1998 (1) TMI 255 - AT - Central Excise

Summary

Issues:
1. Disallowance of Modvat credit for inputs cleared at Nil rate of duty after Exemption notification.
2. Availing Modvat credit for exempted goods.
3. Irrevocability of Modvat credit.
4. Barred by limitation for claiming Modvat credit.
5. Effect of High Court judgment on Modvat credit reversal.

Analysis:

1. The judgment involves two appeals filed by the assessee and the department against the decision disallowing Modvat credit for inputs cleared at Nil rate of duty after an Exemption notification was issued. The Collector of Central Excise confirmed the demand of duty, leading to the appeals before the Tribunal.

2. The assessee was manufacturing goods exempted from excise duty and availing Modvat credit. A Show Cause Notice was issued for recovery of wrongly availed Modvat credit. The Collector (Appeals) allowed the credit for six months from the date of such credits. The issue was whether Modvat credit could be claimed for exempted goods.

3. The judgment referred to a previous case where the Allahabad High Court held that Modvat credit once availed is not irrevocable, leading to a discussion on unjust enrichment. The Tribunal decided to follow the High Court's decision regarding the irrevocability of Modvat credit.

4. The Tribunal analyzed the limitation period for claiming Modvat credit reversal. The Collector (Appeals) had held that the claim was barred by limitation, starting from the date of the Show Cause Notice. However, the Tribunal disagreed, stating that the period should be reckoned from the date of such credits, as per Rule 57-I.

5. The judgment considered the effect of the High Court's decision on Modvat credit reversal and the Department's claim beyond the limitation period. The Tribunal emphasized that all actions must adhere to the law and held that the Department could reverse Modvat credit only within six months from the date of availing such credit. Ultimately, the Tribunal allowed the assessee's appeal and dismissed the department's appeal regarding the Modvat credit issue.