1995 (9) TMI 135 - AT - Central Excise

Issues Involved:

1. Admissibility of Modvat credit on oxygen gas lost during the filling process.
2. Classification of the process of filling oxygen gas into cylinders as a manufacturing process.
3. Applicability of Rule 57D of the Central Excise Rules, 1944.
4. Limitation period for issuing a demand under Rule 57-I vis-`a-vis Section 11A of the Central Excises and Salt Act, 1944.

Detailed Analysis:

1. Admissibility of Modvat Credit on Oxygen Gas Lost During the Filling Process:

The appellant, M/s. Rajiv & Company, contended that the loss of oxygen gas during the filling process should be covered under Rule 57D, which allows credit for inputs contained in waste, refuse, or by-products arising during the manufacture of the final product. The appellant argued that the loss of gas occurred due to the natural process of cooling and compression and should be considered as part of the manufacturing process. However, the Department argued that the loss of gas did not constitute waste, refuse, or by-product as per Rule 57D and thus, Modvat credit on the lost quantity was not admissible.

The judgment concluded that the loss of oxygen gas during the filling process did not qualify as waste under Rule 57D. The rule specifically covers waste, refuse, or by-products, but not loss. Therefore, the Department was correct in demanding duty on the lost oxygen gas.

2. Classification of the Process of Filling Oxygen Gas into Cylinders as a Manufacturing Process:

The appellant claimed that filling oxygen gas into cylinders at high pressure constituted a manufacturing process, thereby creating a new identifiable and distinct product. They cited various case laws to support their contention that the process should be considered manufacturing. The Department, however, maintained that the process of filling gas into cylinders did not change the essential character of the oxygen gas and thus did not qualify as manufacturing.

The judgment found that the process of filling oxygen gas into cylinders did not constitute a manufacturing process. The oxygen gas remained the same in character whether in the pipeline or in the cylinders, and therefore, no new product was manufactured.

3. Applicability of Rule 57D of the Central Excise Rules, 1944:

The appellant argued that Rule 57D should apply to their case, allowing them to claim Modvat credit for the oxygen gas lost during the filling process. They equated the loss of gas to waste arising during the manufacturing process. The Department countered that Rule 57D only covers waste, refuse, or by-products and not loss.

The judgment clarified that Rule 57D specifically addresses waste, refuse, or by-products and does not extend to losses. Since the loss of oxygen gas did not fall under the categories covered by Rule 57D, the appellant's claim for Modvat credit on the lost gas was not justified.

4. Limitation Period for Issuing a Demand under Rule 57-I vis-`a-vis Section 11A of the Central Excises and Salt Act, 1944:

The appellant contended that the demand for Rs. 42,709.38 was time-barred as the show cause notice was issued beyond the six-month period stipulated under Section 11A of the Central Excises and Salt Act, 1944. They argued that Rule 57-I should be read in conjunction with Section 11A, which limits the demand period to six months unless there is evidence of willful misstatement, collusion, or suppression of facts.

The judgment held that even though Rule 57-I did not specify a time limit before its amendment on 6-10-1988, it could not override the provisions of Section 11A. The Tribunal cited previous decisions to support the view that the time limit under Section 11A should apply. Consequently, the demand was deemed to be hit by limitation as it was issued beyond the permissible period.

Conclusion:

The impugned order was set aside, and the appeal was allowed. The judgment concluded that the loss of oxygen gas did not qualify for Modvat credit under Rule 57D, the process of filling gas into cylinders was not a manufacturing process, and the demand was time-barred under Section 11A of the Central Excises and Salt Act, 1944.

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