1995 (8) TMI 152 - AT - Central Excise

Issues Involved:
1. Whether the transfer of credit from the set-off register to the RG-23A account under Rule 57H(3) of the Central Excise Rules, 1944 is permissible.
2. Interpretation and applicability of Notifications 225/86 and 258/86 in relation to the Modvat scheme.

Detailed Analysis:

1. Transfer of Credit from Set-Off Register to RG-23A Account:

The Department's appeal challenges the order of the Collector of Central Excise (Appeals), Hyderabad, which allowed the transfer of credit from the set-off register to the RG-23A account. The learned SDR argued that the set-off notifications provided an exemption from duty on final products to the extent of duty paid on inputs, which is distinct from the procedures under Rule 56A and Modvat under Rule 57A. It was contended that Rule 57H(3) only allows the transfer of unutilized credit in RG-23 and not from the set-off register. Additionally, the SDR highlighted that the relevant Trade Notices were superseded, and there was no RG-23 account at the relevant time to enable the transfer of credit.

The respondent's consultant argued that the objective behind the proforma credit, set-off credit procedure, and Modvat scheme was to prevent the cascading effect of duty on prices by providing relief to manufacturers. The consultant asserted that there was no significant difference in maintaining registers for proforma credit or set-off procedures. The respondents were following the Collector's directions and the relevant Trade Notices. The consultant also highlighted that similar manufacturers across India were permitted to transfer such credits, and this should be verified by the Department.

The Tribunal examined the records and submissions, noting that the Collector (Appeals) had extensively dealt with the issue. The Collector (Appeals) found that the lower authority denied the transfer of credit based on the interpretation of Rule 57H(3), which only allowed the transfer of unutilized credit in RG-23 to RG-23A. However, the Collector (Appeals) held that the set-off register was a continuation of the RG-23 account, and thus, the party should be given the benefit of Rule 57H(3).

The Tribunal agreed with the reasoning of the Collector (Appeals), stating that procedural law should not be used to deny the transfer of credit. The Tribunal also referenced previous rulings, including the South Regional Bench's decision in the case of Collector of Central Excise v. M/s. Engine Valves Ltd., which supported the transfer of credit under similar circumstances.

2. Interpretation and Applicability of Notifications 225/86 and 258/86:

The learned Member (Technical) disagreed with the majority view, arguing that the exemption notifications 225/86 and 258/86 were distinct from the provisions under Rule 56A and 57A. The notifications provided an exemption to the extent of duty paid on inputs, but did not allow for the accumulation and transfer of credit as a pool of resources. The Member (Technical) emphasized that the notifications required a one-to-one correlation between inputs and finished goods, and any unutilized credit should be claimed as a refund rather than transferred to RG-23A.

The learned Member (Technical) further argued that the specific wording of Rule 57H(3) did not allow for the transfer of credit from the set-off register to RG-23A. The rule explicitly mentioned that the credit must be lying in RG-23, and any deviation from this would be against the statute and rule.

The learned Member (Judicial) supported the view of the Collector (Appeals), stating that the maintenance of accounts under the set-off procedure was essentially the same as under the proforma scheme. The Member (Judicial) argued that the procedural format should not be used to deny the transfer of credit, as the overall objective was to avoid the cascading effect of duty.

Majority Decision:

The third Member (Judicial) agreed with the learned Member (Technical), concluding that the appeal of the Revenue should be allowed. The majority view held that the specific provisions of Rule 57H(3) did not permit the transfer of credit from the set-off register to RG-23A. The appeal was allowed, and the order of the Collector (Appeals) was set aside.

Final Order:

In light of the majority view, the appeal was allowed, and the order of the Collector (Appeals) was set aside. The transfer of credit from the set-off register to RG-23A was not permissible under Rule 57H(3).

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