2001 (8) TMI 178 - AT - Central Excise

Summary

Issues:
1. Interpretation of Rule 57CC regarding the credit of duty paid on inputs used in the manufacture of both dutiable and exempted final products.
2. Compliance with the provisions of Rule 57CC, specifically regarding the maintenance of separate inventory and accounts for inputs used in exempted products.
3. Validity of the practice adopted by the appellant in maintaining separate accounts for inputs used in dutiable and exempted products.

Analysis:
1. The judgment addresses the interpretation of Rule 57CC under the Modvat scheme, which allows the credit of duty paid on inputs for dutiable products but restricts it for exempted final products. Rule 57C requires writing back the inadmissible credit for exempted products. However, Rule 57CC was introduced as an alternative, requiring payment of 8% duty on exempted products. The judgment clarifies that Rule 57CC does not override Rule 57C, and compliance depends on the manufacturer's ability to maintain necessary accounts.

2. The issue of compliance with Rule 57CC's provisions, particularly the maintenance of separate inventory and accounts for inputs used in exempted products, arises in the case. The appellant maintained separate accounts for inputs used in both dutiable and exempted products, as required. However, the Dy. Commissioner argued that sub-rule (9) of Rule 57CC necessitated not only separate accounts but also separate inventory, which he deemed non-compliant with the rule's spirit. This discrepancy led to the show cause notices against the appellant.

3. The judgment further delves into the validity of the appellant's practice in maintaining separate accounts for inputs used in dutiable and exempted products. The Commissioner (Appeals) upheld the lower order based on Supreme Court judgments allowing benefits on the reversal of Modvat credit. The appellant argued that the physical representation of inputs was also changed, satisfying sub-rule (9)'s requirement. The judgment emphasizes that physical segregation of goods into different premises is not mandatory and supports the appellant's practice as valid under sub-rule (9) of Rule 57CC, ultimately allowing the appeal and relieving the appellant from the demands and penalties imposed.