2009 (2) TMI 610 - AT - Central Excise

Summary

Issues:
1. Availment of Modvat credit on re-imported material for re-export.
2. Interpretation of Chapter Note 11 of the Central Excise Tariff Act.
3. Admissibility of Modvat credit on re-processed material.
4. Compliance with procedural rules for re-export benefit.

Issue 1: Availment of Modvat credit on re-imported material for re-export
The appellant exported Pseudo Ephedrine Hydrochloride but had to re-import a portion due to buyer rejection. They claimed Modvat credit of CVD for re-processing and re-exporting the material. The department contended that re-exported goods were the same as re-imported ones, thus disallowing Modvat credit. A show-cause notice demanded repayment under Sec. 11A of the Central Excise Act. The Tribunal found the re-imported material underwent a process making it marketable, allowing Modvat credit for duty payment on re-processed material cleared for re-export.

Issue 2: Interpretation of Chapter Note 11 of the Central Excise Tariff Act
The appellant argued the re-imported material's process satisfied Chapter Note 11, as it transformed into marketable Pseudo Ephedrine Hydrochloride. The Tribunal agreed, stating the process purified the bulk drug into a consumer-ready crystallized form. This interpretation supported the appellant's claim for Modvat credit on the re-imported material used in manufacturing the re-exported final product.

Issue 3: Admissibility of Modvat credit on re-processed material
The Tribunal noted the re-imported material's treatment met the definition of "treatment" under Chapter Note 11, making the product marketable. This treatment process, converting impure bulk drug into a marketable form, justified the appellant's entitlement to Modvat credit on the CVD paid for the re-imported material used in manufacturing the re-exported product.

Issue 4: Compliance with procedural rules for re-export benefit
The Commissioner's finding highlighted the appellant's failure to follow specific procedural rules for re-export benefits under Rule 97B and Rule 173MM. However, the appellant chose to forgo these benefits, opting to clear goods for home consumption after re-processing, informing the Central Excise Range Officer accordingly. The Tribunal upheld the appellant's decision, setting aside the order denying Modvat credit and imposing a penalty.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the Modvat credit and overturning the penalty imposed, emphasizing the legitimacy of the process undertaken on the re-imported material for re-export.