2004 (4) TMI 250 - AT - Central Excise

Summary

Issues:
Claim of Modvat credit for containers used in manufacturing fully exempted final product.

Analysis:
The appeal revolves around the appellants' claim for Modvat credit concerning containers used in producing a fully exempted final product. The lower authorities denied the credit based on Rule 57C of the Modvat rules, stating that credit for inputs used in fully exempted final products is not permissible. The appellants argued that ethyl alcohol, whether denatured or not, falls under a single tariff heading and is liable to duty. They contended that the exemption provision does not wholly exempt the final product but only a specific class, denatured ethyl alcohol. However, the tribunal emphasized that the form in which goods are cleared is crucial for duty levy. In the case of ethyl alcohol, duty is only applicable to denatured ethyl alcohol, while other categories are fully exempted. Consequently, Modvat credit for duty paid on inputs used in fully exempted final products is not allowed under Rule 57C.

The appellants attempted to justify their actions based on Board instructions, arguing that no direct correlation was necessary. They claimed they initially took the credit assuming they would manufacture denatured ethyl alcohol. However, the tribunal found these arguments lacking substance. It clarified that if a manufacturer cannot foresee beforehand that inputs will be used solely in fully exempted final goods, credit may be taken. But once it is confirmed that final products will be cleared without duty payment, credit is not admissible under Rule 57C. Whether credit was initially denied due to Rule 57C or taken based on a misunderstanding, the outcome remains the same: credit is not permitted for fully exempted goods. As excise duty was not applicable to the undenatured ethyl alcohol exported in this case, the denial of credit was deemed appropriate and legal, leading to the rejection of the appeal.