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Issues:
Applicability of Rule 57B of the Central Excise Rules in 1991 regarding transitional credit for inputs held by the manufacturer. Analysis: 1. The case involved a manufacturer of paints and varnishes who filed a declaration under Rule 57G and opted for the Modvat Scheme in 1991. The manufacturer claimed transitional credit under Rule 57B for the stock of inputs held on a specific date. Initially allowed, the claim was later rejected by the Asstt. Collector, leading to an appeal. The Tribunal, while explaining the scope of Rule 57B, concluded that the manufacturer was not entitled to the transitional credit under this rule. 2. Rule 57B at the relevant time allowed credit of duty on inputs obtained from Small Scale manufacturers, even if the duty was paid under a notification exempting the inputs from part of the duty leviable. The rule provided for credit at rates applicable to inputs, with the possibility of higher rates as specified in the notification. This rule aimed to enable manufacturers to purchase inputs from Small Scale industries and avail higher credit, influencing their decision to participate in the Modvat scheme. 3. Rule 57H outlined the procedure for obtaining Modvat credit and allowed the Asstt. Collector to grant credit of duty paid on inputs received before obtaining acknowledgment of the declaration. However, Rule 57B was not made applicable to the credit for inputs lying in stock before filing the declaration, as it could potentially influence the decision to acquire inputs from Small Scale manufacturers. 4. The Court rejected the argument that Rule 57B should be read into Rule 57H in the absence of an exclusion provision, emphasizing the conscious distinction made by the rule-making authority regarding the quantum of credit allowed for inputs from Small Scale manufacturers. The purpose of Rule 57B was to incentivize manufacturers to source inputs from Small Scale industries by offering higher credit rates, influencing decisions made after opting for the Modvat scheme. 5. Ultimately, the Court held that Rule 57B was not applicable to the inputs held in stock by the manufacturer at the time of obtaining acknowledgment of the declaration under Rule 57B. The decision to acquire inputs from Small Scale manufacturers should not be influenced by the potential future benefits under Rule 57B, as the credit was limited to the duty actually paid on the inputs. The ruling favored the Revenue over the assessee, emphasizing the specific purpose and application of Rule 57B in the context of transitional credits for manufacturers participating in the Modvat scheme.
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