Denial of cenvat credit

PJ/Case laws/2012-13/1067

Case: COMMISSIONER OF CENTRAL EXCISE & CUSTOMS V/s MDS SWITCHGEAR LTD.

Citation: 2008 (229) E.L.T. 485 (S.C.)

Issue:- Disallowing Modvat credit on ground that assessee has done valuation of semi-finished goods by adding Modvat element and rounding off the value to higher figure – whether justified?

Brief Facts: - Respondent-assessee M/s. MDS Switchgear Ltd., D-4, MIDC, Jalgaon and the supplier M/s. MDS Switchgear Ltd., A-2, MIDC, Malegaon Village, Sinnar are the sister concerns and are engaged in the manufacture of circuit-breakers falling under Chapter Heading No. 85 of Central Excise Tariff Act, 1985. They were also availing of Modvat facility under the Central Excise Rules, 1944. The assessee was receiving ‘tripstar MCB’s single pole’ of various configurations from their unit at Sinnar in semi-finished condition. After carrying out certain operation, they have cleared the goods at lower value than the landing cost of semi finished received from their unit, viz., MDS Switchgear, Malegaon, Sinnar.

Revenue, after a detailed verification of record, came to the conclusion that cost of semi-finished goods supplied by their sister concern is arrived at by adding the raw material cost, direct/indirect labour cost, average overheads, notional profit and Modvat element. Further, the cost so arrived is rounded off to the next higher figure, i.e., for item Code No. T161B06S, the cost of Rs. 56.68 has been rounded off to Rs. 60/- whereas the assessable value declared by the assessee is ranging between Rs. 45.20 to 52.47.

Revenue issued show cause notice dated 4-11-1999 to the assessee being of the opinion that they have deliberately entered into practice of raising value of semi-finished goods by adding Modvat element and rounding off the value to higher figure so as to pass on the excess Modvat credit. The said notice was issued for recovering Modvat credit amounting to Rs. 13,08,701/- under Rule 57-I of the Rules read with proviso to Section 11A(1) of the Central Excise Act, 1944 and for im[posing penalty and demanding interest. Also confiscation of plant, machinery, building etc.

The Commissioner confirmed the demand of Rs. 13,08,701/- under Section 11A of the Act and imposed a penalty equivalent to the amount of duty under Section 11AC of the Act and also a penalty of Rs. 1,00,000/- under Rule 173Q of the Rules. Recovery of interest under Section 11AB of the Act was also ordered.

In appeal, the Tribunal set aside the impugned order holding that the process followed by the Revenue from the issue of show cause notice to the determination of the liability is not based on relevant law.

Revenue has therefore filed appeal before the Supreme Court.

Reasoning of Judgment: -The Supreme Courtheld that the reasons given by the appellants for the alleged inflation of the value of the intermediate goods are logical. What was required of the Commissioner was to examine the quantum of the loading of the assessable value by the Modvat credit on the earlier inputs. That exercise has nowhere been done. If the department was of the opinion that the value of the final product was depressed, then they could have charged the Jalgaon unit with under invoicing of their product. That has also not been done. The valuation as given by the Sinnar unit was duly approved by the department and the payment of duty was also duly accepted. The Court further held that there is no substance in the attempt of the Commissioner to convert a part of the duty so paid into ‘deposit of duty’. There is no legal basis for such presumption. The Rules entitled the receipt manufacturer to avail of the benefit of the duty paid by the supplier manufacturer. A quantum of duty already determined by the jurisdictional officers of the supplier unit cannot be contested or challenged by the officers in charge of recipient unit [2000 (38) RLT 179].

Decision: - Appeal dismissed.

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PJ/Case laws/2012-13/1067

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