2002 (10) TMI 621 - AT - Central Excise

Summary

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.

Detailed Analysis:

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

The primary issue was whether "Unsterilised Absorbable Catgut Sutures" (UAS) should be classified under Chapter sub-heading 0501.99 as claimed by the appellant or under Chapter sub-heading 4201.90 as claimed by the department.

The appellant argued that UAS, being of animal origin and not elsewhere specified, should fall under Chapter sub-heading 0501.99. They contended that the processes involved in manufacturing UAS did not change its essential character as a product of animal origin. They also cited the Andhra Pradesh High Court judgment in State of A.P. v. India Rubbers, which distinguished between "products" and "articles," suggesting that UAS, requiring further processing before use, should be classified as a product under Chapter 5.

The department, however, argued that the extensive chemical and mechanical processes applied to the raw material transformed it into a distinct article of animal gut, classifiable under Chapter sub-heading 4201.90. They relied on the Harmonized System of Nomenclature (HSN) Explanatory Notes and the Deputy Chief Chemist's report, which described UAS as catgut and thus an article of animal gut.

The Tribunal upheld the department's classification under Chapter sub-heading 4201.90, emphasizing that the processes involved resulted in a specific and consciously designed form of "strands," making it an article rather than a product. The Tribunal noted that the term "article" in Chapter 42 covered finished goods of ready use, and UAS, being non-sterile, was an intermediate product requiring further processing. The Tribunal also rejected the appellant's reliance on the Andhra Pradesh High Court judgment, noting the specific context and the presence of a semi-colon in Chapter 42, which distinguished "articles of animal gut" from other items listed.

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

The appellant sought Modvat Credit on inputs used in the manufacture of UAS at their Dharavi factory and for the excise duty paid on UAS to be utilized at their Aurangabad factory against the clearance of the final product, Sterile Surgical Sutures.

The Tribunal acknowledged that if UAS were classified under Chapter 42 and subjected to duty, the appellant would be entitled to Modvat Credit on the inputs used in its manufacture. The Tribunal referred to precedents such as CCE v. Indian Hume Pipe and National Steel Industries v. CCE, which supported the availability of Modvat Credit even if procedural formalities were not initially followed due to the appellant's belief that no excise duty was chargeable.

The Tribunal remanded the matter to the Commissioner to verify that the inputs received were duty-paid and used in the manufacture of the finished product, allowing the appellant to avail of Modvat Credit accordingly.

Conclusion:

The Tribunal concluded that "Unsterilised Absorbable Catgut Sutures" should be classified under Chapter sub-heading 4201.90 as an article of animal gut. The Tribunal also allowed the appellant's claim for Modvat Credit on inputs used in the manufacture of UAS, subject to verification by the Commissioner. The appeal was thus disposed of, upholding the classification made by the Commissioner and remanding the matter regarding the Modvat claim.