1996 (2) TMI 275 - AT - Central Excise

Issues Involved:
1. Interpretation of Rule 57B and Rule 57H of the Central Excise Rules, 1944.
2. Applicability of higher notional credit under Rule 57B for inputs under Rule 57H.
3. Discrimination between inputs held in stock before and after filing the declaration under Rule 57G.
4. Overriding effect of Rule 57H over Rule 57G.

Issue-wise Detailed Analysis:

1. Interpretation of Rule 57B and Rule 57H of the Central Excise Rules, 1944:

The main issue revolves around whether the benefit of higher notional credit under Rule 57B can be extended to inputs that qualify for MODVAT credit under Rule 57H. Rule 57B allows for higher notional credit for inputs obtained from small-scale manufacturers, while Rule 57H provides transitional provisions for credit of duty paid on inputs received before obtaining the dated acknowledgment of the declaration under Rule 57G. The Revenue contends that Rule 57H only allows credit equivalent to the actual duty paid and that Rule 57B cannot be read into Rule 57H.

2. Applicability of higher notional credit under Rule 57B for inputs under Rule 57H:

The lower appellate authority held that the language "credit of the duty paid on inputs" in both rules is the same. It reasoned that there is no plausible reason to deny the higher notional credit for inputs held in stock before filing the declaration under Rule 57G, as it would create discrimination between inputs held in stock and those received after the declaration. Therefore, the benefit of Rule 57B for inputs from small-scale manufacturers cannot be negated by any other provisions of the MODVAT scheme.

3. Discrimination between inputs held in stock before and after filing the declaration under Rule 57G:

The lower appellate authority emphasized that denying the higher notional credit for inputs held in stock before filing the declaration under Rule 57G would create discrimination. It argued that the benefit should be consistent regardless of whether the inputs were held in stock or received after the declaration. This interpretation aims to avoid any discrimination in terms of credit allowable.

4. Overriding effect of Rule 57H over Rule 57G:

The Revenue argued that Rule 57H, which begins with a non-obstante clause, has an overriding effect over Rule 57G. Therefore, the provisions of Rule 57G cannot be equated with Rule 57H. Rule 57H is considered an independent provision providing transitional credit of duty paid under the MODVAT scheme.

Judgment Analysis:

The Tribunal considered the arguments from both sides. It noted that the MODVAT Credit scheme was introduced to avoid the cascading effect of duty paid on inputs by allowing assessees to take credit of the duty paid for utilization towards the final product. Rule 57B was introduced to incentivize the purchase of goods from the small-scale sector by allowing higher notional credit, notwithstanding the actual duty paid. The Tribunal emphasized that Rule 57H, being a transitional provision, allows credit of the duty paid on inputs received before obtaining the dated acknowledgment of the declaration under Rule 57G. The words "duty paid on the inputs" in Rule 57H clearly indicate that the credit would be equivalent to the actual duty paid.

The Tribunal concluded that Rule 57H should be read on its own terms and does not extend the benefit of higher notional credit under Rule 57B to inputs lying in stock before the declaration. The benefit of MODVAT Credit under Rule 57H is limited to the actual duty paid on the inputs. The impugned order was set aside, and the appeal was allowed.

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