealers appealed against these penalties.

4. Reversal of Credit as per Annexure A and Annexure B:
- Annexure A: The assessee did not seriously challenge the reversal of credits listed in Annexure A, except for the finding of non-receipt of inputs. The Tribunal found no merits in the plea regarding incorrect vehicle registration numbers and confirmed the reversal of credit.
- Annexure B: The Tribunal examined the Revenue's case based on dealer statements and found no allegations of non-duty paid scrap or short quantities received. It was noted that sorting of scrap by dealers is permissible, and credit cannot be denied if the duty paid scrap is supplied. The Tribunal found that the dealers' statements did not support the allegations of non-supply or supply of non-duty paid scrap.

5. Redetermination of Penalties and Interest:
The Tribunal concluded that the penalties imposed for both Annexure A and Annexure B liabilities required reconsideration. Penalties on dealers not connected with the 17 invoices in Annexure A were set aside. The appeals were remanded for redetermination of penalties on the assessee, directors, and dealers concerning Annexure A invoices. The Tribunal also directed that the question of demands under Rule 57-I(ii) and interest be determined afresh, considering the substitution of Modvat rules and relevant Tribunal decisions.

Conclusion:
The appeals were partially allowed, and the case was remanded for redetermination of penalties and interest in accordance with the Tribunal's findings. The Tribunal upheld the reversal of credit for Annexure A but found no case for denial of credit for Annexure B. The penalties on certain dealers were set aside, and the matter was remanded for reconsideration of penalties on the assessee, directors, and other dealers related to Annexure A invoices.