1991 (7) TMI 209 - AT - Central Excise

Summary

Issues:
- Whether inputs cleared under an exemption notification without payment of duty are eligible for MODVAT Credit under Rule 57G(2).
- Interpretation of the term "charged to nil rate of duty" in the context of MODVAT Credit eligibility.
- Consistency in granting MODVAT Credit for goods cleared under exemption notifications.

Analysis:
The judgment involves two appeals challenging the order of the Collector of Central Excise (Appeals) regarding the eligibility of inputs cleared under an exemption notification for MODVAT Credit under Rule 57G(2). The central issue is whether goods cleared without payment of duty can be considered duty paid for the purpose of availing MODVAT Credit. The appellant argued that since the goods were wholly exempt, they should be treated as duty paid goods and relied on previous tribunal decisions supporting this view. The respondent, however, supported the lower authority's decision denying MODVAT Credit eligibility.

The Tribunal examined the interpretation of the term "charged to nil rate of duty" in the context of MODVAT Credit eligibility. Referring to previous decisions, the Tribunal emphasized that goods wholly exempted from duty cannot be considered as charged to nil rate of duty. The Tribunal highlighted the significance of Section 3 of the Central Excises & Salt Act, stating that goods exempted under Rule 8(1) are subject to the rates specified in the First Schedule but are exempted, not charged to nil rate of duty. The Tribunal also noted a government order specifying that goods wholly exempted from duty are not eligible for deemed MODVAT Credit.

The Tribunal analyzed the MODVAT Credit Scheme's purpose to avoid cascading duty effects on specified inputs. It concluded that where goods are recognized not to have suffered any duty, MODVAT Credit cannot be allowed. Citing previous decisions and its own ruling in a similar case, the Tribunal held that MODVAT Credit claimed in this case cannot be granted. However, due to a conflicting decision by the West Regional Bench, the matter was referred to a Larger Bench for a final decision on the issue of MODVAT Credit eligibility for goods cleared under exemption notifications.