2003 (12) TMI 105 - AT - Central Excise

Summary

Issues:
Whether Modvat credit taken by the assessee was in contravention of Rules 57AA and 57BB of the Central Excise Rules, and whether the piston ring set cleared by the assessee has undergone a manufacturing process.

Analysis:

Manufacturing Process Issue:
The appellants, engaged in manufacturing pistons and related components, import piston rings and assemble them into piston ring sets tailored to specific vehicle models. The issue was whether this assembly process constitutes manufacturing. The Revenue argued that no manufacturing occurred, considering the imported rings as finished products. However, the Tribunal found that a new article emerged from the assembly process, distinct in character and use, tailored to specific vehicle models. Each model requires a unique specification for the piston ring set, supporting the conclusion that the assembly process amounted to manufacturing under Section 2(f) of the Central Excise Act, 1944.

Modvat Credit Entitlement Issue:
The Revenue denied the appellants Modvat credit on the duty paid for imported rings, claiming the assembly process did not qualify as manufacturing. The Tribunal disagreed, noting that the piston ring sets were cleared at a higher value, with duty paid accordingly. Citing a precedent, the Tribunal emphasized the liberal approach to input credit, allowing credit for any item used in or in relation to manufacture. Rule 57B allowed credit for accessories cleared with the final product, even if the activity did not amount to manufacturing. The Tribunal found the denial of credit unjustified and set aside the order, allowing the appeals.

Conclusion:
The Tribunal held that the assembly process undertaken by the appellants constituted manufacturing, as a new distinct product emerged tailored to specific vehicle models. The denial of Modvat credit by the Revenue was deemed unjustified, as the piston ring sets were cleared at a higher value with duty paid, entitling the appellants to credit under Rule 57B. The appeals were allowed, setting aside the impugned order.