1987 (9) TMI 172 - AT - Customs

Summary

Issues Involved:
1. Eligibility of benefit under Notification No. 201/79 for duty paid on raw materials.
2. Rejection of refund claims by lower authorities.
3. Interpretation of procedural requirements under Notification No. 201/79.
4. Correlation of raw materials with final products manufactured in different factories.

Detailed Analysis:

1. Eligibility of Benefit under Notification No. 201/79:
The core issue in these appeals is the eligibility of M/s. Madras Rubber Factory Ltd. to claim benefits under Notification No. 201/79 for duty paid on rubber process oil, renacit-VII, and stearic acid used in the manufacture of masticated rubber. This masticated rubber was then transferred to other factories for further manufacture of rubber products. The Collector of Central Excise, Madras, initially denied this benefit, but the Central Board of Excise and Customs overturned this decision, stating that the notification does not preclude the benefit even if the raw materials are used in one factory and the final products are manufactured in another factory of the same manufacturer. The Central Government disagreed, leading to the issuance of a notice under Section 36(2) of the Central Excises and Salt Act.

2. Rejection of Refund Claims:
The lower authorities rejected the refund claims on the grounds that the raw materials, classified under Item 68 CET, were used to produce masticated rubber, which is duty-free under Item 16-A(2) CET, and then transferred to other factories. The Central Board of Excise and Customs, however, held that the notification's intention was to provide relief for duty paid on raw materials used in manufacturing excisable products, regardless of whether the final manufacturing occurs in a different factory of the same manufacturer. The Board suggested that proper administrative arrangements could ensure the identification of duty-paid inputs, making the exemption admissible.

3. Interpretation of Procedural Requirements:
The Department argued that the procedural requirements outlined in the appendix to Notification No. 201/79 could only be met if both the initial consumption of raw materials and the final manufacture occurred in the same factory. Conversely, M/s. Madras Rubber Factory Ltd. contended that these procedural provisions are merely formalities and should not prevent the granting of benefits if the manufacturer can prove the quantum of raw materials used in the final products, even if the manufacturing process spans multiple factories of the same manufacturer.

4. Correlation of Raw Materials with Final Products:
Previous Tribunal decisions had rejected M/s. Madras Rubber Factory Ltd.'s claims, stating that it was impossible to correlate the raw materials used in one factory with the final products manufactured in another. However, M/s. Madras Rubber Factory Ltd. argued that a workable procedure had been established post the Delhi High Court's interim order, allowing for the correlation and verification of raw materials and final products. This procedure had been effectively implemented for over five years, demonstrating that the earlier Tribunal decisions were based on a flawed premise.

Conclusion:
The Tribunal concluded that the intention behind Notification No. 201/79 was to grant benefits to manufacturers using raw materials under Item 68 CET, even if the manufacturing process occurs in different factories of the same manufacturer. The Tribunal emphasized that the procedural requirements should not obstruct the intended relief if the correlation between raw materials and final products can be satisfactorily established. Consequently, the Tribunal upheld the Central Board's order, dismissed the Central Government's appeal, and remitted the refund claims back to the Assistant Collectors for reconsideration in light of this decision.