2004 (11) TMI 247 - AT - Central Excise

Summary

Issues:
1. Entitlement to capital goods credit under Rule 57Q for manufacturing intermediate goods cleared at nil rate of duty.
2. Invocation of larger period of limitation for demanding credit taken on capital goods.
3. Interpretation of the term 'final product' in the context of Modvat credit on capital goods.

Analysis:

Issue 1: The main issue in this case was the entitlement to capital goods credit under Rule 57Q for manufacturing intermediate goods cleared at nil rate of duty. The appellants had taken credit on an Injection Moulding Machine to produce Plastic Razor Blade handles, which were then used in manufacturing Shaving Systems cleared on payment of duty. The Department contended that since the Razor Blade handles were final products cleared without duty payment, the appellants were not entitled to capital goods credit. However, the appellants argued that the Razor Blade handles were intermediate goods and the final products (Shaving Systems) were dutiable, hence they should be allowed the credit. The Tribunal agreed with the appellants, citing a Supreme Court decision and holding that Modvat credit on capital goods used in manufacturing intermediate goods cannot be denied if the final products are dutiable.

Issue 2: Another issue raised was the invocation of a larger period of limitation to demand the credit taken on the capital goods. The Department alleged that the appellants suppressed the fact that they were making only duty-free goods using the Injection Moulding Machine. However, the appellants argued that they had filed a declaration under Rule 57T, and the Department was aware of the machine's usage. The Tribunal found in favor of the appellants, stating that the larger period of limitation cannot be invoked in this case.

Issue 3: The interpretation of the term 'final product' in the context of Modvat credit on capital goods was crucial to the decision. The Revenue contended that the Razor Blade handles manufactured by the appellants were final products since no Central Excise duty was paid on them, making Modvat credit inadmissible. However, the Tribunal analyzed the manufacturing process of the appellants, where the Razor Blade handles were considered intermediate goods used in the production of dutiable final products (Shaving Systems). Relying on a Supreme Court decision, the Tribunal held that Modvat credit on capital goods used in manufacturing intermediate goods cannot be denied based on the duty status of the intermediate goods.

In conclusion, the Tribunal allowed the appeal, stating that the appellants were entitled to capital goods credit under Rule 57Q on the Injection Moulding Machine, emphasizing the distinction between intermediate goods and final products in the context of Modvat credit to prevent a cascading effect.