2009 (7) TMI 726 - HC - Central Excise

Cenvat - The issue involved in that case before the Tribunal was whether Modvat credit can be denied, when goods manufactured utilizing Modvat inputs in their factories but transferred to their another unit for further manufacture of dutiable final products in the said other unit. Glyoxal 40% manufactured and cleared under Notification No. 217/86-C.E. to another factory of same manufacturer for manufacture of dutiable goods . credit sought to be denied by the revenue on the ground that the goods not used in factory of production. Held that mechanical application of said Rule be avoided. Rule 57c should not be strictly construed disregarding fact that Notification is essentially based on Modvat Scheme and amendment by Notification No. 97/89-C.E.was to facilitate such removal from one factory to another of same manufacturer. Credit not deniable.

Summary

Issues:
1. Interpretation of Rule 57C of the Central Excise Rules, 1944 in relation to Modvat credit on duty paid inputs used in intermediate products transferred between factories under Notification No. 217/86-C.E.
2. Strict construction of Rule 57C and its applicability in the context of the Modvat scheme under Notification No. 217/86-C.E.
3. Analogous nature of removal under Notification No. 217/85-C.E. to the removal of intermediate inputs under Notification No. 217/86-C.E. for applying the Larger Bench decision of the Tribunal in Kirloskar Oil Engines.

Analysis:
1. The case involved a dispute regarding the reversal of Modvat credit on duty paid inputs used in intermediate products transferred between factories under Notification No. 217/86-C.E. The Collector of Central Excise contended that Modvat credit should be reversed when goods are transferred under Chapter X procedure. However, the Tribunal held that such credit cannot be denied based on Rule 57C, emphasizing the importance of ensuring duty payment on the final products. The Court agreed with the Tribunal's interpretation, ruling in favor of the respondent assessee.

2. The Court further addressed the strict construction of Rule 57C and its alignment with the Modvat scheme under Notification No. 217/86-C.E. The Tribunal's analysis highlighted that the purpose of the notification was to facilitate duty-free transfer of inputs between factories of the same manufacturer, ensuring duty payment on the final products. The Court concurred with the Tribunal's reasoning, emphasizing the need to interpret Rule 57C in line with the Modvat scheme, ruling in favor of the respondent assessee.

3. Regarding the analogy between removal under different notifications for applying the Tribunal's decision in Kirloskar Oil Engines, the Court referenced a previous case to distinguish the scenarios. It was clarified that in cases where intermediate products are transferred between factories for further utilization in the production of final products, Modvat credit on the original inputs remains available for duty payment on the final products. The Court upheld the Tribunal's decision, ruling in favor of the assessee against the Central Excise Department.

This comprehensive analysis of the legal judgment showcases the interpretation and application of relevant rules and notifications concerning Modvat credit on duty paid inputs used in intermediate products transferred between factories under specific provisions.