2002 (12) TMI 653 - AT - Central Excise

Summary

Issues Involved:

1. Denial of Modvat credit for inputs used as fuel in the manufacture of exempt intermediate products.
2. Classification of intermediate products as final products when sold.
3. Stock transfer of intermediate products to another unit and its implications on Modvat credit.

Issue-wise Detailed Analysis:

1. Denial of Modvat Credit for Inputs Used as Fuel in the Manufacture of Exempt Intermediate Products:

The primary issue in both appeals is the denial of Modvat credit for furnace oil used as fuel in the manufacture of Dead Burnt Magnesite, an intermediate product exempt from duty but used in the manufacture of dutiable final products. The Commissioner (Appeals) upheld the denial based on Rule 57C(2) of the Central Excise Rules, 1944, which mandates separate accounting for inputs used in exempt and dutiable products. However, the appellant argued that Rule 57C(3) excludes inputs used as fuel from this requirement, supported by Rule 57D(1). The Tribunal had previously upheld this view in cases such as Indore Steel & Iron Mills Ltd. v. CCE Indore and CCE Madurai v. Dharani Sugars & Chemicals, confirming that inputs used as fuel are entitled to Modvat credit even if the intermediate product is exempt from duty.

2. Classification of Intermediate Products as Final Products When Sold:

The Commissioner classified Dead Burnt Magnesite as a final product when sold, denying Modvat credit on the grounds that it did not discharge duty. The appellant contended that Dead Burnt Magnesite remains an intermediate product, regardless of its clearance status, and thus should not be treated as a final product. The Tribunal agreed, noting that Dead Burnt Magnesite is an intermediate product used in the manufacture of dutiable final products and should not be classified as a final product solely based on its sale.

3. Stock Transfer of Intermediate Products to Another Unit and Its Implications on Modvat Credit:

In the case of M/s. Tata Refractories Ltd., the Commissioner denied Modvat credit for Dead Burnt Magnesite transferred to another unit on a stock transfer basis, treating it as a final product. The appellant argued that there was no sale involved, only a stock transfer, and thus Modvat credit should not be denied. The Tribunal referenced the case of Ballarpur Industries Ltd. v. CCE Nagpur, where it was held that stock transfers between units of the same manufacturer do not constitute a sale and thus do not negate Modvat credit eligibility. The Tribunal upheld this view, confirming that no reversal of Modvat credit is required for stock transfers.

Conclusion:

The Tribunal set aside the impugned orders and allowed the appeals, affirming that inputs used as fuel in the manufacture of intermediate products, whether sold or stock transferred, are entitled to Modvat credit. The judgments in Indore Steel & Iron Mills Ltd., Dharani Sugars & Chemicals, and Ballarpur Industries Ltd. were pivotal in reaching this conclusion, emphasizing that the specific provisions of Rule 57C(3) and Rule 57D(1) exclude fuel inputs from the general restrictions on Modvat credit for exempt products.