1996 (8) TMI 223 - AT - Central Excise

Summary

Issues:
1. Denial of Modvat credit on "Steel Shots" used in shot blasting machine
2. Confirmation of demand for Rs. 31,027.37 and imposition of personal penalty of Rs. 2,000
3. Interpretation of Rule 57A regarding eligibility of Steel Shots as inputs for Modvat credit
4. Invocation of extended period of limitation for demand

Analysis:
The appeal before the Appellate Tribunal CEGAT, Mumbai challenged the Order-in-Original denying Modvat credit on "Steel Shots" used in shot blasting machine and confirming a demand of Rs. 31,027.37 along with a personal penalty of Rs. 2,000. The Appellants, engaged in manufacturing cast iron and steel casting, argued that the shot blasting process using Steel Shots was essential to make the castings marketable and ready for dispatch. They claimed that Steel Shots were used in relation to the manufacture of their final product and had declared this item for claiming Modvat credit benefit. The Adjudicating Authority held that Steel Shots were in the nature of tools and fell within the excluded category under Rule 57A of the Rules, thereby confirming the demand.

The ld. Advocate for the appellant contended that the demand period exceeded six months from the date of the Show Cause Notice, and thus, the invocation of the extended period was unwarranted. He argued that the declaration filed under Rule 57G had already specified Steel Shots as an input, and there was no suppression of use. Additionally, he asserted that Steel Balls used for a similar purpose had been held eligible for Modvat credit in previous tribunal decisions. On the other hand, the Ld. JDR argued that Steel Shots were tools meant to remove sand and were excluded from availment under Rule 57A. He claimed that the declaration filed did not specify the use of Steel Shots, constituting misrepresentation and suppression.

The Tribunal acknowledged that Steel Shots were used for cleaning castings in shot blasting machines. Referring to a recent order by the Larger Bench of the Tribunal, it emphasized the importance of the expression "used in relation to the manufacture" in Rule 57A to widen the scope of eligible inputs for Modvat credit. The Tribunal held that anything used in relation to the manufacturing process should be considered eligible for Modvat credit. Consequently, the order disallowing Modvat credit was set aside, as the Appellants succeeded on merits. The issue of time bar was not examined, but it was noted that even on that aspect, the demand would have been set aside due to the absence of suppression and the proper declaration of the item under Rule 57G.

In conclusion, the appeal was allowed with consequential reliefs, emphasizing the importance of considering items used in the manufacturing process as eligible for Modvat credit under Rule 57A. The decision of the Larger Bench operated as binding, requiring any earlier orders holding a contrary view to be ignored.