2010 (8) TMI 303 - HC - Central Excise

Cenvat / Modvat Credit - Question of law - Whether the process of purification and filtration done by the assessee bring out any chemical change in their products Hydrochloric Acid and Sulphuric Acid, and same amount to manufacture? - Held that In Metro Readywear Company V Collector of Customs 1976 -TMI - 40468 - HIGH COURT OF KERALA of the High Court of Kerala at Ernakulam it was held that the brassieres were undoubtedly undergarments falling within the description articles of readytowear apparel (known commercially as readymade garments) and therefore was classified under Item 22D of Central Excise Tariff. Ironing with electric iron amounted to a process of manufacture with the aid of power. It was held that ironing of stitched brassieres is incidental or ancillary to their manufacture since the said process was intended to give a finishing touch in order to render them marketable. In our opinion the ratio or the reasoning of the said decision is applicable to the facts of this case. Question of law answered in negative i.e. in favour of the assessee the same is accordingly dismissed. No order as to costs.

Summary

Issues:
Eligibility for MODVAT credit on inputs used for manufacturing Hydrochloric Acid and Sulphuric Acid.

Analysis:
The appeal challenged an order passed by the Customs Excise & Service Tax Appellate Tribunal, where the Respondent's appeal was allowed. The central question was whether the purification and filtration processes conducted by the assessee constituted a chemical change amounting to manufacturing. The Respondent, engaged in manufacturing excisable goods, faced show cause notices proposing recovery of irregular MODVAT credit and penalties. The Assistant Commissioner disallowed MODVAT credit on inputs used, leading to subsequent appeals.

The Commissioner of Central Excise (Appeals) upheld the disallowance, prompting the Respondent to appeal to the Customs Excise & Service Tax Appellate Tribunal (CESTAT). The CESTAT allowed the appeal, emphasizing that the process resulted in new identifiable goods, qualifying as manufacturing. The CESTAT's decision was based on the emergence of marketable goods due to the operations conducted by the Respondent.

During the High Court hearing, the Respondent's counsel referred to the definition of "manufacture" under the Central Excise Tariff Act, arguing that the purification and filtration processes made the products marketable internationally, thus constituting manufacturing. The counsel cited a judgment from the High Court of Kerala regarding incidental processes contributing to the marketability of goods.

Relying on the precedent set by the CESTAT and the interpretation of the term "manufacture," the High Court dismissed the appeal, affirming the CESTAT's decision. The High Court found no fault with the CESTAT's view, ruling in favor of the assessee and upholding their entitlement to MODVAT credit on the inputs used in the manufacturing process.