1996 (9) TMI 560 - AT - Central Excise

Summary

Issues: Classification of product under Central Excise Tariff Act, 1985 and entitlement to keep Modvat credit balance pending Supreme Court decision.

Classification Issue:
The appeal before the Appellate Tribunal CEGAT, New Delhi involved a dispute over the classification of partly skimmed milk powder under the Central Excise Tariff Act, 1985. The appellant claimed the product should be classified under sub-heading 0401.19 with a nil rate of duty, while the department argued for classification under sub-heading 0401.13, which is dutiable. The Tribunal had previously ruled in favor of the appellant, classifying the product under sub-heading 0401.19. However, the department issued a show cause notice for reversing Modvat credit claimed by the appellant on inputs used in manufacturing the product, as they were not paying duty on the final product, a prerequisite for Modvat credit.

Modvat Credit Entitlement Issue:
The appellant contended that they were entitled to keep the unutilized Modvat credit balance in their RG 23A account pending a Supreme Court decision challenging the classification issue. The appellant argued that the credit should not lapse as it could be used to pay any consequential duty if the Supreme Court decision ruled against them. The appellant relied on a Tribunal decision regarding proforma credit under Rule 56A, stating that credit should not be treated as lapsed until the final decision on dutiability is known. The department, however, argued that there was no provision in the Modvat rules to retain credit when the final product is exempted from duty or to keep a balance as a contingency against a potential adverse Supreme Court decision.

Tribunal Decision:
After considering the arguments, the Tribunal upheld the Commissioner (Appeals) decision, rejecting the appellant's appeal. The Tribunal noted that the consequential relief granted to the appellant following the classification order covered the same period as the Modvat credit issue, indicating that the credit balance would be covered by the relief granted. The Tribunal distinguished the appellant's reliance on a previous case, stating that the circumstances were different as the appellant had already received consequential relief. The Tribunal concluded that the appellant's desire to retain the credit balance as protection against a possible duty demand in the future was not covered by Modvat provisions. The Tribunal found no reason to interfere with the Commissioner (Appeals) decision and rejected the appeal.