1987 (7) TMI 269 - AT - Customs

Proforma Credit permissible to raw materials passing through a fully exempted intermediate product stage

Summary

Issues:
- Whether the appellant is entitled to take credit of duty paid on raw materials used in the manufacture of intermediate products exempt from duty, which are further used in the production of dutiable finished products.

Detailed Analysis:

1. The case involved M/s. Garware Paints Ltd., where the department allowed set off of duty paid on raw materials for the manufacture of products. The department contended that the raw materials were used in the production of intermediate products exempt from duty, which were then used in the manufacture of dutiable finished products under a different item of the Central Excise Tariff.

2. The Assistant Collector held that since the intermediate product was exempt from duty, proforma credit for raw materials used in its manufacture was not permissible. However, the Collector (Appeals) overturned this decision, citing a Trade Notice and a Bombay High Court judgment, leading to the department's appeal.

3. The central issue was whether the appellant could claim credit for duty paid on inputs used in the manufacture of exempt intermediate products that were subsequently used in the production of dutiable finished products. The department argued against allowing proforma credit, citing specific notifications.

4. The Tribunal considered arguments from both sides. The department contended that proforma credit would contradict certain notifications, while the respondent supported the Collector (Appeals) decision, emphasizing the Trade Notice and the Bombay High Court judgment. The respondent also raised the issue of the demand being time-barred.

5. The Tribunal examined the Trade Notice provided by the respondent, which clarified the applicability of Rule 56A in cases where fully exempt intermediate products are involved. The Tribunal found the Trade Notice to be an authoritative interpretation, supporting the allowance of proforma credit in such cases.

6. The Tribunal agreed with the Collector (Appeals) and the Bombay High Court decision, stating that if raw materials are used in the manufacture of exempt intermediate products that further contribute to the production of dutiable finished goods, proforma credit should be allowed. The Tribunal found the department's arguments unconvincing in light of the Trade Notice and the legal precedent.

7. Consequently, the Tribunal dismissed the appeal and disposed of the Cross Objections, affirming the right of the appellant to claim proforma credit for duty paid on raw materials used in the manufacture of exempt intermediate products that ultimately contribute to the production of dutiable finished products.