1996 (8) TMI 224 - AT - Central Excise

Summary

Issues:
1. Classification of final product 'Polyurethane Sandwich Panel' for duty purposes.
2. Denial of Modvat credit on specific inputs for the final product.

Issue 1: Classification of final product 'Polyurethane Sandwich Panel':
The judgment delves into the process of manufacturing the final product, highlighting the inputs involved, including Freon 11, Di-isocynate Dyphenyl Methane (MDI), and Polyol. The process entails the creation of Polyurethane foam sheets inside a single machine, which are then sandwiched between galvanized steel sheets to form the 'Polyurethane Sandwich Panel.' The classification dispute arises as the foam sheets were classified under Tariff sub-heading 3221.90 with a duty rate of 15%, while the final product fell under Heading 3922.10 and was duty-exempt under Notification No. 132/86. The crux of the issue lies in whether Modvat credit should be denied on MDI and Polyol due to the final product's duty exemption status.

Issue 2: Denial of Modvat credit on specific inputs:
The appellant argues that for Modvat credit purposes, the final product should be considered as the 'Polyurethane Foam sheets' on which duty was paid, not the 'Polyurethane Sandwich Panels.' Citing a Trade Notice, the appellant asserts that Modvat credit can be claimed on inputs even if the final product is duty-exempt. The respondent contends that the Polyurethane foam is an inherent part of the final product and does not have a separate existence. The judgment acknowledges the simultaneous creation of intermediate and final goods, indicating that Modvat credit is unavailable under Rule 57C. However, it emphasizes that the department previously accepted duty on the foam sheets, precluding the denial of Modvat credit now. Ultimately, the judgment sides with the appellant, stating that as long as duty was collected on the foam sheets, they should be considered the final goods for Modvat credit purposes, overturning the previous order and granting relief to the appellant.

In conclusion, the judgment clarifies the classification and Modvat credit issues surrounding the manufacturing process of 'Polyurethane Sandwich Panels,' emphasizing the importance of consistent treatment by the department and upholding the appellant's entitlement to Modvat credit based on the duty paid on the foam sheets.