2014 (6) TMI 757 - HC - Central Excise

Denial of CENVAT Credit - Denial on the ground the goods on which credit taken was not raw material - Whether in view of the specific provisions under Rules, 173H and 173L of the Central Excise Rules, 1944, re-making, refining, re-conditioning, repairing or similar processes on defective goods returned to the manufacturer of the final products can be treated as an input for purpose of Rule 57A of the Central Excise Rules, 1944 - Held that - By process of redrawing, reducing the thickness, softening, smoothing hardness etc., a new final product was being obtained and had been cleared on payment of duty. Such process has been treated as manufacturing by the party as well as by the respondent. If such process would not have been treated as manufacturing the final product would not have been taxed and would be exempted from payment of duty. It is not the case of Revenue that such process has not been treated as manufacturing and duty has not been assessed. - modvat credit claimed by the party can not be said to be erroneous. Under Rule 173L of the Rules, the party could claim the refund in case of goods returned but merely because that the refund of the duty paid on the finished goods, which have been returned being defective has not been claimed under Rule 173L of the Rules, the claim of the modvat credit under Rule 57-A of the Rules can not be denied. Defective goods, may be final product, have been subjected to such process which amount to manufacturing within the definition of manufacturing under Section 2(f) of the Central Excise Act and as a result of such process a final product is obtained which is subjected to excise duty. The modvat credit under Rule 57-A of the Rules is admissible, if other conditions of Rule are fulfilled and claimed can not be denied on the ground that the assessee would have claimed refund of duty paid under Rule 173L of the Rules. - Decided against Revenue.

Summary

Issues:
Interpretation of Rules 57-A and 173L of the Central Excise Rules, 1944 regarding the treatment of defective goods returned to the manufacturer as inputs for modvat credit.

Detailed Analysis:

The case involved a dispute over whether defective goods returned to the manufacturer, which underwent processes like redrawing, reducing thickness, softening, etc., could be considered as inputs eligible for modvat credit under Rule 57-A of the Central Excise Rules, 1944. The respondent, a manufacturer of C.R.Coils/sheets and G.P.Coils/sheets, claimed modvat credit on such defective goods, which were used in the manufacturing of final products. The Assistant Commissioner disallowed the credit, arguing that the returned goods were finished goods and not raw material. The respondent contended that the goods, although finished, were used as inputs in the manufacturing process, making them eligible for modvat credit.

The key contention was whether the defective goods, even if considered final products, could be treated as inputs when used in the manufacturing of other final products. The respondent argued that as long as the finished goods were used as raw material in the manufacturing process, they should qualify for modvat credit under Rule 57-A. Additionally, the respondent cited Notification No.5/94 C.E.(N.T.) to support their claim that the goods used were eligible for modvat credit unless specifically excluded.

The High Court analyzed Rules 57-A and 173L of the Central Excise Rules, 1944 to determine the eligibility of defective goods for modvat credit. It noted that the crucial factor for allowing modvat credit was whether the goods were specified under the notification issued under Rule 57-A and used in the manufacturing process subject to excise duty. The Court emphasized that the duty paid on raw material should be adjusted against the duty payable on the finished goods to avoid double taxation.

The Court concluded that the defective goods, despite being finished products, were used as inputs in the manufacturing process, resulting in new final products subject to excise duty. The processes applied by the manufacturer were considered as manufacturing, and the duty was paid accordingly. The Court held that the failure to claim a refund under Rule 173L for returned goods did not negate the right to claim modvat credit under Rule 57-A. Therefore, the modvat credit claimed by the respondent was deemed valid, and the question was answered in favor of the respondent and against the Revenue.