Full Judgment
Accordingly, the appellants issued debit note to the supplier for an amount of Rs. 1,78,111/- in respect of inputs received during the period from December 2003 to August 2004. They were issued a show cause notice proposing to recover excess credit of Rs. 24,567/- on the ground that with the reduction in value of the inputs, corresponding duty paid by the inputs manufacturer also gets reduced to the above extent and the applicant was not entitled to avail the credit of the same. The said demand was confirmed against along with interest and penalty.
2. The Commissioner (Appeals) has noticed the appellant's contention in para 2 of his order, which I re-produce below: The appellants have argued that it is not denied that as soon as inputs were received, they had claimed the credit of duty paid by the suppliers of the inputs and which appeared in the invoice; that they were negotiating the rate contract prices which had resulted in the reduction of the assessable value/transaction value of the inputs/raw materials received; that when the matter regarding finalization of rate of the inputs had been completed, they had claimed from the suppliers, only the amount representing the deference in basic price (without duty) of the inputs; that there was no scope for the appellants to ask for amount of the duty involved on price difference of the inputs, from the suppliers, since the duty paid thereon, had already been taken as credit; that the views of the Deputy Commissioner that as soon as matter was settled, the appellants should have reduced the proportionate duty credit, by reversing the said amount of duty, are without authority of any law; that the Deputy Commissioner could not cite the rule or authority under which it was necessary for the appellants to reverse the credit of their own, when he was aware that the amount of credit was taken in respect of duty actually paid by the input suppliers on the inputs supplied and that amount of duty had been credited to the account of Government and the supplier had not filed any refund claim; that there is no provision in the Cenvat Credit Rules to reduce the duty credit if there was any reduction in the selling price of the inputs after they had been received; that the rules only provide that the credit is allowed in respect of duty actually paid on the inputs that have been received by the assessee in his factory premises for use in or in relation to manufacture of his final products; that so long as there was no deficiency in the quantity of inputs received and if the credit has been taken in respect of duty actually paid on the quantity of inputs received, there is no question of reversal of credit of duty on the value subsequently reduced; that there was no case for imposition of penalty. The appellants rely upon the case laws mentioned in the appeal memo.
3. Considering the above contention, the appellate authority has observed that since the value of the inputs was reduced, the supplier manufacturer was required to pay less duty. As such, the duty paid by the supplier manufacturer in excess of the payable duty, cannot be considered as duty of excise and the appellants cannot be allowed to take credit of the same.
4. I find that there is no dispute about the fact that the debit notes were raised only in respect of the value of the inputs and not in respect of the duty paid by the manufacturer. The effect of reduction of value of inputs may be that the duty required to be paid on the inputs was less than what has actually been paid by the inputs manufacturer. However, the facts remains that the inputs manufacturer has paid the higher duty. Rule 57A allows credit of duty paid by the inputs manufacturer and not duty "payable" by the said manufacturer. As such, admittedly the entire amount of duty, of which the appellants has taken credit, having been paid by the manufacturer, who has not subsequently claimed any refund on account of reduction of assessable value of the inputs, the appellants would be entitled to the entire modvat credit. As such, I set aside the impugned order and allow the appeal with consequential relief to the appellants.