2004 (2) TMI 693 - AT - Central Excise

Summary

Issues involved:
1. Modvat credit on inputs used in the manufacture of exempted products.
2. Recognition of ghee and husk as by-products.
3. Recovery mechanism under Rule 57CC(1).

Detailed Analysis:

Issue 1: Modvat credit on inputs used in the manufacture of exempted products.
The case involved M/s. GlaxoSmithKline Consumer Healthcare Limited appealing against an Order-in-Original passed by the Commissioner of Central Excise, Visakhapatnam. The appellants were availing Modvat credit on inputs like Hydrochloric Acid, caustic Soda Lye, and Malted barley, which were common inputs for the manufacture of dutiable products like Horlicks and exempted products like ghee and husk. The dispute arose as the appellants did not maintain separate accounts for the inputs used in exempted products. The Commissioner demanded an amount under Rule 57CC(1) for failure to maintain separate records, and a penalty was imposed under Rule 173Q(1)(bb) for non-compliance.

Issue 2: Recognition of ghee and husk as by-products.
The appellants argued that ghee and husk were by-products in the manufacturing process of Horlicks and should be treated similarly. They contended that ghee, recognized as a by-product by the Government of India, should not be subject to Rule 57CC. They cited previous Tribunal decisions supporting their stance and emphasized that once the Modvat credit on inputs was reversed, Rule 57CC should not apply.

Issue 3: Recovery mechanism under Rule 57CC(1).
The appellants argued that there was no specific provision for recovery under the Central Excise Act or Rules for the amount demanded under Rule 57CC(1). They relied on judicial precedents and circulars to support their claim that in the absence of a recovery mechanism, the demand raised could not be enforced. The appellants also highlighted that they had reversed the Modvat credit on the disputed inputs before the issuance of the Show Cause Notice, which, according to them, negated the applicability of Rule 57CC.

The Tribunal, after considering the submissions, found that the appellants had debited the Modvat credit on the inputs in question before the issuance of the Show Cause Notice. Citing relevant case law and the absence of a recovery mechanism, the Tribunal set aside the Commissioner's order and allowed the appeal, stating that the demand for 8% duty on ghee was not applicable in this case.