2010 (12) TMI 11 - SC - Central Excise

Modvat / Cenvat Credit - export - availment of credit while claiming duty drawback - credit availed after filing declaration in Form AR4 - The Revenue alleged that the assessee vide declarations in Form AR4 dated 4.8.1998, 17.8.1998 and 22.8.1998 had exported certain quantity of fabrics in its own account, and in the said AR4s had declared that the assessee had manufactured the fabric as mentioned in AR4, and that the benefit of Modvat under Rule 57A has not been availed, and also that it had not availed the facilities under Rule 12(1)(b) and 13(1)(b) of the Rules, and that export was made in discharge of export obligation under advance licence file. - assessee contended before this Court that it had taken credit of the duty on indigenous inputs only after the replenishment arrived. That is to say, the assessee had not claimed Modvat credit at the time the declarations under the advance license scheme were filed, but only later. - Held that - The imported inputs were primarily stock replenishments that were used in the execution of other orders, and allowing the assessee to claim Modvat credit on the indigenous input would tantamount to giving a benefit twice for the same process that began with the manufacture and culminated in the export of the specified goods. The assessee cannot be held to be not entitled to claiming Modvat credit on finished goods where duty is not incident. Any attempt to avail it subsequently, casts serious aspersions on the bonafide intention of the assessee. The argument of the assessee that action had to be taken under the Duties Drawback Rules, 1971 and not through reversal of credit does not bear merit. The reversal of credit is meant to deny the assessee of a benefit that they would have otherwise enjoyed without justification. The drawback equivalent to CVD is legitimately permissible vide the process of AR4 declarations and thus, it is the benefit that is enjoyed without justifiable basis that has to be reversed. - Decided in favor of revenue

Summary

Issues:
1. Challenge to the judgment of the High Court in a Central Excise Appeal.
2. Disallowance of Modvat credit and penalty imposition under Rule 173 Q (1) (bb) of the Central Excise Rules, 1944.
3. Allegations of wrongly claiming credit under Rule 57A of the Rules.
4. Interpretation of provisions in Rule 57A regarding Modvat credit entitlement.
5. Claim of double benefit by the assessee in availing Modvat credit.
6. Consideration of separate duties in the context of Modvat credit on indigenous and imported inputs.
7. Legitimacy of claiming Modvat credit on finished goods without excise duty incidence.

Analysis:
The judgment pertains to a case where the High Court dismissed an appeal challenging the disallowance of Modvat credit and penalty imposition under Rule 173 Q (1) (bb) of the Central Excise Rules, 1944. The dispute arose from allegations that the assessee wrongly claimed credit under Rule 57A of the Rules. The High Court held that the assessee had not suffered excise duty on the final products, rendering them ineligible for Modvat credit. The Court emphasized that the benefit of Modvat credit should not have been availed at any point in time for the inputs used in the exported goods. The assessee contended that they had not gained any extra benefit except as provided under the law, citing the fulfillment of export obligations under the Advance Licensing Scheme. The Revenue argued that the assessee resorted to technicalities to claim a double benefit, as the Modvat credit related to the same inputs used in the exported goods. The Court analyzed the statutory provisions in Rule 57A, emphasizing that Modvat credit entitlement arises only if excise duty is incident upon the final product, which was not the case here. The Court rejected the assessee's claim of separate duties, highlighting that the process from manufacture to export constituted a single cycle, precluding the entitlement to claim Modvat credit on finished goods without excise duty incidence. Ultimately, the Court found the contentions of the assessee to be without merit and dismissed the appeal, with each party bearing their own costs.