Commissioner of Central Excise vs Jindal Vijayanagar Steel Ltd.

K.L. Manjunath, J.—Heard the learned counsel appearing for the parties. The divergent findings of the order passed by the Commissioner of Central Excise, Belgaum, arising out of the order dated December 16, 2002 in original No. 17 of 2002, which has been reversed by the CESTAT, South Zonal, Bangalore, by the order dated December 2, 2005 in Appeal No. E/ 229/03, are called in question in this appeal.

The above appeal was admitted to consider the following substantial questions of law:

(i) Whether rule 57 of the Central Excise Rules, 1944 provides levy of Central excise duty on the inputs on receipt of which Cenvat credit availed of and not fully accounted for as having been disposed off in the manner specified in the said rules ?

(ii) Whether section 11AA of the Central Excise Act, 1944 and rule 173Q of the erstwhile Central Excise Rules, 1944 justify for imposing penalty wherein the assessee suppressed the material fact to the Department ?

(iii) Whether the authority is justified in imposing interest u/s 11AB on the entire amount ?

Now an application is filed for recasting the substantial questions of law.

Heard the learned counsel appearing for the parties.

We are of the view that the substantial questions of law framed earlier has to be reframed. Accordingly, by consent of both the parties, the following substantial questions of law are reframed to answer this appeal:

(i) Whether under the facts and circumstances of the case the Tribunal is justified in holding that the demand of duty on the Cenvat credit by the appellant is premature ?

(ii) Whether the Tribunal is justified in holding that there is a possibility of using of inputs inspire of the respondents statement when the respondent contends that the same is unfit for use ?

The facts leading to filing of this case are as hereunder:

The respondent availed of Cenvat credit on import of capital goods. The appellant-Revenue proceeded against them, on the ground that the credit availed of in respect of the goods damaged during transit is not in order, the respondents claimed the money from the insurance company and it was pointed out to the respondent that the inputs were not at all used in the manufacture of final product and a demand was raised to recover Rs. 46,56,143 for the period from January, 1997 to November, 2000. Accordingly, it was adjudicated and penalty of Rs. 8,43,509 was also levied u/s 11AC and a penalty of Rs. 50,000 has also been imposed under rule 173Q of the Central Excise Rules, 1944.

Aggrieved by the same, the respondent filed an appeal before the Tribunal. The Tribunal allowed the appeal by reversing the order of the Commissioner on the ground that when the goods are damaged, such goods are still in the factory. As the appellant cannot contend that the damaged goods cannot be repaired and the possibility of using the inputs for manufacturing the final product cannot be ruled out, the claim made by the appellant was premature. Accordingly, the Tribunal set aside the order and allowed the appeal. This order is called in question in this appeal.

Admittedly, the claim is in regard to the period from January, 1997 to November, 2000. The Tribunal has disposed of the appeal on December 5, 2005. The contention of the respondent that the goods were damaged during transit and as a result of which the inputs could not be used for manufacturing the final products. If it is so, the Tribunal did not consider the vital aspect of the matter on account of the damage caused to the inputs, it cannot be used for final product and when the respondent has claimed the insurance, we are at a loss to understand how the claim of the appellant can be considered as premature.

Be that as it may, when the demand is in respect of the period from January, 1997 to November, 2000, when the appeal is disposed of in the year 2005, at least the Tribunal was required to examine whether the respondent has used inputs for the manufacture of final products and duty has been paid by the respondent to the appellant and without ascertaining this factual aspect, the Tribunal has erroneously passed an order. In the circumstances, we are of the opinion that without answering the substantial questions of law framed, the matter is required to be reconsidered by the Tribunal afresh in accordance with law. Accordingly, this appeal is allowed and all the contentions are left open.