1993 (12) TMI 145 - AT - Central Excise

Issues:
1. Whether the Department's demand on the appellants in respect of stock of rotors and stampings is justified after opting for exemption notification.
2. Whether the Modvat credit on inputs used in the manufacture of exempted goods should be expunged.
3. Whether the lower authority's decision to disallow credit and direct payment is valid.
4. Interpretation of Rule 57C of the Central Excise Rules regarding credit of duty when final products are exempt.
5. Whether recovery of Modvat credit on inputs lying in stock after opting for exemption notification is warranted.
6. Application of Rule 57F(2) in demanding duty on inputs lying in stock when Modvat credit has been taken.

Detailed Analysis:

1. The Department filed an appeal against the order of the Collector of Central Excise, Madras demanding excise duty on stock of rotors and stampings with the appellants after they opted for an exemption notification for their finished product, pumps, for which they had earlier taken Modvat credit. The essence of the Modvat scheme is to prevent cascading tax effects on final products. The original authority proposed to expunge the credit on inputs used in exempted goods. The appeal challenged this demand.

2. The learned Collector (Appeals) held that there was no violation of Modvat rules by the appellants in taking credit on inputs used before opting for exemption. The lower authority's contention that credit on inputs for exempted goods should be expunged was deemed invalid. The Collector emphasized that the Modvat credit had been correctly utilized for paying duty on finished products as per rules. The decision in the case of M/s. Wipro Information Technology was cited as relevant.

3. The Department argued that Rule 57C of the Central Excise Rules prohibits credit of duty if final products are exempt, necessitating the reversal of duty on inputs used in exempted goods. The Department contended that since the final product was exempted, the Modvat credit on inputs should be reversed.

4. The Advocate for the respondents argued that the Modvat credit outstanding in RG 23A Part-II could be considered lapsed after opting for exemption. However, the recovery of Modvat credit on inputs in stock was unwarranted as the credit had been correctly utilized before opting for exemption. The Advocate pleaded for upholding the appellate authority's order.

5. The Tribunal observed that in similar cases, the correct utilization of Modvat credit before opting for exemption precluded the recovery of utilized credit. The Tribunal emphasized the lack of a direct correlation between input and output under the Modvat scheme, allowing flexibility in utilizing the credit for paying duty on finished products.

6. Referring to the case of Collector of Central Excise, Madras v. M/s. Chennai Bottling Co. Ltd., the Tribunal highlighted the application of Rule 57F(2) in demanding duty on inputs lying in stock when Modvat credit had been taken. The Tribunal held that duty could be demanded on inputs as if they were the manufacture of the company, emphasizing the need to charge duty on such inputs when cleared for consumption.

In conclusion, the appeal was dismissed, affirming that the recovery of Modvat credit on inputs in stock after opting for exemption was not warranted, and emphasizing the correct utilization of Modvat credit for paying duty on finished products.

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