2004 (4) TMI 453 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit on furnace oil used in the manufacture of exempt products.
2. Interpretation of Rule 57C regarding the admissibility of credit on inputs used as fuels.
3. Applicability of credit reversal provisions under Rule 57CC.

Analysis:

1. The appeal was filed against the order denying Modvat credit on furnace oil used by the appellants in manufacturing exempt Animal Drawn Vehicle (ADV) tyres. The Deputy Commissioner and Commissioner upheld the denial citing that since the final product is exempt from duty, taking credit on furnace oil was impermissible. The appellants argued that credit reversal should only apply to inputs contained in the final product, which furnace oil was not. However, the authorities relied on Rule 57A and Rule 57C to support their decision.

2. The appellants contended that Rule 57C sub-rule (3) exempts inputs used as fuels from the provisions of sub-rule (2), which governs the admissibility of credit on inputs used in the manufacture of duty-exempt products. The Tribunal acknowledged that sub-rule (2) of Rule 57C does not apply to fuels, emphasizing that the satisfaction of conditions under sub-rule (1) of Rule 57C is essential for credit admissibility. The Tribunal clarified that the method of credit reversal, whether actual or 8% of final goods price, was not the primary issue; rather, the inadmissibility of credit from the outset due to non-compliance with sub-rule (1) was decisive.

3. Ultimately, the Tribunal found no merit in the appeal, rejecting it on the grounds that the credit was unlawfully taken, justifying the imposition of penalties by the lower authorities. The judgment emphasized that since the conditions of Rule 57C sub-rule (1) were not met, the credit was inadmissible, rendering discussions on credit recovery procedures under Rule 57CC irrelevant. The decision upheld the denial of Modvat credit and penalties imposed on the appellants for the unauthorized credit claim.