1989 (11) TMI 166 - AT - Central Excise

Issues Involved:
1. Whether the oxygen gas and dissolved acetylene gas received and utilized prior to 1-3-1986 are eligible for Modvat credit.
2. Whether the intermediate products (steel castings) manufactured using the gases are exempt under Notification No. 217/86 and not used in the manufacture of the final products (bogies and couplers).
3. Applicability of Rule 57D and Rule 57J of the Central Excise Rules, 1944.
4. Impact of Notification No. 351/86 and the Trade Notice dated 8-6-1988 on the eligibility for Modvat credit.
5. Delay in the issuance of the appellate order and its impact on the appeal.

Detailed Analysis:

Issue 1: Eligibility of Modvat Credit for Inputs Received and Utilized Prior to 1-3-1986
The Assistant Collector disallowed the credit on the basis that the oxygen gas and dissolved acetylene gas were received and consumed before 1-3-1986, which is prior to the implementation of the Modvat Scheme. The Collector (Appeals) reversed this decision, holding that the finished products manufactured from these inputs were cleared after 1-3-1986, thus entitling the respondents to avail themselves of the credit. The Tribunal found that the Ministry of Finance had clarified that credit is permissible for inputs received on or after 1-2-1986 and used in final products cleared on or after 1-3-1986, supporting the respondents' case.

Issue 2: Utilization of Intermediate Products in Final Products
The Assistant Collector's order was based on the premise that the intermediate products (steel castings) were exempt under Notification No. 217/86 and not used in the manufacture of the final products (bogies and couplers). The Tribunal noted that the steel castings are essential for manufacturing the final products and that the gases used in cutting runners and risers of the steel castings should be considered as inputs used in the manufacture of the final products. This interpretation aligns with previous decisions, such as in the Titagarh Paper Mills and Hindustan Lever cases, which held that inputs used in intermediate products that are essential for the final product are eligible for credit.

Issue 3: Applicability of Rule 57D and Rule 57J
The respondents argued that their case falls under Rule 57D(2), which allows credit for inputs used in the manufacture of intermediate products exempt from duty, provided these intermediate products are used in the manufacture of final products. The Tribunal agreed, finding that Rule 57J and Notification No. 351/86, which pertain to job work and gate passes, were not applicable in this case. The Tribunal emphasized that the steel castings, though intermediate, are integral to the final products (bogies and couplers), thus satisfying the conditions under Rule 57D(2).

Issue 4: Impact of Notification No. 351/86 and Trade Notice
The appeal referred to Notification No. 351/86 and a Trade Notice dated 8-6-1988, arguing that the conditions for Modvat credit were not met. The Tribunal found this reliance misplaced, as these provisions were not cited in the original show cause notice or adjudication order. The Tribunal also noted that the gases in question are not in the nature of machinery or equipment excluded from credit under Rule 57A, thus supporting the respondents' eligibility for credit.

Issue 5: Delay in Issuance of Appellate Order
The respondents contended that the delay of over 16 months in issuing the appellate order allowed the Department to rely on subsequent clarifications to disallow credit. The Tribunal acknowledged the delay but held that it does not invalidate the correct legal position. The Tribunal focused on whether the gases used in intermediate products could be considered inputs for the final products, ultimately concluding that they could.

Conclusion:
The Tribunal dismissed the appeal, supporting the Collector (Appeals)' decision that the respondents are entitled to Modvat credit for the oxygen gas and dissolved acetylene gas used in the manufacture of steel castings, which are essential for the final products (bogies and couplers). The case was remanded to the Assistant Collector for de novo adjudication, ensuring compliance with Rule 57H(2) regarding the payment of duty after 31st January 1986.

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