2006 (1) TMI 13 - AT - Central Excise

Summary

Issues:
1. Availment of Cenvat credit on inputs used in the manufacture of final products.
2. Interpretation of Rule 3(3) of the Cenvat Credit Rules, 2002 regarding payment of duty on removal of inputs from the factory.
3. Excess duty paid and short duty collection by the appellants.
4. Challenge against the demand of excess duty paid and short duty collection.
5. Contention regarding excess reversal of duty by the appellants.
6. Examination of the motives behind the excess duty payment and utilization of Cenvat credit.
7. Decision on the duty liability for paying more duty than necessary.

Analysis:
1. The appellants availed Cenvat credit on inputs used in manufacturing final products. The issue arose when the Revenue demanded recovery of excess duty paid amounting to Rs. 81,385/- and short collection of Rs. 11,625/ due to the appellants following the old rule prior to 1.3.2003. The Original authority found that Rs. 72,448/- was wrongly utilized in the Cenvat Credit Account due to excess duty payment, and Rs. 3,976/- was short paid. The Commissioner (Appeals) upheld this order, leading to a strong challenge by the appellants against these findings.

2. The interpretation of Rule 3(3) of the Cenvat Credit Rules, 2002 was crucial in this case. The rule required the manufacturer to pay an amount equal to the credit availed when inputs were removed from the factory. The Commissioner (Appeals) and the Revenue argued for strict adherence to the rules, emphasizing that the appellants cannot take the law into their own hands. However, the main contention was regarding the excess reversal of Rs. 72,448/-, with the appellants arguing that this alone should have led to the dropping of proceedings.

3. The Tribunal carefully examined the records and found that the appellants had reversed more credit than necessary on the clearance of inputs, resulting in the payment of excess duty. The Commissioner (Appeals) speculated on the motives behind this action, suggesting that the appellants intended to convert the excess credit into cash by collecting it from their customers. Despite the infraction of the rule and the excess duty payment, the Tribunal concluded that the demand for duty on the excess amount paid could not stand the test of reason and law.

4. Ultimately, the Tribunal decided that even though the appellants had paid more duty than necessary, the demand for the excess duty paid and the short duty collection could not be upheld. The Tribunal set aside the impugned order, providing consequential relief to the appellants. The decision highlighted that while there was an infraction of the rule, the demand for duty would not survive, leading to the relief granted to the appellants.