2002 (8) TMI 119 - HC - Central Excise

Summary

Issues:
Challenge to show cause notice for availing Cenvat Credit in contravention of Excise Rules.

Analysis:
The petitioners challenged a show cause notice issued by the Deputy Commissioner of Central Excise for availing Cenvat Credit of Rs. 21,74,227.00 in contravention of Rule 57AF(2) of the Central Excise Rules. The petitioners argued that penal proceedings should not be initiated against them as they had availed the credit based on an order passed by the Deputy Commissioner of Central Excise, which had become final. The High Court decided to hear the matter on merits due to the unique circumstances where the utilization of credit was pursuant to a final order.

The petitioners, a company manufacturing and selling lubricating oil, had a godown where they repacked oil received from various units. They were entitled to avail Modvat Credit for inputs used in manufacturing. The petitioners stopped repacking at one unit and transferred the unutilized credit balance to another unit as permitted by an order dated 22nd September, 2000. The show cause notice sought to penalize the petitioners for allegedly contravening Cenvat Rules 57AF(1) and (2) by transferring the credit without transferring inputs or manufactured goods.

The court noted that the Deputy Commissioner had permitted the transfer of credit in accordance with Cenvat Rules, knowing that goods had already been cleared on payment of duty. The court emphasized that the order allowing the transfer of credit cannot be read as subject to the provisions of Cenvat Rules 57AF(1) and (2) as contended by the Respondents. The court found that the petitioners had cleared goods without availing Modvat credit based on a request from the Respondents. The court held that the petitioners were justified in their interpretation of the order and had not contravened the Cenvat Rules.

Consequently, the High Court quashed and set aside the show cause notice dated 28th September, 2001, making the rule absolute in favor of the petitioners. No costs were awarded in the case due to the specific circumstances presented.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by both parties, and the court's reasoning leading to the decision to quash the show cause notice.