1996 (3) TMI 330 - AT - Central Excise

Summary

Issues involved: Appeal against order-in-appeal regarding denial of Modvat credit on inputs used in manufacturing final product cleared under exemption.

Summary:
The appeal was filed against the order-in-appeal dated 5-9-1994, where the Collector (Appeals) upheld the Asstt. Collector's decision that Modvat credit is not admissible on inputs used in the manufacture of a final product cleared under exemption, leading to a demand of Rs. 13,390.11.

The appellants, engaged in manufacturing pine oil, cleared a portion of the product under an exemption notification, leading to the dispute regarding the availability of Modvat credit on the inputs used for this cleared quantity of pine oil.

The learned Advocate for the appellants argued that the Chapter X procedure, under which the pine oil was cleared, does not completely exempt the appellant from duty payment, citing the difference between 'remission' and 'exemption' and referring to relevant case law for interpretation of statutes.

On the other hand, the learned SDR contended that since the pine oil was cleared under an exemption notification, Modvat credit should be denied on the inputs used for the exempted final product.

After hearing both sides, the Tribunal analyzed Rule 57C of the Central Excise Rules, which states that no credit of duty paid on inputs used in manufacturing a final product shall be allowed if the final product is exempt from duty. The Tribunal found that since the final product (pine oil) was exempted under the notification, Modvat credit could not be allowed on the inputs used for its manufacture.

Considering the arguments and case law presented, the Tribunal upheld the impugned order, concluding that the word 'exempts' used in both Rule 57C and the notification should be interpreted consistently, leading to the rejection of the appeal.