2003 (12) TMI 183 - AT - Central Excise

Summary

Issues:
- Duty payment on goods returned to the factory after being originally removed for export
- Eligibility for Modvat Credit under Rule 57E of the Central Excise Rules, 1944

Analysis:

1. Duty Payment on Returned Goods:
The appellants had initially manufactured Polybion Tablets for export but due to packing defects, the consignment could not be exported and was returned to the factory. The issue revolved around the duty payment of Rs. 1,22,328/- demanded on these goods. The Tribunal examined Rule 173M and the Chapter note to Chapter 30 of the Central Excise Tariff Act, 1986 applicable to the goods. It was observed that the return route of Rule 173M did not mandate duty recovery for packing/re-packing, considering it as a manufacturing process. The Tribunal referred to a previous case involving Tin Manufacturing Company to establish that if re-processing amounts to manufacture, duty on such manufacture is already paid, making the returned goods eligible inputs. Therefore, the duty demanded on the returned goods was deemed unnecessary, leading to the appeal being allowed on this ground.

2. Eligibility for Modvat Credit:
The Tribunal delved into the applicability of Rule 57E of the Central Excise Rules, 1944 concerning Modvat Credit for duties paid on export goods. It was established that goods exported under bond are not exempt from duty, and any subsequent duty variations on export goods are eligible for Modvat Credit. The Tribunal emphasized that if the duty of Rs. 1,22,328/- is determined, the credit for the same should be allowed, making the exercise revenue neutral. The absence of a penalty in this case highlighted that the appellants should have been guided to follow the Modvat Credit route by declaring the defectively packed medicines as inputs. The rejection of the plea for Rule 57E(2) credit eligibility by the lower authority was deemed baseless, leading to the appeal being allowed on this ground as well.

In conclusion, the Tribunal set aside the previous orders and allowed the appeal based on the findings related to the duty payment on returned goods and the eligibility for Modvat Credit under Rule 57E.