2002 (1) TMI 110 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility to avail Modvat credit on inputs used in the manufacture of destroyed electric motors.
2. Interpretation of Rule 57C and Rule 57D of the Central Excise Rules, 1944.
3. Applicability of remission of duty under Rule 49 of the Central Excise Rules, 1944.

Detailed Analysis:

1. Eligibility to Avail Modvat Credit on Inputs Used in the Manufacture of Destroyed Electric Motors:
The appellants, manufacturers of electric motors, availed Modvat credit on inputs used in the manufacture of these motors. The motors were destroyed due to obsolescence after following the required procedure and intimating the Department. The Department demanded reversal of Modvat credit on the grounds that no prior permission for destruction was obtained and the final product did not suffer duty. The Deputy Commissioner allowed a refund of duty paid under protest but held that Modvat credit on inputs was inadmissible as the final product did not suffer duty. The Commissioner (Appeals) upheld this view, leading the appellants to appeal.

2. Interpretation of Rule 57C and Rule 57D of the Central Excise Rules, 1944:
The appellants argued that remission of duty should not be equated to exemption of duty, and thus Modvat credit should be admissible. They cited the Tribunal's decision in Inalsa Limited v. CCE, New Delhi, where it was held that remission of duty under Rule 49 should not be equated to a general exemption from duty. The Department countered that Modvat credit is not permissible as the final product did not suffer duty, emphasizing that Rule 57D is an exception to Rule 57C, which does not apply in this case. The Department referred to the decision in CCE, Madras v. Union Carbide Ltd., which stated that Modvat credit on inputs contained in goods destroyed by the manufacturer is not permissible.

3. Applicability of Remission of Duty under Rule 49 of the Central Excise Rules, 1944:
The Tribunal considered whether the appellants were eligible to utilize the credit availed on inputs contained in the destroyed motors. It was noted that the motors were destroyed after following the required procedure and obtaining permission from the Department. Rule 49 specifies that the proper officer may remit duty on goods unfit for consumption or marketing. The Tribunal found that the case of Union Carbide Ltd. cited by the Department was not applicable, as it was decided in a different context. The Tribunal held that the decision in Inalsa Ltd. was applicable, where it was ruled that Modvat credit on inputs used in the manufacture of final products destroyed by fire is admissible when remission of duty is granted.

The Tribunal concluded that the appellants were entitled to Modvat credit on inputs used in the manufacture of the destroyed motors. It was held that the destruction of goods with prior permission and remission of duty under Rule 49 should be treated as clearance on payment of duty. Thus, invoking Rule 57C was not sustainable. The appeal was allowed, affirming the appellants' entitlement to Modvat credit on inputs used in the manufacture of the final product destroyed due to circumstances beyond their control.

Ordered accordingly.