2003 (11) TMI 175 - AT - Central Excise

Manufacture - Demand - Limitation - Modvat - Whether the process undertaken by them on the defective bulk drug received back by them amounts to manufacture - HELD THAT - The product was not found fit for use by their customers which goes to show that the product was not marketable and it has been rendered marketable only after the treatment given to it by the Appellants. We thus hold that the provisions of Note 11 to Chapter 29 are attracted in the present matters and the processes undertaken by them would amount to manufacture read with Section 2(f) of the Central Excise Act. We also do not agree with the learned Consultant that the Adjudication Order is beyond the scope of the show cause notice inasmuch as the show cause notices clearly mention that the re-processed product is considered as a fresh material as if manufactured and goods are released for sale and provisions of Note 11 to Chapter 29 have been invoked in the show cause notices. The benefit of Modvat credit of the duty already paid cannot be disallowed to the Appellants on the plea that the Modvat procedure was not followed by them. It has been held by the Tribunal in Bharat Wagon Engg. Co. Ltd. v. CCE, 2001 (1) TMI 498 - CEGAT, KOLKATA , following the decision of the Supreme Court in Formica India Division v. CCE, 1995 (3) TMI 98 - SUPREME COURT , that in subsequent demands of duty Modvat credit of duty paid on the inputs is admissible irrespective of non-following of procedure ........ The procedure for availing Modvat credit was not being followed by Appellants because the final product was being cleared without payment of duty in which case credit was not admissible to them. Accordingly we hold that the Appellants are eligible for Modvat credit of the duty paid earlier on the bulk drugs by them subject to the condition that they produce the duty paying documents to the satisfaction of the adjudicating authority. We, therefore, remand both the matters to the adjudicating authority for allowing the Modvat credit on production of the duty paying documents by the Appellants within 8 weeks of receipt of this Order. In view of this we set aside the penalty and interest and leave these aspects to be decided by the adjudicating authority. Both the appeals are disposed of in above manner.

Summary

Issues involved:
The issue in this case is whether the process undertaken by M/s. DSM Anti-Infective India (Pvt.) Ltd. on defective bulk drugs received back by them amounts to manufacture.

Details of the Judgment:

Issue 1: Manufacturing Process
The Appellants receive duty paid defective goods for repair/rectification and send them back to customers without payment of duty after processing. The Commissioner confirmed the demand of duty, considering the re-processing as manufacturing under Note 11 to Chapter 29 of the Central Excise Tariff Act. The Commissioner found no new product emerged and held the processing does not amount to manufacture under Section 2(f) of the Central Excise Act.

Issue 2: Applicability of Note 11 to Chapter 29
The Commissioner held that the treatment to render the product marketable is applicable due to value addition and making the goods marketable again. The Appellants argued that the goods were already marketable initially, and the re-processing was solely to remove defects, not for marketability. They cited precedents to support their position.

Issue 3: Time-barred Demand of Duty
In another appeal, the Appellants argued the demand of duty is time-barred as the show cause notice was issued beyond the limitation period. They contended that they followed all procedures and filed necessary declarations, making the extended period of limitation inapplicable.

Judgment Summary:
The Tribunal found that the processes undertaken by the Appellants amount to manufacturing under Note 11 to Chapter 29. The extended period of limitation for demanding duty was deemed applicable due to lack of disclosure in declarations. However, the Appellants were deemed eligible for Modvat credit of duty paid earlier, subject to producing necessary documents. The matters were remanded for allowing Modvat credit and setting aside penalty and interest for adjudication by the authority.