1995 (7) TMI 178 - AT - Central Excise

Summary

Issues Involved:

1. Denial of Modvat credits availed by the appellants.
2. Determination of whether the process of converting duty-paid Nylon chips into plain, coloured, or compounded chips constitutes 'manufacture' under the Modvat scheme.
3. Eligibility of Modvat credit for compounded chips.

Issue-wise Detailed Analysis:

1. Denial of Modvat credits availed by the appellants:

The appellants are engaged in the manufacture of excisable goods and availed Modvat credits for Nylon chips returned for reprocessing. The Department objected to these credits, arguing that the returned duty-paid final products did not qualify for Modvat credit under Rule 57G because no new manufacture was involved. Show cause notices were issued, and the Collector confirmed the demands for recovery of the Modvat credits. The appellants challenged these orders.

2. Determination of whether the process of converting duty-paid Nylon chips into plain, coloured, or compounded chips constitutes 'manufacture' under the Modvat scheme:

The Tribunal referred to a similar case, "Collector of Central Excise, Bombay-I v. Sigma Paints Ltd.," where it was held that the Modvat scheme is not intended to reimburse the duty element for returned materials subject to reprocessing unless such materials can be construed as inputs used in manufacture. The Tribunal emphasized that for a process to be considered 'manufacture,' it must result in a new and distinct product with a different name, character, or use. The Tribunal found that the returned Nylon chips were not scrap or defective but were returned for reasons such as market requirements or quality adjustments. Therefore, the process of converting plain chips to plain or coloured chips did not amount to 'manufacture' as it did not bring into existence a new product.

3. Eligibility of Modvat credit for compounded chips:

The Tribunal considered the plea regarding the conversion of plain or coloured chips into compounded chips. The appellants argued that this process involved 'manufacture' and produced evidence, including an approved classification list showing Nylon Chips - 6 as eligible for exemption under Notification 217/86-C.E. for compounding. The Tribunal acknowledged that there might be a case for Modvat credit if the process constituted 'manufacture' as per the Supreme Court's test. However, since the evidence was presented only at the appeal stage, the Tribunal remanded the matter back to the Collector for de novo consideration. The Collector was directed to consider the evidence from both sides and determine whether the process of converting plain/coloured chips into compounded chips amounted to 'manufacture' based on market parlance and technical opinions.

Conclusion:

The appeals were dismissed regarding the eligibility of Modvat credit for plain or coloured chips used in reprocessing to obtain plain or coloured chips, as no 'manufacture' was involved. The same view was held for compounded chips returned and reprocessed into compounded chips. However, the case was remanded to the Collector for reconsideration of whether the process of converting plain/coloured chips into compounded chips constituted 'manufacture,' with the appellants bearing the burden of proof.