2004 (8) TMI 216 - AT - Central Excise

Summary

Issues:
The judgment deals with the issue of Modvat credit on inputs used in the production of exempt goods and the demand for its return by the Central Excise authorities.

Modvat Credit on Exempted Tractors:
The appellant, a manufacturer of tractors, produced both dutiable and exempt varieties by using inputs for which Modvat credit was taken. They paid 8% of the value of the exempted tractors at the time of clearance, citing Rule 57CC. The authorities demanded the return of the Modvat credit taken on engines used in the exempt tractors, stating that Modvat credit was not available for inputs used in exempt goods production. The demand was not being adjusted against the 8% payments made. The appellant contended that the demand for return of Modvat credit was incorrect due to the 8% payment made on the exempted tractors, and that denial of Modvat credit and payment at 8% simultaneously was impermissible. The Tribunal held that denial of Modvat credit and levy at 8% on the finished exempted product was not allowed by law. Since the appellants had been paying 8% of the price of the exempted goods at clearance, the Revenue could not demand the reversal of Modvat credit. The demand was deemed unsustainable and against the Tribunal's earlier decision, leading to the appeal being allowed.

This judgment clarifies the legal position regarding Modvat credit on inputs used in the production of exempt goods and the permissibility of demanding its return by the Central Excise authorities.