2003 (3) TMI 729 - AT - Central Excise

Summary

Issues Involved:
1. Denial of Modvat Credit for L.P.G. and L.D.O. used in the manufacture of automotive gears.
2. Applicability of Rule 57C of the Central Excise Rules.
3. Job worker's entitlement to Modvat Credit.

Detailed Analysis:

Issue 1: Denial of Modvat Credit for L.P.G. and L.D.O. used in the manufacture of automotive gears
The appellants, engaged in the manufacture of automotive gears, claimed Modvat credit for inputs such as L.P.G. and L.D.O. used in their manufacturing process. The Commissioner of Central Excise (Appeals) confirmed the adjudicating authority's order denying this credit. The appellants argued that these inputs were essential for the manufacturing process, which included isothermal annealing and heat treatment using L.P.G. and L.D.O., and that they had made necessary declarations under Rule 57G.

Issue 2: Applicability of Rule 57C of the Central Excise Rules
The appellants contended that Rule 57C, which disallows credit if the final product is exempt from duty or charged at a nil rate, was not applicable as it was not invoked in the Show Cause Notice. The Tribunal agreed with this contention, noting that the Show Cause Notice did not allege a violation of Rule 57C. Therefore, the application of Rule 57C was deemed incorrect in this case.

Issue 3: Job worker's entitlement to Modvat Credit
The Tribunal examined whether a job worker is entitled to Modvat credit. Referring to the Tribunal's decisions in the cases of Jindal Polymers and Bajaj Tempo Ltd., it was established that a job worker is entitled to claim Modvat credit. The Tribunal noted that the manufacturing process described by the appellants, including the use of common furnaces and inputs for both their own products and job work, justified the claim for Modvat credit. The Tribunal emphasized that Rule 57C should not be mechanically applied to deny credit, especially when the intermediate products are returned to the principal manufacturer and are not exempt from duty.

Conclusion
The Tribunal allowed the appeal, setting aside the impugned order and granting the appellants the consequential benefits according to law. The judgment clarified that in cases where a job worker manufactures intermediate products and returns them to the principal manufacturer, Rule 57C does not apply, and the job worker is entitled to Modvat credit.