2002 (2) TMI 1173 - AT - Central Excise

Summary

Issues:
Modvat credit reversal due to discrepancy in quantity of material returned by job workers.

Analysis:
The case involved a dispute regarding the reversal of Modvat credit by the department due to a discrepancy in the quantity of material returned by job workers. The respondents, engaged in manufacturing Screws & Rivets, sent steel rods for wire-drawing on job work basis and claimed Modvat credit on the duty paid for the rods. However, the department found that the quantity of steel wires returned was less by 3.332 MTs than the original rods sent, which was shown as destroyed in the challans. A show cause notice was issued, contesting the Modvat credit disallowance by the adjudicating authority, which was later reversed by the lower appellate authority, leading to the Revenue's appeal.

The main argument from the Revenue's side was that the respondents failed to declare the waste in their filing under Rule 57F(4), which according to them, made them ineligible for the Modvat credit benefit. They relied on a Tribunal's Larger Bench decision in Avis Electronics case to support this contention. On the contrary, the respondents argued that previous Tribunal decisions in cases like Rishi Iron & Steel Ltd. and Bharat Radiators Ltd., along with a Board's Circular, supported their position. They emphasized that the burning loss of 3.332 MTs at the job workers' end should be considered as "waste" under Rule 57D, making them entitled to the Modvat credit.

Upon examination, the judge found that the steel material loss was indeed a burning loss during the wire-drawing process at the job workers' end, as indicated in the challans. Referring to the Board's circular and previous case law, the judge concluded that such losses should be treated as "waste" under Rule 57D, allowing for Modvat credit extension. The judge highlighted the decisions in Rishi Iron & Steel Ltd. and Bharat Radiators Ltd., which supported the allowance of Modvat credit for such invisible losses. The judge distinguished the Larger Bench decision cited by the Revenue, stating it was not applicable to the current scenario. Consequently, the judge upheld the lower appellate authority's decision, rejecting the Revenue's appeal and sustaining the order in favor of the respondents.