1988 (9) TMI 141 - AT - Central Excise

Summary

Issues:
- Entitlement to benefit of Notification No. 201/79
- Admissibility of credit of duty on raw material
- Barred by limitation
- Verification of duty-paid raw material consumed
- Interpretation of Notification 201/79

Entitlement to benefit of Notification No. 201/79:
The central issue in this case was whether the appellants were entitled to the benefit of Notification No. 201/79, which exempts excisable goods from duty if the duty of excise has already been paid on the inputs used in their manufacture. The department argued that the appellants were not eligible for this credit as the intermediate products, in which the raw materials were used, were fully exempt from duty and not used within the factory for manufacturing dutiable finished goods. The appellants contended that they should receive the credit as long as the intermediate product was utilized in further manufacturing of dutiable goods within their own factory, including a sister factory.

Admissibility of credit of duty on raw material:
The appellants, who were manufacturers of paints and varnishes, purchased raw materials on which excise duty was paid and used them in manufacturing alkyd resin. They claimed credit of duty paid on these raw materials under Notification No. 201/79. The department argued that the raw material should be directly used in dutiable finished goods to avail of the credit, while the appellants argued that the credit should be available as long as the raw material was consumed fully in the final product.

Barred by limitation:
The appellants raised an alternative plea, stating that the show cause notice issued to them was largely barred by limitation as there was no allegation of suppression or misstatement of facts. The period of demand of duty mentioned in the notice was from 4-6-1974 to 31-5-1983.

Verification of duty-paid raw material consumed:
The department contended that the appellants were not entitled to the benefit of proforma credit as they failed to file the necessary declaration. They argued that if the credit of duty was admissible, the matter should be remanded for verification of the quantum of raw material used in the final dutiable products.

Interpretation of Notification 201/79:
The Tribunal interpreted Notification 201/79 to grant benefits to manufacturers who consume raw materials falling under a specific category during the manufacturing process. The notification was to be interpreted to promote its object and purpose, allowing the benefit even if the final product was manufactured in a different factory as long as both factories belonged to the same manufacturer and the duty-paid raw material was fully consumed in the final product.

In conclusion, the Tribunal held that the appellants were entitled to the benefit of Notification No. 201/79. However, the entitlement to the credit of duty was subject to verification by the department regarding the duty-paid character of the raw material consumed and the quantity used in the finished dutiable products. The matter was remanded to the Assistant Collector for necessary verification before granting the benefit to the appellants.