2009 (5) TMI 853 - AT - Central Excise

Summary

Issues involved: Applicability of Rule 57F(2) of the Central Excise Rules, 1944 in disallowing Modvat credit.

Summary:
The appeal arose from a remand order directing examination of the applicability of Rule 57F(2) before disallowing Modvat credit. The appellants, engaged in manufacturing, used M.S. Pipes and Pipe fittings as inputs, availing credit. They welded pipes with flanges and cleared them for export under bond. A show cause notice proposed denying Modvat credit, alleging the processes did not constitute manufacture. Despite remand, duty demand and penalty were confirmed. The main contention was whether the inputs were used in the final product manufacture, as required by Rule 57A. The Advocate cited a Tribunal decision and a Board's Circular in support.

The Department reiterated the Commissioner's findings, emphasizing the necessity for inputs to be used in or in relation to the final product manufacture. They argued that the appellants' activities did not amount to manufacture, thus making them ineligible for credit. The Board's circular and case law cited by the Advocate were deemed irrelevant.

After considering both arguments and reviewing the records, it was found that the appellants received duty-paid pipes, welded them with flanges, and cleared them for export under bond. The exported goods were cleared using the credit for duty payment on final products for home consumption. The Tribunal's decision in a similar case was referenced, stating that credit cannot be denied when inputs are removed for export under bond, even if the process does not amount to manufacture. The Board's Circular further supported this interpretation.

The Board's circular clarified that inputs cleared for export under bond should be treated similarly to final products for credit utilization. As the appellants had undertaken the welding process and exported the goods under bond, they were entitled to credit. The Tribunal's decision and the Board's circular provided sufficient grounds to allow the appeal and grant consequential relief.