1994 (5) TMI 91 - AT - Central Excise

Summary

Issues:
- Interpretation of Rule 57F(1)(ii) of Central Excise Rules, 1944 regarding removal of inputs with Modvat credit.
- Applicability of duty rates at the time of clearance of goods under Rule 57F(1)(ii).
- Comparison of judgments in SAE (India) Ltd. v. Collector of Central Excise and Modi Rubber Ltd. v. Collector of Central Excise.
- Legal fiction and its application in the case.
- Decision on setting aside the demand for Central Excise duty and personal penalty.

Analysis:

The judgment revolves around the interpretation of Rule 57F(1)(ii) of the Central Excise Rules, 1944, concerning the removal of inputs with Modvat credit. The case involved the clearance of unbleached absorbant Kraft paper and codonal by the respondents during November 1989 without paying the appropriate Central Excise duty, leading to a demand for differential duty amounting to Rs. 43,535.94. The Revenue contended that the duty should be paid at the prevailing rate during clearance, not at the rate of Modvat credit availed. The respondents argued that if the duty paid on clearance exceeds the credit taken, it would lead to an absurd situation, citing legal principles from cases like Bengal Immunity Co. Ltd. v. State of Bihar and I.T. Commissioner, Kanpur v. M.I.R. Industries (P) Ltd.

The key issue was whether the inputs could be removed on payment of duty at the rate of Modvat credit or the prevailing duty rate during clearance. The Tribunal analyzed Rule 57F(1)(ii) and the subsequent amendment through Notification No. 4/92-C.E., dated 1-3-1992, which introduced sub-rule (1A) allowing removal of inputs subject to the prior permission of the Collector of Central Excise on payment of duty equivalent to the credit availed. Referring to the judgment in Modi Rubber Ltd. v. Collector of Central Excise, the Tribunal held that the goods should be removed on payment of duty prevailing at the time of clearance, not at the Modvat credit rate, as demanded in the Show Cause Notice.

The Tribunal rejected the argument based on legal fiction and upheld the demand for Central Excise duty amounting to Rs. 43,535.94, setting aside the impugned order-in-appeal that had favored the respondents. The decision did not address the issue of personal penalty, as it was not raised by the Revenue during the appeal. Consequently, the appeal was disposed of, affirming the demand for Central Excise duty based on the prevailing rate at the time of clearance, in line with the interpretation of Rule 57F(1)(ii) and relevant legal precedents.