2003 (11) TMI 241 - AT - Central Excise

Summary

Issues: Availability of Modvat credit on returned adhesives disallowed by authorities.

In this case, the issue revolved around the availability of Modvat credit to the appellants on adhesives that were initially sold as final products but later returned by a trader. The Asstt. Commissioner disallowed the credit based on Rule 57A and Notification No. 5/94, stating that Modvat credit on final products cannot be allowed. This decision was upheld by the Commissioner (Appeals).

Upon review, the Tribunal found that the adhesives, originally sold as final products, were returned to the appellants after being rejected by the trader. The appellants then used these returned adhesives as inputs for manufacturing a different quality of adhesive. They did not re-clear the defective adhesives after rectifying the defects but incorporated them into a new product known as PU2000, which was cleared after paying duty. The Tribunal concluded that since the duty was already discharged on the defective adhesives and they were used as inputs without being re-cleared, the appellants were entitled to claim the Modvat credit. The authorities were deemed to have wrongly disallowed the credit.

Therefore, the Tribunal set aside the impugned order and allowed the appeal of the appellants, granting them any consequential relief permissible under the law. This judgment clarifies the eligibility of Modvat credit in situations involving returned goods used as inputs in the manufacturing process, emphasizing the importance of understanding the specific circumstances and treatment of such goods in determining credit availability.