1996 (4) TMI 257 - AT - Central Excise

Summary

Issues:
- Disallowance of Modvat credit for inputs used in the manufacture of exempted final products.
- Extending the reversal of credit beyond the weight of inputs contained in final products.
- Justification of the extended period for demand of duty.
- Applicability of Rule 57D(1) regarding denial or variation of credit for waste, refuse, or by-products arising during manufacture.

Analysis:

1. Disallowance of Modvat Credit for Exempted Final Products:
The appellants manufactured excisable products using duty-paid materials and availed Modvat credit under Rule 57A. The dispute arose when the department demanded duty and imposed a penalty for disallowing Modvat credit related to exempted final products. The appellants argued, citing a larger Bench decision, that they followed a bonafide practice of reversing credit based on the net weight of the final product. They contended that there was no suppression of facts and that the invocation of an extended period for duty demand was unjustified.

2. Extension of Reversal of Credit:
The department's position was that the reversal of credit should not be limited to the weight of inputs in the final product but should extend to the entire weight of inputs issued for manufacturing such products. The appellants, however, maintained that their practice of reversing credit based on the net weight of the final product was reasonable and in correspondence with the department. They highlighted the impracticality of segregating scrap based on the duty status of the products during manufacture.

3. Justification of Extended Period for Duty Demand:
The appellants argued that the application of the extended period for demanding duty was unwarranted in their case. The Tribunal agreed with this submission, emphasizing that the extended period was not justified in the circumstances. This finding was crucial in the appeal's success, as the demand for duty was considered unjustified.

4. Applicability of Rule 57D(1) - Waste, Refuse, or By-Products:
The Tribunal analyzed Rule 57D(1), which prohibits the denial or variation of credit for inputs based on waste, refuse, or by-products arising during manufacturing. In this case, the appellants cleared resulting scrap by paying duty, aligning with the provisions of Rule 57D(1). As the duty demand stemmed from the disallowance of Modvat credit related to scrap from manufacturing the final product, the Tribunal found that the appellants had a case on merits. Consequently, the impugned order was set aside, and the appeal was allowed based on the application of Rule 57D(1) and the lack of justification for the extended period for duty demand.