1995 (9) TMI 313 - AT - Central Excise

Issues Involved:
1. Eligibility for Modvat credit on inputs of fuel tanks and struts.
2. Compliance with procedural requirements under Rule 57F(2).
3. Applicability of Rule 57F(1)(ii).
4. Classification of fuel tanks and struts as intermediate products or final products.
5. Impact of non-fulfillment of conditions stipulated in Notification 214/86.

Detailed Analysis:

1. Eligibility for Modvat Credit on Inputs of Fuel Tanks and Struts:

The central issue in these appeals is whether the appellants are eligible for Modvat credit on inputs used in the manufacture of fuel tanks and struts, which are subsequently used in the manufacture of motor vehicles. The appellants contended that they followed the procedure under Rule 57F(2) and that the inputs were used in the manufacture of motor vehicles, their final product. The Department issued show cause notices alleging that the appellants cleared inputs without payment of duty under Rule 57F(1)(ii), thus proposing disallowance of Modvat credit.

2. Compliance with Procedural Requirements under Rule 57F(2):

The appellants argued that they had obtained necessary permissions under Rule 57F(2) for removal of inputs for further processing outside the factory and had substantially complied with procedural requirements. They pointed out that the Assistant Collector had granted permission for such removals and that the job workers did not avail Modvat credit on the inputs supplied by the appellants. The Department, however, contended that the appellants did not follow the prescribed procedure, such as issuing different colored challans and maintaining accounts in the prescribed format.

3. Applicability of Rule 57F(1)(ii):

The Department argued that Rule 57F(1)(ii) was applicable as the appellants removed inputs without payment of duty for home consumption. The appellants countered that the removals were not for home consumption but for further manufacturing processes by job workers, who returned the intermediate products (fuel tanks and struts) to the appellants for use in the manufacture of motor vehicles. The Tribunal agreed with the appellants, noting that Rule 57F(2) is an exception to Rule 57F(1) and that the removals were for further manufacturing, not home consumption.

4. Classification of Fuel Tanks and Struts as Intermediate Products or Final Products:

The appellants maintained that fuel tanks and struts are intermediate products essential for the manufacture of motor vehicles, which are their final products. They relied on several Tribunal decisions, including Ashwin Vanaspati and Shalimar Paints, which held that intermediate products used in the manufacture of a final product are eligible for Modvat credit. The Department, however, argued that fuel tanks and struts are final products in themselves and not intermediate products. The Tribunal sided with the appellants, holding that fuel tanks and struts are indeed intermediate products necessary for the completion of motor vehicles.

5. Impact of Non-fulfillment of Conditions Stipulated in Notification 214/86:

The Department contended that the appellants did not fulfill the conditions of Notification 214/86, which required job workers to return goods without payment of duty. The appellants argued that the substantive benefit of Modvat credit should not be denied due to procedural lapses, especially since the job workers paid duty on the intermediate products. The Tribunal agreed, citing several decisions that emphasize the substantive relief provided by Modvat rules should not be denied due to procedural non-compliance.

Conclusion:

The Tribunal concluded that the appellants are eligible for Modvat credit on inputs of fuel tanks and struts used in the manufacture of motor vehicles. It set aside the impugned orders and allowed the appeals with consequential relief. The Tribunal emphasized that procedural lapses should not bar the substantive benefits of Modvat credit, especially when the appellants had substantially complied with the requirements and the job workers had paid duty on the intermediate products.

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