2002 (12) TMI 469 - AT - Central Excise

Summary

Issues:
- Appeal against Order-in-Appeal allowing Modvat credit on duty paid on capital goods
- Interpretation of Rule 57R of Central Excise Rules, 1944 regarding Modvat credit
- Exemption of twisted yarn from payment of Central Excise duty under Notification No. 8/96-C.E.
- Need for verification of whether the respondents were availing the exemption on twisted yarn

Analysis:
The appeal before the Appellate Tribunal CEGAT, New Delhi challenged the Order-in-Appeal that allowed Modvat credit on duty paid on capital goods to the respondents, M/s. JCT Ltd. The Tribunal noted the absence of the respondents during the hearing and proceeded with the appeal after hearing the learned SDR. The SDR argued that the process involving Two For One Twister (TFO) for spun yarn, used by M/s. JCT Ltd., did not amount to manufacturing as per a Supreme Court decision. It was contended that TFO did not qualify as "capital goods" under Rule 57Q of the Central Excise Rules, 1944, as it was not used for producing or processing goods. Additionally, the SDR pointed out that twisted yarn was exempt from Central Excise duty under Notification No. 8/96-C.E., and Modvat credit was not available if capital goods were used in the production of duty-exempt final products.

Upon considering the submissions, the Tribunal analyzed Rule 57R of the Central Excise Rules, which stated that no credit shall be allowed on capital goods exclusively used in manufacturing duty-exempt final products. The Tribunal observed that twisted polyester filament yarn, manufactured by M/s. JCT Ltd., was exempt from Central Excise duty under Notification No. 8/96-C.E. The lower authorities had not determined whether the respondents were availing the exemption on twisted yarn. The Commissioner (Appeals) had mentioned that the exemption under Notification No. 8/96 was conditional, and the goods were not fully exempted under Rule 57R(1). As this crucial aspect was not discussed in a previous case, the Tribunal remanded the matter to the adjudicating authority to verify if the respondents were indeed benefiting from the duty exemption on twisted yarn and to decide the case after providing a fair hearing opportunity to the respondents. This decision aimed to ensure a thorough examination of the exemption status and its impact on the availability of Modvat credit to M/s. JCT Ltd.