TMI Blog2011 (4) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... kes this aspect arose for consideration, no infirmity in the order passed by the Commissioner, appeal is dismissed - E/1479/2005 - 362/2011-EX(PB), - Dated:- 18-4-2011 - Justice R.M.S. Khandeparkar, Shri Mathew John, JJ. Shri Alok Barthwal, Advocate, for the Appellant. Shri S.R. Meena, DR, for the Respondent. [Order per : Mathew John, Member (T)]. Heard the Advocate for the Appellant and DR for the Respondent. 2. This appeal arises from order dated 13th April, 2005 passed by the Commissioner (Appeals), Indore. By the impugned order, the Commissioner (Appeals) has confirmed the order passed by the adjudicating authority. The Joint Commissioner by his order dated 27-1-2005, had disallowed the modvat credit amounting to Rs. 11,61,660/- and had ordered recovery thereof as also had imposed equal amount of penalty. The appellants are challenging the impugned order to the extent it imposes penalty. 3. At the outset, the learned Advocate appearing for the appellants submitted that though the Memo of Appeal states to various grounds, the Appellants are confining the challenge to the penalty aspect only. Drawing our attention to Rule 57-I(4) and Rule 57-AH(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inputs and that was utilized towards the payment of duty on final product, was not specifically disclosed to the department. The balance sheets of the Appellant company for the relevant period did disclose disposal of raw materials on account of expiry of the period utilized thereof but the same did not disclose the utilization of the credit availed for payment of duty on final products. The entire controversy regarding imposition of penalty will have to be considered in the background of these undisputed facts. 6. The impugned order represent that order passed by the original authority disclosed that the penalty was imposed in exercise of the powers under Rule 57-I(4) read with Rule 57-H(2) of the Central Excise Rules, 1944 and Rule 13(2) of the Central Excise Rules, 2001-02. 7. Rule 57-I deals with the recovery of credit wrongly availed or utilized in an irregular manner. Sub-Rule (4) thereof provides that where the credit of duty paid on inputs have been taken wrongly by reason of fraud, wilful mis-statement, collusion or suppression of facts, or contravention of any of the provisions of the Act or the Rules made thereunder with intention to evade payment of duty, the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty in terms of the provisions of Section 11AC of the Act. 10. The Tribunal in the case of Timex India Ltd., dealt with the issue as to whether the disputed watch parts in respect of which modvat credit had been availed by the assessee had become waste during the course of manufacturing process or whether they were already defective before they could be put to use in the manufacturing process of watches. The issue was also whether the modvat credit was to be denied only if the disputed watch parts had become waste in or in relation to the manufacture of watches. The Tribunal held thus :- We consider that the provisions of Rule 57-D are clear and unambiguous. Only when the inputs are contained in any waste, refuse or by product arising during the manufacture of the final product or when the inputs have become waste during the course of manufacture of the final product, the provisions of Rule 57-D were applicable. If the inputs are found defective and are not used in the process of manufacture of final products, the benefit of Rule 57-D is not applicable to such inputs. Only when the inputs are used in the manufacture of final products and some of those inputs become waste d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit availed in respect of the duty paid thereon, was already utilized prior to the destruction of such inputs. 14. As already observed, the fact of utilization of such credit prior to January 1998 was not disclosed prior to the commencement of the investigation. It came to the light only when statement of authorized signatory of the appellant was taken. Being so, the contention that there was no suppression of relevant fact, cannot be accepted. 15. It is however the contention of the Advocate of the Appellant that suppression can be alleged only when there is an obligation to disclose something and when there is failure to disclose the same. There can hardly be any quarrel about this proposition of law. However, the fact remains that in this case, the appellant themselves state that credit was availed on the inputs in question and was utilized prior to January 1998. Till March, 2000, the factory of the Appellants remained closed. During this period, the concerned inputs were destroyed. Being so, undisputedly, it was necessary for the Appellants to reverse the credit. Admittedly, even after re-commencement of the factory of the Appellant, no steps were been taken by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit thereof itself do not amount to availment and utilization of credit. It is merely a record of availment and utilization of credit. Utilization of credit is always in regard to payment of duty. 21. Once this aspect that credit availed was utilized towards the payment of duty on final product, and subsequently it is revealed that the concerned inputs became unusable, as already seen above it becomes the duty of the manufacturer to reverse such credit. Indeed this position in law is not in dispute as the appellants are not challenging the impugned order on that account. 22. Once this position is clear, the appellant had no option but to reverse the credit or repay the amount. In other words, once it was known to the appellant that the goods on which credit was taken, such inputs could not be utilized in terms of the Rules for manufacture of final product, the appellant was aware that from that point of time, that such utilization of credit was rendered wrongful. The allegation of wrong utilization is to be seen with reference to that point of time when the credit became ineligible. The expression would in the case of situation from the penalty would allow such utilization to ..... 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