1996 (8) TMI 470 - AT - Central Excise

Summary

Issues:
- Benefit of Notification No. 53/88 in relation to scrap generated from processed inputs with Modvat credit.

Analysis:
The appeal before the Appellate Tribunal CEGAT, Chennai revolved around the entitlement to the benefit of Notification No. 53/88 concerning scrap produced from inputs that had undergone processing and for which Modvat credit had been availed. The appellants argued that since the inputs received at their factory had already incurred duty, they should be considered as duty paid for the purposes of the notification. On the other hand, the Departmental Representative contended that due to the Modvat credit taken on the inputs, they should be treated as if they were manufactured in the appellant's factory, and any clearance would require duty payment as if for home consumption. The Consultant for the respondent emphasized a strict interpretation of the notification, asserting that if it could be demonstrated that the goods from which the scrap originated had previously borne duty, the appellants should be eligible for the notification's benefit, citing relevant tribunal decisions in support.

Upon considering the arguments presented by both sides, the Tribunal deliberated on whether the Modvat credit taken on the processed inputs would disqualify the appellants from claiming the benefits under Notification No. 53/88. The notification stipulates that the benefit applies when scrap is generated from duty paid inputs. Despite the initial duty on the goods received at the factory, the Tribunal noted that the Modvat credit altered the duty status of the inputs, deeming them as if manufactured within the appellant's factory. This transformation, as per Rule 57F, led to the inputs being treated as non-duty paid goods even if cleared as such, necessitating duty payment as if manufactured in-house. The Tribunal highlighted that the purpose of the notification was to prevent double duty imposition on scrap derived from inputs that had already borne duty, with the duty burden being lifted through the Modvat credit mechanism. Drawing from a Supreme Court ruling in the case of M/s. Chandrapur Magnets, the Tribunal concluded that unless the Modvat credit was reversed, goods could not be considered duty paid, thereby upholding the revenue's appeal and overturning the lower authority's decision to grant the notification's benefit to the appellants.

In essence, the Tribunal's decision hinged on the interpretation of the Modvat credit system's impact on the duty status of inputs and its implications on the eligibility for the benefit under Notification No. 53/88, ultimately ruling in favor of the revenue and disallowing the notification's benefit to the appellants based on the Modvat credit mechanism's effect on the duty paid status of the goods.