1998 (11) TMI 141 - AT - Central Excise

Summary

Issues Involved:
1. Continued availability of Modvat Credit under the Central Excise Rules, 1944.
2. Legality of the assessee's claim to retain Modvat Credit when the final product becomes fully exempt from payment of duty.
3. Legality of Revenue's recovery of Modvat Credit on inputs lying in stock and inputs used in manufacture of final products lying in stock when the final products become exempt from duty.

Summary:

1. Continued Availability of Modvat Credit:
The Tribunal considered whether Modvat credit, once validly taken u/r 57A, can be disallowed/recovered when the final product becomes exempt from duty. Conflicting views existed among different Benches of the Tribunal. Some decisions supported the view that Rule 57C requires reversal/recovery of credit, while others held that the Rules do not provide for such recovery.

2. Legality of Assessee's Claim to Retain Modvat Credit:
The Tribunal examined various decisions favoring the assessee, including Delhi Bottling Co. Ltd. v. C.C.E., Pearl Drinks (P) Ltd. v. C.C.E., and Dipak Vegetable Oil Industries Ltd. v. Union of India, which held that Modvat credit taken on inputs lying unutilized need not be reversed when the final product becomes exempt. The Tribunal also noted the Gujarat High Court decision in Dipak Vegetable Oil Industries Ltd., which held that the right to credit accrues as soon as the inputs enter the factory.

3. Legality of Revenue's Recovery of Modvat Credit:
The Tribunal considered the Allahabad High Court decision in Super Cassettes Industries v. Union of India, which held that Modvat credit taken in respect of inputs in stock must be reversed when the final product becomes exempt from duty. The High Court emphasized that Modvat credit is provisional until the inputs are used in accordance with Rules 57A and 57F, and excise duty on the final product is paid. The Tribunal found this decision binding and held that Modvat credit taken on inputs in stock or used in the manufacture of exempt final products must be reversed.

Conclusion:
The Tribunal concluded that Modvat credit taken in respect of inputs in stock and inputs used in the manufacture of final products that have become exempt from duty must be reversed or recovered. The Tribunal followed the Allahabad High Court judgment in Super Cassettes Industries, holding that Modvat credit is provisional and must be reversed when the final product becomes exempt from duty. The Tribunal dismissed the contention that the Allahabad High Court judgment was per incuriam the Apex Court decision in H.M.M. Ltd. v. C.C.E., as the facts and controversy in H.M.M. were different. All pending appeals were to be disposed of in light of these observations.