1987 (10) TMI 217 - AT - Central Excise

Summary

Issues:
1. Eligibility for availing MODVAT credit on specific raw materials.
2. Interpretation of Rule 57F(2) of the Central Excise Rules.
3. Application of Rule 57A and Rule 57D(2) in MODVAT scheme.
4. Consideration of intermediate products in the manufacturing process.
5. Impact of recent Notification under Rule 57J on MODVAT eligibility.

Analysis:
The appeal challenged the decision denying MODVAT credit on PVC, LDPE, HDPE, and Polypropylene, leading to ineligibility to operate under Rule 57F(2) of the Central Excise Rules. The appellants sought MODVAT on HDPE for manufacturing plastic jars used in packing excisable goods. The Assistant Collector and Collector (Appeals) ruled against MODVAT eligibility, stating the intermediate products were exempted and not used for production, thus rejecting Rule 57F(2) application (para 1-2).

The appellant's representative argued that MODVAT aims to avoid cascading excise duty effects, allowing duty set-off only on final products like cosmetics. Referring to Rule 57F and Rule 57A, the representative contended that MODVAT should apply when inputs are used in final product manufacturing. The definition of "manufacture" under Section 2(f) of the Central Excises and Salt Act was cited to support MODVAT eligibility. Mention was made of a new Notification under Rule 57J issued post the initial decision (para 3).

The department's representative highlighted the lack of precision in the appellant's MODVAT application, emphasizing that HDPE, LDPE are not inputs for cosmetics, the final product. The department argued that these materials are not utilized in the appellant's factory for manufacturing plastic jars, as they are sent to processors for packaging material production, which is exempted. Thus, Rule 57A was deemed inapplicable (para 4).

The Tribunal analyzed the manufacturing process, noting that the appellant purchases raw materials from outside, gets plastic jars manufactured by processors, and uses exempted packing materials for final products. Rule 57F(2) was examined, determining that the returned packaging materials were finished products exempt from duty, not intermediate products. As the packaging materials were themselves exempted, no cascading duty effect was observed. Consequently, the denial of MODVAT credit on HDPE, LDPE for manufacturing plastic jars was upheld, and the appeal was rejected (para 5).