2009 (5) TMI 741 - AT - Central Excise

Summary

Issues involved: Disallowance of Modvat credit, imposition of penalty under Rule 57U(6) of the Central Excise Rules, 1944.

Disallowed Modvat Credit: The Modvat credit of Rs. 7,67,080/- was disallowed on various items like S.S. Tumbling reactor, Extruder Screw, New herbold Granulator, Rotor Knives, Bed Knives, flat knives screen, etc., on the basis that they were installed in the registered premises of another company, M/s. Futura Industries, not in the registered premises of the appellants. Additionally, a sum of Rs. 1,74,987/- was disallowed on the grounds that certain goods were hived off to M/s. Futura Polymers. The penalty imposed was equal to the irregular credit availed, amounting to Rs. 9,45,067/-. The appellants had already paid the entire amount directed to be reversed, including interest, even before the show-cause notice was issued.

Decision on Disallowed Credit: The Tribunal found that the appellants were entitled to the credit of Rs. 1,74,987/- as there was no physical transfer of goods to another company, M/s. Futura Polymers. Citing relevant precedents, the Tribunal held that in the absence of actual/physical removal, credit cannot be disallowed. Regarding the remaining amount, the appellants contended that they should only pay 25% of the credit amount as penalty since they had paid the duty with interest before the show-cause notice, relying on a decision of the Hon'ble Delhi High Court. The Tribunal agreed with this contention, applying the principles of Section 11AC to Rule 57U(6).

Penalty Imposition: The Tribunal ruled that the appellants were liable to pay only 25% of the ineligible credit amount of Rs. 7,67,080/- as penalty. It was clarified that no penalty was required for the credit of Rs. 1,74,987/- to which the appellants were found eligible. The appeals were allowed with consequential relief, and the appellants were directed to pay the balance of the penalty within 30 days of the order.

Conclusion: The Tribunal partly allowed the appeal, holding that the appellants were entitled to the credit of Rs. 1,74,987/- and should pay only 25% of the penalty amount for taking ineligible credit. The balance penalty payment was required within 30 days of the order.