2005 (4) TMI 224 - AT - Central Excise

Cenvat/Modvat - Inputs for manufacture of final products - Whether the appellants can avail Modvat credit when they have already paid 8% of the price in terms of Rule 57CC(1) on the exempted final product - HELD THAT - The exemption which they claimed was also subject to the same condition that Modvat credit should not have been taken on the inputs used in the manufacture of the exempted goods. In order to satisfy these requirements they paid Central Excise Duty of 8% as fixed for such cases under Rule 57CC. Rule 57CC relates to adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer . This rule is specific to cases where adjustment of credit is required to be made as the inputs have gone into the production of exempted final products. Sub-rule (1) of this Rule specifically provides that payment of duty at 8% may be done if the manufacturer is not able to meet the requirement under sub-rule (9) of maintaining separate inventory and accounts of the receipt and use of inputs for the manufacture of goods on which exemption is claimed. Such payment of duty at 8% brings about the adjust (sic) of excess credit taken. In view of the above discussion and the ruling of the Tribunal in the case of M/s. Escorts Ltd. 2004 (8) TMI 216 - CESTAT NEW DELHI and Malviya Chemicals 2000 (11) TMI 401 - CEGAT NEW DELHI the impugned orders are set aside and appeals allowed with consequential relief if any.

Issues Involved:
1. Eligibility to avail Modvat credit when 8% of the price has been paid on exempted final products.
2. Interpretation and application of Rules 57C and 57CC of the Central Excise Rules.
3. Treatment of common inputs used in the manufacture of both dutiable and exempted final products.
4. Compliance with the provisions of Rule 57CC(1) and its effect on Rule 57C(1).

Detailed Analysis:

1. Eligibility to Avail Modvat Credit:
The primary issue in both appeals was whether the appellants could avail Modvat credit when they had already paid 8% of the price in terms of Rule 57CC(1) on the exempted final product. The appellants argued that having paid the 8%, they should be entitled to the credit. The Tribunal supported this view, referencing previous judgments in similar cases such as M/s. Escorts Ltd. v. CCE, Faridabad and Malviya Chemicals and Pharmaceuticals (P) Ltd. v. CCE, Meerut, which established that once the 8% payment is made, the denial of Modvat credit is not permissible.

2. Interpretation and Application of Rules 57C and 57CC:
The Tribunal examined the provisions of Rules 57C and 57CC. Rule 57C(1) generally prohibits credit on inputs used in the manufacture of exempted goods. However, Rule 57C(2) provides an exception, allowing credit if the manufacturer complies with Rule 57CC(1), which requires the payment of 8% of the price of the exempted final product. The Tribunal concluded that compliance with Rule 57CC(1) fulfills the requirement of Rule 57C(1), thus allowing the manufacturer to avail Modvat credit.

3. Treatment of Common Inputs:
Both appeals involved the use of common inputs for manufacturing dutiable and exempted final products. The Commissioner had previously ruled that the appellants were not entitled to avail Modvat credit for common inputs used in exempted final products. However, the Tribunal disagreed, citing the case of Life Long Appliances Ltd. v. CCE, which established that paying 8% of the price of exempted goods suffices for reversing the credit on inputs used in exempted goods, thereby allowing the credit for common inputs.

4. Compliance with Rule 57CC(1) and Effect on Rule 57C(1):
The Tribunal emphasized that Rule 57C(2) deems Rule 57C(1) satisfied when the manufacturer complies with Rule 57CC(1). The Tribunal noted that the payment of 8% under Rule 57CC(1) is an obligation on the manufacturer and not specifically tied to any particular inputs. This payment ensures compliance with Rule 57C(1) for all inputs used in the manufacture of exempted final products. The Tribunal accepted the appellants' argument that once the 8% payment is made, the requirement of Rule 57C(1) is deemed fulfilled, allowing the credit on all inputs, including those used exclusively in exempted goods.

Conclusion:
The Tribunal, relying on precedents and a detailed interpretation of the relevant rules, set aside the impugned orders and allowed the appeals. The Tribunal ruled that the appellants were entitled to avail Modvat credit after paying 8% of the price of the exempted final products, as stipulated by Rule 57CC(1). This decision aligns with the established legal principle that compliance with Rule 57CC(1) satisfies the requirements of Rule 57C(1), thereby permitting the credit on all inputs used in the manufacture of exempted final products.

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