1990 (1) TMI 212 - AT - Central Excise

Summary

Issues:
- Admissibility of MODVAT credit for inputs used in the manufacture of a by-product
- Interpretation of Rule 57D and Rule 57C regarding duty credit eligibility

Analysis:
The appeal before the Appellate Tribunal CEGAT, Bombay involved a dispute regarding the admissibility of MODVAT credit for inputs used in the manufacture of a by-product known as "hydrol" by the appellants, who are manufacturers of Dextrose Monohydrate. The Collector of Central Excise (Appeals) had upheld the department's decision to deny the credit based on the allegation that the inputs were used in the production of the exempted hydrol. The appellants argued that hydrol is a by-product and, therefore, they are entitled to the credit under Rule 57D, which allows credit even if inputs are contained in waste, refuse, or by-products arising during the manufacturing process. The department, on the other hand, contended that hydrol should be considered a final product under Rule 57C, making the credit inadmissible.

Upon considering the technical literature presented by the appellants' consultant, the Tribunal concluded that hydrol is indeed a by-product recognized as such in the manufacturing process of Dextrose Monohydrate. The separation of Dextrose Crystals during centrifuging signifies that the main product is the crystals, while the mother liquor (hydrol) is a by-product. The Tribunal disagreed with the Collector (Appeals) and held that the appellants are eligible for the benefit of Rule 57D as the manufacturing objective is to obtain dextrose crystals, not hydrol. The literature cited supported the view that hydrol is a by-product, entitling the appellants to the credit. The Tribunal also noted that the demand issued on the entire quantity of hydrol produced was unsustainable.

In conclusion, the Tribunal allowed the appeal, setting aside the orders of the lower authorities and ruling in favor of the appellants. The judgment clarified the distinction between a by-product and a final product under Rule 57D and Rule 57C, respectively, emphasizing the importance of the manufacturing objective in determining the admissibility of duty credit for inputs used in the production process.