ORDER
S.L. Peeran, Member (J)
Page 0246
1. This appeal arises from Order-in-Appeal No. 83/05 dated 31.3.2005. The appellants were issued with a show cause notice alleging that they have contravened Rule 57F by suppressing the facts of removal of inputs as well as in-process goods from their Unit-I to Unit-II. Rule 57F (20 & 21) lays down that where the manufacturer intends to shift unutilised balance of credit to his other unit, then in such a situation the manufacturer shall obtain permission from the Department. Before shifting the inputs and in-process goods, they should reverse the credit taken on such inputs and inputs hidden in process goods and raise a regular invoice, on which modvat credit can be transmitted and then shift the said goods to the Unit-II. Immediately on receipt of the regular invoices, they can take the modvat credit. In this case, although the appellant had failed to follow the procedure but on verification, the department found that there was no manipulation in utilization of credit. The credit which was available on receipt of the inputs as well as unprocessed goods were correct and not violated.
2. The learned Counsel submits that there was revenue neutrality in the matter as they have violated the procedure, which can be visited with penalty under Rule 173Q. The penalty of Rs. 25,000/- imposed is not challenged but the denial of modvat credit and imposing of penalty under Rule 571(I) is challenged. It is submitted that when modvat credit is available to them and they have eventually taken the same, then in such a situation, the department cannot deny the availment of modvat credit He relies on the Apex Court judgment rendered in the case of Commissioner of Sales Tax, UP v. Auriaya Chamber of Commerce reported in 1986 (25) ELT 867 (SC). The Apex Court in para 29 to 31 have laid down that the rules of procedures Page 0247 are hand maids of justice and not its mistress, if the dealer is not guilty of latches and there is no actual prohibition for refund, one should not get entangled in the cobweb of procedure but do substantial justice. It also further lays down that tax collected without authority of law, should not be retained by the state.
3. The learned SDR distinguishes this judgment and submits that when the procedure has not been followed, then the credit can be denied. He also submits that it was an admitted fact that while shifting the inputs and the in-process goods, a regular invoice was not raised but there was only stock transfer. He further submits that the permission from the Department was also not obtained, hence the denial of modvat credit and imposing of penalty under Rule 571(I) and 173Q is justified.
4. On a careful consideration, I notice that there is no dispute with regard to not observing of the Rules in respect of transfer of inputs and in-process materials to sisters Unit-II. The question is as to whether modvat credit can be denied on this ground. The said Rules does not lay down that the modvat credit is required to be denied, in case if these provisions are not followed. For violation of these provisions penalty is required to be imposed. The penalty imposed under Rule 173Q is fully justified and the same is not contested. The penalty of Rs. 25,000/- imposed under Rule 173Q is therefore upheld. In so far as denial of modvat credit is concerned, it is seen that modvat credit is granted to avoid cascading effect on the duties. If modvat credit is denied for procedural violation, then the purpose of granting the credit will be defeated. It is not the case of the Department that there was an irregular availment of credit and that they have taken more credit then what is available to them. The modvat credit available on the inputs and in-process material has been noted in the stock transfer register. These details are not challenged and the same are also produced along with the paper book. Therefore, it is clear that the modvat credit has been denied solely on the ground that the appellant did not take permission from the Department. The appellants have given detailed explanation on their minor lapse which happened on their part in not seeking the permission and for raising the invoice.
5. On a careful perusal, I find that the reasons given by them should have been accepted as there was no intention to suppress the facts or to avail any ineligible credit. As all the details recorded in the stock register has been found to be correct, therefore, their availment of the modvat credit is required to the accepted. The denial of modvat credit and imposing of penalty of likesum in terms of Rule 571(I) is set aside. The impugned order is modified to the extent of confirming penalty of Rs. 25,000/- (Rupees Twenty Five Thousand Only) imposed under Rule 173Q for violating the procedures laid down under the relevant rule. The appeal is allowed on the above terms.
(Pronounced and dictated in open Court)