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2010 (8) TMI 340 - HC - Central ExciseCenvat Credit Department disallowed the Modvat credit of Rs. 1,10,589/- availed by the Respondent on the inputs i.e. Hydrochloric acid and Sulphuric acid and thereby confirmed the demand to that effect under Rule 57-I of the Central Excise Rules 1944 and imposed penalty of Rs. 20,000/- under the provisions of Rule 173Q of the said Rules - 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 ready-to-wear apparel Thus it was held that the process of purification and filtration being incidental or ancillary to the manufacture of a marketable product, the Respondent was entitled to Modvat credit on the inputs involved in the said process In that view of the matter, we do not find any merit in the above Appeal and by answering the question of law in negative i.e. in favour of the assessee the same is accordingly dismissed
Issues:
Eligibility for MODVAT credit on inputs used for manufacturing Hydrochloric Acid and Sulphuric Acid. Analysis: The primary issue in this case revolves around the eligibility of the Respondent for MODVAT credit on inputs used in the manufacturing process of Hydrochloric Acid and Sulphuric Acid. The Respondent, engaged in manufacturing excisable goods under Chapter 28 of the Central Excise Tariff Act, availed MODVAT credit under Rule 57A. The dispute arose when the department challenged the purification and filtration process undertaken by the Respondent, arguing that it did not amount to a manufacturing activity as it did not bring about any chemical change in the products. Show cause notices were issued proposing recovery of irregular MODVAT credit and imposition of penalties under Central Excise Rules. The Respondent contended that the purification and filtration process was essential to make the products marketable for export, thus constituting a manufacturing activity. Despite exporting the products and claiming rebate under Rule 12 of the Central Excise Act, the department disallowed the MODVAT credit availed by the Respondent. The dispute escalated through adjudication by the Assistant Commissioner, Commissioner of Central Excise (Appeals), and finally to the Customs Excise & Service Tax Appellate Tribunal (CESTAT). The CESTAT, in its judgment, allowed the Respondent's appeal, emphasizing that the process undertaken by the Respondent resulted in a new identifiable and marketable commodity, thereby constituting a manufacturing activity. The CESTAT highlighted that even if the goods belonged to the same entry, manufacturing occurred when new marketable goods emerged due to the operations conducted. The nature of technology used was deemed irrelevant in determining manufacturing activity, leading to the conclusion that MODVAT credit could not be denied to the Respondent. Upon review, the High Court upheld the CESTAT's decision, citing the definition of "manufacture" under the Central Excise Tariff Act and relevant case law. The Respondent's counsel relied on a judgment from the High Court of Kerala regarding a similar issue of incidental processes in manufacturing, further supporting the contention that the purification and filtration process qualified as manufacturing under the Act. Ultimately, the High Court dismissed the appeal, affirming the CESTAT's decision and ruling in favor of the Respondent. The Court concurred with the view that the purification and filtration processes constituted manufacturing activities, making the Respondent eligible for MODVAT credit on the inputs used. The judgment highlighted the importance of incidental processes contributing to the marketability of goods, aligning with the broader definition of "manufacture" under the Central Excise Tariff Act.
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