2000 (1) TMI 76 - AT - Central Excise

Summary

Issues:
1. Whether inputs with Modvat credit can be removed for home consumption without utilizing them in manufacturing.
2. Interpretation of Rule 57F of the Central Excise Rules, 1944.
3. Determination of appropriate duty of excise for inputs removed for home consumption.
4. Comparison between reversal of credit and payment of duty at the applicable rate.
5. Impact of Notification No. 28/95-C.E. on the duty payable for inputs removed without use in manufacturing.
6. Precedents regarding the determination of excise duty for inputs removed without utilization in final products.

Analysis:
1. The case involved M/s. Polar Industries Ltd. (PIL) procuring inputs from small scale manufacturers with concessional excise duty and taking Modvat credit. PIL did not use these inputs in manufacturing electric fans but removed them without processing, paying excise duty equal to the Modvat credit. The issue was whether such removal for home consumption was permissible when PIL was not eligible for concessional rates.

2. Rule 57F allowed removal of inputs with duty credit under Rule 57A for home consumption on payment of appropriate excise duty, equivalent to the credit allowed. The duty payable was to be as if the inputs were manufactured in the receiving factory, ensuring duty payment at the rate applicable to the receiver, not the original manufacturer.

3. The concept of 'appropriate duty of excise' under Rule 57F meant duty applicable at the time of removal from the receiving factory, not the effective rate at the time of initial manufacture. The legal fiction created by Rule 57F treated the receiver as the manufacturer for duty calculation purposes.

4. The distinction between reversing credit and paying duty at the applicable rate was crucial. Rule 57-I dealt with recovery of wrongly availed credit, while Rule 57F focused on paying the appropriate duty at the rate prevailing during removal. The duty payable could exceed the credit amount.

5. Notification No. 28/95-C.E. clarified that duty for inputs removed without utilization was not based on the credit amount but on the duty payable as if the inputs were manufactured in the receiving factory. This change emphasized the duty calculation method prior to 29-6-1995.

6. Precedents like Ponds India Ltd. and American Auto Service cases supported the view that duty payable for inputs removed without use in final products was as per the manufacturer from whose premises the inputs were cleared. The Tribunal disagreed with the Collector of Central Excise (Appeals) and upheld the original order, allowing the Revenue's appeal.