2001 (4) TMI 794 - AT - Central Excise

Issues Involved:
1. Whether the benefit of Modvat credit under Notification No. 58/97-C.E., dated 30-8-1997 (as amended) could be availed of in respect of duty-paid inputs captively consumed in the manufacture of dutiable specified final products.
2. Interpretation of Notification No. 58/97-C.E. and whether it envisages two separate individual manufacturers.
3. Whether the procedural requirements of the notification can be considered substantive or procedural in nature.
4. The applicability of the rule of strict interpretation to the Modvat credit notification.

Issue-wise Detailed Analysis:

1. Whether the benefit of Modvat credit under Notification No. 58/97-C.E., dated 30-8-1997 (as amended) could be availed of in respect of duty-paid inputs captively consumed in the manufacture of dutiable specified final products:
The appellants, M/s. SIL, were availing of Modvat credit for re-rolled non-alloy steel products used in the manufacture of agricultural implements. They filed a declaration for Modvat credit on 17-3-1994. With the introduction of Section 3A of the Central Excise Act, 1944, the Department sought to deny the benefit of deemed Modvat credit under Notification No. 58/97-C.E., arguing that the notification required two separate manufacturers for inputs and final products. The Tribunal found that the substantive part of the notification did not indicate that the benefit was unavailable for captively consumed inputs. The Tribunal concluded that denying Modvat credit solely because the inputs were captively consumed was unjustified.

2. Interpretation of Notification No. 58/97-C.E. and whether it envisages two separate individual manufacturers:
The Commissioner of Central Excise (Appeals) interpreted the notification as requiring two separate manufacturers, one for inputs and one for final products. This interpretation was based on the conditions that inputs must be received directly from the factory of the manufacturer and that payment for inputs must be made directly by the manufacturer of the final products. However, the Tribunal disagreed, noting that the notification's substantive provisions did not support the exclusion of captively consumed inputs. The Tribunal emphasized that the notification aimed to extend Modvat credit benefits to inputs subject to compounded levy, irrespective of whether they were captively consumed or sold to outside manufacturers.

3. Whether the procedural requirements of the notification can be considered substantive or procedural in nature:
The Tribunal distinguished between substantive and procedural conditions. It cited the Supreme Court's observation that procedural requirements should be construed liberally. The Tribunal noted that the notification's conditions, such as issuing invoices and declaring prices, were procedural. The Tribunal referenced the Supreme Court's ruling in Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, which emphasized that procedural lapses should not result in the denial of substantive benefits. The Tribunal concluded that the procedural conditions in Notification No. 58/97-C.E. should not prevent the appellants from availing of Modvat credit.

4. The applicability of the rule of strict interpretation to the Modvat credit notification:
The Tribunal observed that Notification No. 58/97-C.E. was not an exemption notification but a Modvat credit notification. Therefore, the rule of strict interpretation applicable to exemption notifications did not apply. The Tribunal cited the Supreme Court's ruling in Rajasthan Spg. & Wvg. Mills Ltd. v. CCE, Jaipur, which stated that exemption notifications must be strictly construed. However, since Notification No. 58/97-C.E. was not an exemption notification, the Tribunal concluded that a liberal interpretation was appropriate to avoid absurdity and hardship.

Conclusion:
The Tribunal set aside the impugned orders-in-appeal and allowed all three appeals, granting consequential relief to the appellants. The Tribunal emphasized that the benefit of Modvat credit should not be denied solely because the duty-paid inputs were captively consumed in the manufacture of dutiable final products. The Tribunal's decision was based on a comprehensive analysis of the notification's language, the nature of procedural requirements, and the principles of interpretation applicable to Modvat credit notifications.

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