2004 (12) TMI 108 - AT - Central Excise

Cenvat/Modvat - eligibility for job workers under Rule 57F - duty payment on final products - Whether the law settled by Jindal Polymer 2001 (2) TMI 226 - CEGAT, NEW DELHI following Bajaj Tempo 1993 (8) TMI 189 - CEGAT, BOMBAY should be followed or the interpretation as arrived at by Alfa Lavan 2000 (12) TMI 657 - CEGAT, MUMBAI should prevail - HELD THAT - The revenue is denying the Modvat credit to the present job worker on the grounds that the inputs were used in the manufacture of the goods which were cleared without payment of duty. By applying the ratio of the decision in Escort v. C.C.Ex. 2004 (8) TMI 106 - SUPREME COURT , it becomes clear that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. Inasmuch as, the matter stands decided by the Honourable Supreme Court, we would hold in favour of assessee. As regards the decision in the case of Alpha Lavan laying down that the Modvat credit could be claimed in such a situation, we find the earlier decision of the Bajaj Auto was not followed. However, in view of the facts that the ratio of Bajaj Auto decision stands approved by the Supreme Court decision in the case of Escort Ltd. referred supra, we are of the view that the Alpha Lavan is no longer good law. Thus, we answer the reference in favour of the assessee. The papers may be placed before the original Bench for passing the appropriate orders.

Summary

Issues Involved:
The interpretation of Modvat credit eligibility for job workers under Rule 57F and the applicability of Rule 57C in relation to duty payment on final products.

Interpretation of Modvat Credit Eligibility:
The Tribunal considered the precedent set by Jindal Polymers and Bajaj Tempo, concluding that job workers can claim duty credit for inputs used in manufacturing goods under Rule 57F. The rationale included Rule 57F being self-contained, goods being returned to the principal manufacturer, and the non-applicability of Rule 57C due to duty payment by the manufacturer. The Modvat scheme's purpose was highlighted, emphasizing the credit flow from basic material to final product to avoid multiple duty payments.

Applicability of Rule 57C:
The revenue denied Modvat credit to the job worker, citing goods clearance without duty payment. However, the Tribunal emphasized that Rule 57C applies only when the final product is exempted or chargeable to nil duty. Reference was made to Orissa Synthetics Ltd. case clarifying the scope of "exempted" and "chargeable to nil rate of duty." The Tribunal upheld the decisions in Bajaj Tempo and Jindal Polymers, emphasizing the special procedure under Rule 57F(3) for duty payment.

Judicial Precedents and Supreme Court Ruling:
The Tribunal noted similar views in cases like Shakti Insulated Wires Ltd. and Noorani Textiles Mills, aligning with the decisions in Bajaj Tempo and Jindal Polymers. The Tribunal highlighted the Supreme Court's reversal of a Tribunal decision in Escorts Ltd. case, emphasizing that Rule 57C does not apply when duty is paid on the final product, even if intermediate products are involved. The Tribunal rejected Alpha Lavan's interpretation in favor of the established precedents.

Conclusion:
The Larger Bench favored the assessee, directing the original Bench to proceed accordingly based on the interpretation of Modvat credit eligibility and the limited applicability of Rule 57C. The Tribunal's decision aligned with the principles established in Bajaj Tempo and Jindal Polymers, emphasizing the avoidance of double duty payments and the Supreme Court's endorsement of the Modvat credit process.