2005 (2) TMI 696 - AT - Central Excise

Summary

Issues:
Whether an unit availing small scale exemption can take credit of duty paid on inputs used in the production of scrap exempt from duty.

Analysis:
The case involved the appellants, who manufactured disposable plastic containers using duty paid plastic granules and availed Modvat credit on such inputs. The issue arose when the reusable plastic scrap generated during the manufacturing process was reused captively, exempted from duty under Notification No. 67/95. The appellants sought to avail Modvat credit on the inputs contained in the reusable scrap, which the Commissioner denied. The Commissioner's denial was based on two grounds: first, that no credit was available as the granules were used in the manufacture of exempted scrap, and second, that the scrap was generated during the exemption period, preventing the utilization of credit after entering the duty paying sector.

Upon hearing both sides, the Tribunal had to determine whether an unit availing of small scale exemption could claim credit for duty paid on inputs used in producing scrap exempt from duty. The appellants relied on previous Tribunal decisions, such as Aditya Cement, Rolls Tubes, and Hindalco Industries Ltd., to support their claim that credit cannot be denied in such cases. However, the Tribunal found the cited case law distinguishable. The Tribunal noted that the reusable scrap, generated during the small scale exemption period, became an input in the manufacture of the final product, disposable plastic containers. As the granules were part of the scrap generated during the exemption period, they could not be considered inputs in the manufacturing process when the appellants transitioned to the duty paying sector.

Ultimately, the Tribunal rejected the appeal, emphasizing that the granules contained in the reusable scrap, generated during the small scale exemption period, could not be considered inputs in the production of the final product once the appellants entered the duty paying sector. The decision highlighted the specific circumstances of the case where the generation of scrap during the exemption period impacted the eligibility for Modvat credit on inputs contained in the scrap.