1993 (3) TMI 243 - AT - Central Excise

Summary

Issues:
1. Modvat benefit disallowed for bench rejections claimed as inputs.
2. Dispute over the classification of bench rejections as inputs.
3. Interpretation of the Modvat Scheme rules.
4. Application of Board's instructions on rejected metallic parts.
5. Consideration of defective products returned for remanufacture.

Analysis:
1. The appeals were filed by the Revenue against an order allowing the respondents' appeals related to the disallowance of modvat benefit for bench rejections claimed as inputs. The dispute arose as the Revenue contended that the bench rejections were not actual inputs but defective final products returned by customers. The Asstt. Collector held that the respondents did not specifically declare the rejection of forgings in their modvat declaration.

2. The respondents did not appear but submitted written submissions. The Tribunal found that the modvat declaration did mention bench and process rejections as inputs. The respondents argued that only reject materials from the manufacturing process should be considered as inputs, not final products rejected by customers. However, the Tribunal disagreed, stating that the modvat declaration covers goods brought from outside on payment of duty, including items returned due to defects.

3. The Tribunal referred to a Board's letter allowing the modvat scheme for rejected metallic parts for remanufacture. Citing a previous case involving defective paints, the Tribunal emphasized that the material brought in must be used in or in relation to the final product to qualify for the modvat scheme. It highlighted that reconditioning defective material does not create a new commercially known product, thus falling outside the scheme's scope.

4. The Tribunal considered the Board's circular on scrapped metal products and emphasized the need for the material brought in under the modvat scheme to result in a new product. In the case at hand, the defective forgings were to be melted and converted into forgings, constituting the final product. Following the Board's instruction and the test laid down by the Tribunal, the benefit of the modvat scheme was deemed applicable to the returned defective metallic products.

5. Ultimately, the Tribunal dismissed the Revenue's appeals, finding that the defective forgings returned for remanufacture should be treated as scrap to be used in the manufacturing process. It noted that the respondents had followed the Board's instruction in good faith and that denying the benefit would be unjust, especially when the remanufacture process was involved. Therefore, the orders of the Collector (Appeals) were upheld, and both appeals from the Revenue were dismissed.