2016 (1) TMI 1313 - AT - Central Excise

MODVAT/CENVAT credit - final product cleared without payment of duty - explosives - appellant submits that removal of goods under Chapter X Procedure is neither exempted goods nor attracts nil rate of duty. Thus, the embargo created in Rule 57 C of the Rules will have no application and taking of Modvat credit on the inputs used for manufacture of explosives removed under Chapter X is correct - Held that - Rule 57C of the Central Excise Rules, 1944 prohibits taking of cenvat credit on the inputs used in the manufacture of final product, which are exempted from whole of duty of excise leviable thereon or are chargeable to nil rate of duty. In the present case, explosives removed from the factory under chapter X Procedure is exempted from the whole of duty of excise leviable in terms of N/N.191/87 dated 04.08.1987. Since the said Notification exempts explosives from payment of duty, the embargo created in Rule 57C of the Central Excise Rules, 1944 will be applicable in the present case, and thus, Modvat credit on the inputs used in the manufacture of the said exempted product is not available to the manufacturer. Appeal dismissed - decided against appellant.

Summary

Issues involved:
- Whether Modvat credit can be availed on inputs used for manufacturing explosives removed under Chapter X Procedure without payment of Central Excise duty.

Analysis:
1. The appellant, engaged in manufacturing industrial explosives, availed Modvat Credit on inputs under Rule 57 A of the Central Excise Rules, 1944. The finished goods were removed without payment of duty under Notification No.191/87, leading to a show cause notice for recovery of Modvat Credit taken on inputs. The Order-in-Original dropped the proposals, but the ld. Commissioner (Appeals) held that Modvat credit cannot be taken when the final product is cleared without duty payment under Chapter X Procedure, invoking Rule 57 C of the Rules.

2. The appellant argued that goods removed under Chapter X Procedure are not exempted or subject to nil rate of duty, so Rule 57 C does not apply. Citing the case of Aureola Chemical Ltd., the appellant contended that Modvat benefit should not be denied. On the contrary, the respondent relied on the decision in Navbharat Explosive Co. Ltd. case, asserting that the issue is covered.

3. Rule 57C prohibits taking Modvat credit on inputs for products exempted from excise duty or chargeable at nil rate. The explosives removed under Chapter X Procedure were exempted from duty under Notification No.191/87. Following the precedent set in Navbharat Explosive case, the Tribunal held that Modvat credit is not available in such cases. The appellant's argument was dismissed as the issue was deemed covered by the Navbharat Explosive case.

4. The Tribunal concluded that the impugned order by the ld. Commissioner (Appeals) was valid, and the appeal by the appellant was dismissed. The decision was based on the application of Rule 57C and the precedent set by the Navbharat Explosive case, affirming that Modvat credit cannot be availed for inputs used in manufacturing goods removed under Chapter X Procedure without duty payment.