2005 (8) TMI 450 - AT - Central Excise

Summary

Issues:
1. Disallowance of Modvat credit on finished goods by a 100% Export Oriented Unit (EOU).
2. Classification of goods in stock as finished goods or raw materials/intermediates.
3. Eligibility for Modvat credit on duty paid on input content of finished goods at the time of de-bonding.

Issue 1: Disallowance of Modvat credit on finished goods by a 100% EOU:
The case involved M/s. Pradeep Drug Co. Ltd. (PDCL), a 100% EOU engaged in manufacturing bulk drugs. Upon de-bonding, PDCL was required to pay duty on goods in stock. PDCL claimed Modvat credit on CVD and excise duty paid on raw materials in finished goods. The authorities disallowed the credit, citing inadmissibility of Modvat credit on finished goods by a 100% EOU. Both lower authorities upheld the disallowance, emphasizing no duty payment on raw materials or finished goods. The appeal challenged this decision.

Issue 2: Classification of goods in stock as finished goods or raw materials/intermediates:
A dispute arose over goods in stock being classified as finished goods or raw materials/intermediates. A previous demand for differential duty treated most goods as finished, contested by PDCL. The settlement under the Kar Vivad Samadhan Scheme (KVSS) deemed the goods as finished. The contention was whether the goods were eligible for Modvat credit based on their classification. PDCL argued for raw materials, while the Revenue asserted they were finished goods, supported by PDCL's own submissions and KVSS settlement.

Issue 3: Eligibility for Modvat credit on duty paid on input content of finished goods at de-bonding:
The pivotal question was the eligibility of Modvat credit on duty paid on input content of finished goods at de-bonding. The Revenue argued no duty was paid on inputs as a 100% EOU, and only duty on finished goods was paid. The Tribunal concurred, emphasizing the lack of duty payment on inputs, rendering Modvat credit inapplicable. The de-bonded unit did not receive any duty-paid inputs, failing the condition for Modvat credit. The judgment dismissed the appeal based on these grounds.

In conclusion, the judgment addressed the disallowance of Modvat credit on finished goods by a 100% EOU, the classification of goods in stock as finished or raw materials/intermediates, and the eligibility for Modvat credit on duty paid on input content of finished goods at de-bonding. The decision upheld the Revenue's stance, emphasizing the absence of duty payment on inputs and the inapplicability of Modvat credit on finished goods.