2007 (7) TMI 152 - AT - Central Excise

Inputs integrally connected with manufacture of final product are only eligible for credit Credit cannot be denied mere on procedural mistake However credit denied on non-compliance with rules is justified Heavy penalty not justified- Exemption under Not. 67/95 is available

Summary

Issues Involved:
1. Denial of exemption under Notification 67/95 for inputs used in the manufacture of intermediate goods.
2. Denial of Modvat credit for inputs and capital goods.
3. Denial of Modvat credit for specific items like oxygen, acetylene gas, welding electrodes, etc.
4. Denial of Modvat credit for sulphuric acid used for producing non-excisable steam and electricity.
5. Procedural issues regarding declarations under Rule 57A and Rule 57Q.
6. Denial of Modvat credit due to non-compliance with rules or lack of documentary evidence.

Detailed Analysis:

1. Denial of Exemption under Notification 67/95:
The appellants claimed exemption under Notification 67/95 for inputs used in the manufacture of intermediate goods like bottom plates and splash plates, which are used in the production of dutiable finished goods. The Department denied this exemption on the grounds that the intermediate goods were exempted. The Tribunal held that since the intermediate goods are used in the production of dutiable finished goods, the exemption under Notification 67/95 is applicable. This decision was supported by precedents such as the Hindustan Sanitaryware and Escorts Ltd. cases.

2. Denial of Modvat Credit for Inputs and Capital Goods:
The appellants were denied Modvat credit for inputs used in the manufacture of machine parts, which are considered capital goods and are exempt under Notification 67/95. The Tribunal ruled that the appellants are entitled to Modvat credit for such inputs, following the Supreme Court's decision in Hindustan Sanitaryware. The Tribunal emphasized that machine parts used in the manufacture of dutiable finished goods qualify for exemption and Modvat credit.

3. Denial of Modvat Credit for Specific Items:
Credit was denied for items like oxygen, acetylene gas, welding electrodes, etc., used for repair and maintenance of machinery. The Tribunal, referencing the Larger Bench decision in Jaypee Rewa Plant, confirmed the denial for items used in repair and maintenance but allowed credit for gases used directly in the manufacturing process. Additionally, credit for graphite electrodes used in the manufacturing process was allowed.

4. Denial of Modvat Credit for Sulphuric Acid:
Sulphuric acid used to produce non-excisable steam and electricity was denied credit. The Tribunal ruled that since steam and electricity are intermediate goods used in the production of dutiable finished goods, the credit for sulphuric acid is admissible.

5. Procedural Issues Regarding Declarations:
Credit was denied due to procedural issues where declarations were filed under incorrect rules (Rule 57A or Rule 57Q) or not filed at all. The Tribunal considered these minor procedural lapses and allowed the Modvat credit, provided the duty was paid, and the inputs/capital goods were used as prescribed.

6. Denial of Modvat Credit Due to Non-Compliance or Lack of Evidence:
Credit was denied for non-compliance with rules or lack of documentary evidence. The Tribunal did not find merit in remanding these cases for fresh decisions, as the appellants had ample opportunity to rectify deficiencies before the lower authorities. Therefore, the denial of credit on these grounds was confirmed.

Conclusion:
The Tribunal partially allowed the appeals, confirming the denial of credit for welding electrodes, gases, flux used in repair and maintenance, and credit for paints and varnishes prior to 1-3-97. The Tribunal set aside the denial of credit for inputs used in intermediate machine parts, sulphuric acid, refractories, lubricating oil, and graphite electrodes. The matter regarding oxygen and acetylene gases used in manufacturing was remanded for fresh consideration. Heavy penalties imposed on the appellants were also set aside.