2000 (2) TMI 124 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility of Modvat credit for M/s. Bharat Seats Ltd. (BSL) and M/s. Maruti Udyog Ltd. (MUL).
2. Classification of seats and parts of seats.
3. Compliance with procedural requirements under Central Excise Rules.
4. Applicability of exemption notifications.
5. Alleged misuse of Modvat credit scheme.

Detailed Analysis:

1. Eligibility of Modvat Credit:
The primary issue was whether BSL and MUL were eligible for Modvat credit. The Collector's orders mandated the reversal of Modvat credit for both companies, citing that parts of seats manufactured by BSL were exempt from duty under Notification No. 80/90. However, the Tribunal observed that prior to 21-1-1989, parts of seats were physically transported between BSL and MUL, and Modvat credit was availed without objection. The Tribunal found it illogical to disallow Modvat credit merely because parts were retained by BSL on behalf of MUL, as the process aimed to save time and expenses. The Tribunal concluded that both companies were eligible for Modvat credit since the duty was paid and inputs were used in manufacturing finished products cleared on payment of duty.

2. Classification of Seats and Parts of Seats:
The Collector classified seats manufactured by BSL as 'steel seats' and parts as 'parts of steel seats,' exempting them from duty under Notification No. 80/90. BSL contended that they manufactured PU Foam seats, not steel furniture, and that the classification lists were approved by the Department. The Tribunal did not delve deeply into this issue, as it allowed the appeals based on other grounds.

3. Compliance with Procedural Requirements:
The Collector noted procedural violations, such as not obtaining permission under Rule 51A and not following Rule 57F(2) procedures. The Tribunal, however, emphasized that procedural non-compliance should not prevent availing Modvat credit if the duty was paid and inputs were used in manufacturing dutiable finished products. The Tribunal cited precedents where procedural lapses did not negate substantive benefits.

4. Applicability of Exemption Notifications:
BSL argued that they were not obliged to avail of the exemption under Notification No. 80/90 and could opt to pay duty and avail Modvat credit. The Tribunal acknowledged that the Board allowed direct removal of inputs to job workers to save costs and time. It found that BSL and MUL's actions aligned with this intent and did not constitute a colorable device to defraud the government.

5. Alleged Misuse of Modvat Credit Scheme:
The Collector alleged that BSL and MUL devised a scheme to misuse Modvat credit by issuing gate passes without actual movement of goods. The Tribunal, however, found no evidence of fraud or misuse, noting that the arrangement was intended to save logistical expenses and was within the procedural relaxations allowed by the Board.

Conclusion:
The Tribunal allowed the appeals of both BSL and MUL, holding that they were eligible for Modvat credit for inputs used in manufacturing parts of car seats and that procedural lapses should not negate substantive benefits. The Tribunal did not address the classification issue in detail, as the appeals were resolved on other grounds.