2008 (10) TMI 493 - AT - Central Excise

Summary

Issues:
Interpretation of Modvat credit availability on input transfers between manufacturing units post-amendment.

Analysis:
The case involved appeals by various manufacturing units of a company engaged in producing mosquito repellents, challenging demands raised by the Assistant Commissioner of Central Excise regarding Modvat credit on inputs transferred between units. Pre-amendment, the full duty paid on the input was available as credit, but post-amendment, the credit was restricted to 95% of the duty. The dispute arose when one unit transferred input to another, leading to a disagreement on the extent of credit available to the recipient unit.

Upon review, the Tribunal found that the dispute centered on whether the 95% credit restriction applied to transfers of input between units. The Revenue contended that the restriction applied, citing a Circular clarifying the credit mechanism for such transfers. However, the appellants argued that the restriction did not apply in cases where one unit transferred credit-availed input directly to another unit under specific provisions of the Central Excise Rules.

After careful consideration of the relevant notifications and rules, the Tribunal agreed with the appellants. They noted that the restriction on Modvat credit availability was intended for the manufacturer of the final product receiving the input directly from the input manufacturer. There was no indication that this restriction extended to situations where credit-availed inputs were transferred between manufacturing units under Rule 57F(2) and (3) of the Central Excise Rules.

The Tribunal held that in cases where credit-availed input was transferred between units post-amendment, the recipient unit was entitled to full credit equivalent to the credit reversed by the supplier unit. They found that the Revenue's interpretation, as per the Trade Notice, did not align with the Modvat Credit Scheme. Consequently, the Tribunal set aside the demands raised by the Assistant Commissioner and allowed the appeals of the manufacturing units.

In conclusion, the Tribunal clarified the application of Modvat credit restrictions in cases of input transfers between manufacturing units post-amendment, emphasizing the entitlement of the recipient unit to full credit as per the credit reversal by the supplier unit.