2006 (2) TMI 345 - AT - Central Excise

Summary

Issues: Disallowance of Modvat credit, Legality of recrediting Modvat credit, Applicability of penalty

Analysis:

Issue 1: Disallowance of Modvat credit
The appeal challenged the order disallowing Modvat credit on various inputs like caustic soda, flakes, soda ash, sulphonic, descalent, indion, etc. The Range Superintendent directed the appellant to reverse the Modvat credit availed on these inputs, which the appellant complied with from April 1997 to November 1997. The appellant then recredited the amount on 15-5-1998. The dispute arose when a show cause notice demanded the recredited amount, arguing that the credit availed was on goods received six months prior. The appellate authority upheld the disallowance of Modvat credit and the penalty imposed. The appellant contended that Modvat credit was eligible on the inputs and that the recredit was within the law as it was initially availed upon receipt of the inputs. The Tribunal noted that the appellant reversed the credit based solely on the Superintendent's letter without proper adjudication, indicating uncertainty about credit eligibility. The Tribunal held that the appellants' actions did not follow proper procedures and upheld the disallowance of Modvat credit.

Issue 2: Legality of recrediting Modvat credit
The Departmental Representative argued that the appellant's suo moto recrediting of the amount was not permissible under the law. They contended that if the appellant believed they were eligible for the credit, they should have sought permission before recrediting. Citing precedents, the Departmental Representative emphasized that suo moto credit could not be availed by the appellants. The Tribunal agreed, stating that the appellants should have approached higher authorities for redressal instead of blindly following the Superintendent's directive. The Tribunal held that the appellants' failure to protest or seek proper permission before recrediting the amount precluded them from claiming eligibility for the credit. The Tribunal cited a previous case to support its decision and upheld the disallowance of Modvat credit based on the appellant's actions.

Issue 3: Applicability of penalty
Regarding the penalty imposed on the appellants, the Tribunal found that the recrediting was a reactionary response to the perceived loss of credit and did not warrant penalty. The Tribunal set aside the penalty, considering the circumstances of the case. The appeal in respect of the penalty was allowed, while the appeal concerning the suo moto credit was dismissed. The Tribunal concluded that the appellants' actions, though not penalizable, did not entitle them to the recredited amount. The order was pronounced on 7-2-2006, with the penalty being set aside and the disallowance of Modvat credit upheld.