2005 (2) TMI 722 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit on capital goods used for manufacturing exempted intermediate products.
2. Interpretation of Rule 57R(2) in relation to the specification of intermediate products as final products under Rule 57Q.
3. Applicability of the Tribunal's Larger Bench decision in similar cases.
4. Discrepancy regarding the treatment of grey fabrics cleared outside the factory as intermediate products.
5. Benefit of Rule 57R(2) in cases where intermediate products are not specified as final products.

Analysis:

Issue 1: The appellants were denied Modvat credit on capital goods used for manufacturing exempted intermediate products, leading to a show cause notice for recovery of the credit amount and imposition of a penalty. The original authority confirmed the demand and penalty, prompting the appeal.

Issue 2: Rule 57R(2) was central to the dispute, which allowed credit on capital goods used for intermediate products, provided the intermediate product was specified as a final product under Rule 57Q. The Revenue invoked the proviso to deny the credit due to the intermediate product (grey fabric) not being specified as a final product. The appellants argued that Rule 57R(2) was a beneficial provision to prevent the denial of Modvat credit based on the duty status of intermediate products.

Issue 3: The appellants relied on the Tribunal's Larger Bench decision in the Ballarpur Industries case, where a similar interpretation was made for Rule 57D(2). The decision emphasized the benevolent nature of the rule to allow Modvat credit despite the absence of specification of intermediate products as final products.

Issue 4: The JDR contended that grey fabrics sold outside the factory should not be considered intermediate products, challenging the appellants' claim for Rule 57R(2) benefit. However, the appellants argued that the show cause notice did not address this aspect, focusing solely on the manufacture of grey fabrics.

Issue 5: The judgment favored the appellants, setting aside the impugned order and allowing the appeal based on the analogy drawn from the Ballarpur Industries case and the Sudarshanam Spinning Mills case. It concluded that the Revenue could not deny the benefit of Rule 57R(2) due to the non-specification of intermediate products as final products, as the requirement was not mandatory.

In conclusion, the judgment highlighted the importance of interpreting beneficial provisions like Rule 57R(2) to ensure manufacturers' substantive rights to Modvat credit on capital goods are upheld, even when intermediate products are not specified as final products under relevant rules.