2005 (1) TMI 125 - HC - Central Excise

Summary

Issues involved: Interpretation of Rule 57C of Central Excise Rules 1944 regarding availing exemption on inputs and payment of duty on final product.

Summary:
The reference application under Sec. 35H(1) of the Central Excise Act, 1944 raised the question of whether the assessee can avail exemption on inputs or pay duty on the final product when the input is wholly exempt from duty as per Notification No. 5/99 and Rule 57C of Central Excise Rules 1944 restricts credit on inputs for products wholly exempt from duty.

The department contended that since the raw material was exempted from duty, the assessee could not claim Modvat credit. However, it was found that duty was actually paid by the supplier of the assessee despite the exemption notification, which was not disputed.

Rule 57A(1) of the Central Excise Rules specifies the applicability of allowing credit of duty paid on inputs used in the manufacture of final products. The distinction between 'paid' and 'payable' is crucial as it requires consideration of whether duty has been actually paid on the raw material. The concept of Modvat aims to mitigate double taxation by granting relief on duty payable on the final product if the raw material has already suffered excise duty.

The Court concluded that there was no error of law in the Tribunal's order, as the duty was actually paid on the raw material, and relief should be granted on duty payable for the final product. Therefore, the reference application was rejected.