whether the Modvat credit be proportionately reduced to the extent of the amount of debit notes issued by the assessee to his supplier for the defective quality of goods?

PJ/Case Laws/2011-12/1000

Prepared By:
CA. Rajani Thanvi &
Kavita Thanvi

Case: - COMMISSIONER OF C. EX. & CUS., AURANGABAD v/sJ.L. MORISON (I) LTD.

Citation: - 2008 (223) E.L.T. 625 (Tri. - Mumbai)

Issue:- whether the Modvat credit be proportionately reduced to the extent of the amount of debit notes issued by the assessee to his supplier for the defective quality of goods?

Brief Facts:-The respondent purchased some material from manufacturer, and that inputs were found to be of poorer quality. Hence the respondent raised debit notes for that lower quality of the material supplied, which resulted in reduction of the value paid by the respondent to the supplier. On the other hand the Revenue has contended that the quantum of modvat credit has also to be proportionately reduced to that extent. The Adjudicating authority held in favor of the respondent/assessee. Aggrieving by the order the Revenue is in appeal before Tribunal.

Appellant’s Contention:-
The appellant was contended that the Modvat credit has also to be proportionately reduced to the extent of amount of debit notes issuedfor the poor quality of goods supplied by a supplier, which resulted in reduction of the value paid to the supplierdefective quality of goods. Futher the cited cases are not relevant in the instant case.

Reasoning of Judgment:-
The Hon’ble Tribunal observed that whatever duty is paid on the goods received in the factory is admissible for Modvat credit, unless the supplier factory gets any part of it as refund. Further the respondent has taken cenvat creditthe amount which has been paid as duty by the supplier of the inputs, nothing additional has been taken by them and there is no loss of revenue. The cases cited are relevant in the instant case as these cases, clearly laid down the principles on the basis of which the adjudicating authority had dropped the demand on this score. The erstwhile Rule 57E and Board’s Circular No. 33/33/94 CX-8, dated 4-5-1994 relate to the cases where refund is allowed to the manufacturer of inputs and not in a case like the present one where only less value has been paid by respondent without any alteration of the duty paid by the manufacturer of inputs, Departments insistence on the said Rule and instruction is misplaced. Hence there is no question of any fraud to the Revenue or any administrative inconvenience.

The reduction of the price payable by the respondent to his supplier’s due to the quality difference is a commercial transaction between them. The Central Excise duty paid on the transaction value by the supplier to the respondent was never disputed and there is also no claim of refund of duty by supplier. As such, there cannot be any reduction of the Modvat credit, at the respondent’s end

Decision:
The appeal was dismissed.

Comment:
Consequently, it is clear that cenvat/modvat credit of amount of duty paid is allowable irrespective to the fact that some quantum of value of that goods is received back from the supplier.

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PJ/Case Laws/2011-12/1000

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