2003 (11) TMI 162 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility of Modvat credit on Additional Excise Duty (AED) for inputs when the final product is exempt from AED.
2. Utilization of AED credit for payment of Basic Excise Duty (BED).
3. Entitlement to refund of AED credit contained in exported products under bond.

Issue-wise Detailed Analysis:

1. Eligibility of Modvat credit on AED for inputs when the final product is exempt from AED:
The appellants, engaged in the manufacture of tyres, took Modvat credit of AED paid on grey nylon tyre cord fabric used in the manufacture of dipped and rubberised tyre cord warp sheets (TCWS), which are intermediate products captively consumed in tyre production. The Revenue objected, arguing that since TCWS is exempt from AED under Notification No. 11/98, dated 2-6-98, the credit on AED for the input fabric could not be availed. However, the Tribunal noted that the final product, tyres, is not exempt from duty. Rule 57C stipulates that credit of duty is not allowed if the final product is exempt from duty, which is not the case for tyres. Therefore, the Tribunal concluded that the appellants are eligible for Modvat credit on AED paid on the unprocessed fabrics.

2. Utilization of AED credit for payment of BED:
The Tribunal considered whether AED paid on inputs could be utilized to pay BED on the final product. The Tribunal referenced several case laws, including Coats Viyella India Ltd. v. CCE, where it was held that AED is integrally connected with BED and can be adjusted against it. The Tribunal also cited Board's Circular No. 751/67/2003-CD, dated 30-9-2003, and Notification No. 13/2003-C.E. (N.T.), dated 1st March 2003, which clarified that AED credit could be used for BED payment. The Tribunal found that the Revenue's objection, based on procedural grounds and pending legal opinion, was insufficient to deny the benefit to the assessee. Consequently, the Tribunal allowed the appellants to utilize AED credit for paying BED on tyres.

3. Entitlement to refund of AED credit contained in exported products under bond:
The appellants claimed refunds for AED credit contained in tyres exported under bond, arguing that Rule 57F(13) allows for such refunds when the credit cannot be used for domestic or export duty payments. The Tribunal noted that the department did not dispute the duty payment on unprocessed fabrics or the proper documentation. The Tribunal referenced C.B.E. & C. Circular No. 701/17/2003-CX., dated 12-3-2003, which supports refund of AED credit regardless of the duty status of the final product. The Tribunal held that the appellants were entitled to the refund of AED credit contained in the exported tyres and directed the department to process the refund within three months.

Conclusion:
The Tribunal allowed both appeals, confirming the appellants' eligibility for Modvat credit on AED paid on inputs, the utilization of AED credit for BED payment, and entitlement to refunds for AED credit in exported products.