2002 (11) TMI 783 - AT - Central Excise

Summary

Issues involved: Disallowance of modvat credit on inputs used in the manufacture of medicines exported under bond, interpretation of Rule 57C, Rule 57CC, and Rule 57F, policy on modvat credit for duty paid on inputs of exempted goods.

Issue 1 - Disallowance of modvat credit on inputs:
The appellants exported medicines and claimed modvat credit on inputs used in manufacturing, but the Dy. Commissioner disallowed the credit, stating the goods were generic and not dutiable. The Commissioner (Appeal) upheld this decision. The appellants argued that when goods are exported under bond, credit on inputs is available under Rule 57F (13) and Rule 57CC (6) waives certain requirements for exports. The Tribunal found that since the goods were exported under bond, modvat credit under Rule 57F (13) cannot be disallowed. The Government's policy is to encourage exports, and both the exported products and inputs used in them should not be subject to domestic levies.

Issue 2 - Interpretation of rules and policy on modvat credit:
The advocate cited case laws to support the contention that exported goods are not exempted but duty collection is waived. Goods exported under bond should not be considered exempt from duty or subject to a Nil rate of duty. The Revenue argued that as generic medicines are fully exempt from duty, no modvat credit should be allowed on inputs used in their manufacture. However, the Tribunal noted that the interpretation by lower authorities resulting in denial of credit for inputs used in export products goes against the Government's policy to encourage exports and free export products from domestic levies. The Tribunal set aside the lower authorities' orders and allowed the appeal, suggesting that the rule-making authority should provide clear directions to prevent denial of duty credit on inputs for exported goods.

Separate Judgment:
No separate judgment was delivered by the judges in this case.