2002 (10) TMI 588 - AT - Central Excise

Issues Involved:

1. Classification of "Unsterilised Absorbable Catgut Sutures" under the Central Excise Tariff Act (CETA).
2. Eligibility for Modvat Credit on inputs used in the manufacture of Unsterilised Absorbable Catgut Sutures.

Issue-wise Detailed Analysis:

1. Classification of "Unsterilised Absorbable Catgut Sutures" under the Central Excise Tariff Act (CETA):

The primary issue in this case is the appropriate classification of "Unsterilised Absorbable Catgut Sutures" (UAS) under the CETA. The appellant claims classification under Chapter sub-heading 0501.99, while the department asserts classification under Chapter sub-heading 4201.90.

The appellant has been manufacturing UAS since 1962 and initially treated the product as non-excisable until 1975. From 1975 onwards, due to various notifications, the product was exempt from duty as it was used in the manufacture of Sterile Surgical Sutures at the company's Mulund plant. The new Central Excise Tariff enacted on 1-3-1986 led the appellant to believe that the product fell under Chapter 5, which covered "Products of Animal Origin Not Elsewhere Specified or Included" with a nil tariff rate. This belief was supported by the department's actions and the Superintendent of Central Excise's visit in 1993, which confirmed classification under Chapter 5.

However, in 1998, the department sought to reclassify the product under Chapter 42, leading to the issuance of a show cause notice on 3-5-1999. The notice proposed reclassification based on the HSN Explanatory Notes, General Rules of Interpretation to the tariff, and the Deputy Chief Chemist's test report.

The appellant argued that Chapter 5 covers "products" of animal origin, whereas Chapter 42 covers "articles." The distinction between "products" and "articles" was emphasized, citing the Andhra Pradesh High Court's judgment in State of A.P. v. India Rubbers. The appellant asserted that UAS is not a finished article and requires further processing before use, thus falling under Chapter 5.

The department, however, contended that UAS undergoes complex processes, making it an "article" of animal gut, classifiable under Chapter 42. The department also argued that the term "article" covers finished goods ready for use, and UAS, being marketable, fits this description.

The Tribunal considered the arguments and noted the semi-colon in Chapter 42, which separates "articles of animal gut" from other finished goods, supporting the department's view. The Tribunal also referred to the Supreme Court's judgment in Zaffar Mohammad v. State of W.B., which defined "article" broadly as any useful thing or commodity.

The Tribunal concluded that UAS is an "article of animal gut" and should be classified under Chapter 42, sub-heading 4201.90, rejecting the appellant's claim for classification under Chapter 5.

2. Eligibility for Modvat Credit on inputs used in the manufacture of Unsterilised Absorbable Catgut Sutures:

The appellant argued that if UAS is classified under Chapter 42 and subjected to duty, they should be entitled to Modvat Credit on inputs used in its manufacture. The appellant cited various judgments supporting the grant of Modvat Credit even if procedural requirements were not met, as the belief was that no duty was chargeable on UAS.

The department opposed this, stating that Modvat Credit involves procedural formalities, which the appellant did not comply with. The department also argued that there is no statutory provision for allowing such credit retrospectively.

The Tribunal accepted the appellant's argument, citing the decision in CCE v. Indian Hume Pipe and other cases, which allowed Modvat Credit in similar situations. The Tribunal remanded the matter to the Commissioner to verify the duty-paid status of inputs and their use in the manufacture of UAS.

Conclusion:

The appeal was disposed of by upholding the classification of UAS under Chapter 42, sub-heading 4201.90, and remanding the matter regarding the Modvat claim to the Commissioner for verification.

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